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The Economics of EV Charging Stations

I live in the northern end of the Silicon Valley and here EVs and Plug-in hybrids are everywhere. From Tesla P85s to C-Max Energis – it’s what the cool kids drive. As the minority academic economist in this nerdster crowd, I am always on the lookout for potential sources of inefficiency and how to get rid of them. The most sobering realization I had after purchasing my shiny new ride is the dearth of charging stations. When I find a spot to charge, I am usually shocked by the prices charged for electricity. One example of this inefficiency can be found at UC Berkeley: We have 1 (!) charger for a university community of 40,000+. What really makes my economic brain cells short circuit is that if you can get the spot, electricity is free (!!).

ev charging station
Given the proximity of the charger to the engineering department, I initially thought this was probably one of the very first EV chargers in California and it is lacking a meter. Surely no one else would be giving away a valuable resource for free. Wrong. I made the fateful mistake of logging onto the Chargepoint site and checking pricing for their network of EV stations in the Bay Area (their charging stations are owned by individuals/firms – they just provide billing and IT infrastructure). Turns out the vast majority of EV chargers in the Bay Area — please start breathing into a paper bag now — provide drivers with free, zero cents per kWh, FREE electricity! I found a few charging stations, which charge a fixed fee (in most cases $0.99) and no variable rate as well as a few stations, which charge $0.49 per kWh.

The giant hippie heart beating in my chest is trying to convince my neoclassical brain that we need free charging in order to incentivize the rollout of this technology! Would you like free electrons with your $7500 federal tax credit plus state subsidies? Well who doesn’t? Hook me up! While this might make some sense in the early days of rolling out a new technology, this cannot be the long run equilibrium.

ev cars
And we are moving out of the cocoon stage into a world where EVs and Plugins are everywhere and need power. A sign of this is an email I got from Chargepoint a few weeks ago stating:

“PG&E has sent a proposal to the California Public Utilities Commission (CPUC) to use your money to own and operate new EV charging stations in your neighborhood. This extension of PG&E’s monopoly will destroy the competitive charging station market and stall the innovation of new features and technologies.”

This gave me food for thought. Those of us living in single-family homes charge our vehicles at home, where we pay the typical inefficient tier based rates (at my house you also have an option for two types of EV rates, but one is pretty expensive and the other requires installation of a second meter which can cost thousands of dollars). All of these are certainly greater than 0 cents per kWh (usually between 20 and 40 cents per kWh). We have our own outlets, or fancy-schmancy quick charging stations, right in our driveways where we can show off our greenness to our not-so-green neighbors.

Well who needs more charging stations? Two types of people. Folks living in a multifamily housing situation and people who need juice during the day (while parked at work or out and about). This group of individuals is not out looking for free electricity, but I would conjecture that they are simply looking for access to an EV plug in many locations. There are about the same number of public charging stations in my town as there are Starbucks. For a successful rollout of EVs, this density has to increase very rapidly.

So I will follow my friend Catherine Wolfram’s new blogging strategy and ask – why should I sign this petition by Chargepoint? More charging stations in my neighborhood, regardless of whether they are operated by my utility or not, strike me as a good thing from a consumer point of view. The proposal does not kick the Chargepoints of the world out of the EV charging business. Yes, the utility is a monopoly. But it is a regulated monopoly. It does not get to charge the markup the textbook monopolist charges. Come join me in my Econ 100 classroom one day and I’ll explain this to you.

Yes, a regulated utility does not have the same strong incentives to innovate – in theory – as a successful startup, which operates the largest network of charging stations in the country. But so what? The technology is pretty simple. A plug hooked up to a 240V outlet and a parking space with a card reader so you can charge me for the electricity I am using. This is an example where supply of charging stations might really drive demand for a technology.

The question that arises of course is what should the price of electricity be at these charging stations? I would argue that the price should be the real time price of electricity with potentially a fixed fee per charge, which accounts for the provision and maintenance of the charging station. If you really need a charge on the hottest day of the year and the price is really high, you’ll pay more. Or you can wait a few hours until it cools down and have an ice cream. If that does not pass hearings, then I would at least hope for a time-of-use rate structure. It’s a brave new world and I hope one in which we will charge for electricity – correctly. Or we might as well start giving gasoline away for free as well.

Maximilian Auffhammer View All

Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.

43 thoughts on “The Economics of EV Charging Stations Leave a comment

  1. Minor correction to my previous comment: Chargepoint as you say provides infrastructure and management of charging stations, and does not own them directly. But in either case PG&E is a threat to its market, since PG&E will undoubtedly set up its own infrastructure.

  2. All the stations at UCSD (about 20 last I looked) charge $.49 per kwh. Possibly they are operated by Chargepoint. (On the UCSD campus the marginal cost of generation is below $.10 due to extensive cogen. Usually it’s well below.) Despite the high price, people do use them.

    As for your question about the petition, there is nothing surprising about it and of course you should not sign it. Chargepoint does not want competition. PG&E would be a powerful competitor, so they are using an astro-turf (i.e. fake grass roots) approach to head it off. This is the new normal. Check out the recent talk/paper by Luigi Zingales “Does Finance Benefit Society?” for an eloquent analysis of rent-seeking behavior via lobbying.

    Real-time or at least TOU pricing – definitely. Considering how automated the Chargepoint stations are, it would be very simple. They even display the price in real time; but it’s always $.49.

  3. Nice post Max, but part of it has me confused. You say “at my house you also have an option for two types of EV rates, but one is pretty expensive and the other requires installation of a second meter which can cost thousands of dollars). All of these are certainly greater than 0 cents per kWh (usually between 20 and 40 cents per kWh).”

    But according to the tariffs at http://www.pge.com/tariffs/tm2/pdf/ELEC_SCHEDS_EV.pdf both EV-A (single meter applies to entire property) and EV-B (separate meter, applies only to EV and you choose another rate for the rest of your load) have summer/winter on-peak rates of 43/29 cents/kWh; partial peak rates of 22/17 cents/kWh; but off-peak rates of only 10 cents per kWh (summer almost identical to winter). Off-peak is 11PM to 7AM which is generally plenty of time to recharge your vehicle.

    I managed to reduce my on-peak usage so much that according to the handy MyEnergy website I would actually save money by switching to the EV-A rate even before I take delivery of my new Ford Focus EV next month (dock and other strikes excepted). And there is even a pilot program administered by the CPUC that gives you a FREE (there’s that word again) level 2 charger that is wi-fi enabled and acts as the 2nd meter so you can go on the EV-B rate without paying for that pesky second meter. For details see http://www.emotorwerks.com/latest-news-hidden/170-pev-pilot-faq
    The only catch is the pilot apparently only last 12 months after which you have to go back to a single-meter rate. But if that rate is EV-A and you only charge at night, it still seems like a pretty good deal to me.

    • That really depends on where you live. I have really clamped down on my energy consumption yet the calculator (and my own spreadsheet) still have me lose money on the rate that does not require me to get a second meter. But I live in the hot part of Contra Costa county. I got a quote for a charger and a second meter, and frankly I am going to use that money to take my family on a well deserved very nice vacation. It is nowhere near cost effective (the meter I mean).

  4. Max, et al,

    Should we truly expect efficient pricing for charging services when we cannot even get efficient ratemaking for residential electricity service? Clearly the social cost of inefficient pricing in residential electricity service is far greater than what will result from inefficient pricing for a small segment such as EV charging. Approaching this as an economist, one could claim that the cost of heavy intellectual lifting would better benefit society if applied to the bigger problem. But the streets are not littered with the bodies of nerds willing to fight over efficient residential electricity ratemaking. And since transportation is a basis of the California culture perhaps this issue can garner sufficient attention on the broader issue of efficient ratemaking. All we can hope is that there is sufficient spillover from the EV charging dialogue to move residential ratemaking in a more efficient direction.

    Regards,

    Paco

    • This raises a question about what is the efficient “time of use” marginal cost rate for EV’s. For off peak ( night time) wouldn’t this currently be on the order of 3 to 5 cents per Kwh versus the the much higher residential rates that are now being used ?

  5. Excellent piece. EVs receive massive subsidies even when it is uncertain if they reduce climate gas emissions. One of my MSc students is currently checking to see if EVs replace conventional cars (making it more likely that GHG emissions are reduced) or are primarily driven in the city substituting for public transportation (which may make GHG emissions increase). His thesis is due in mid-May.

    • But they might not be better replacing conventional cars either, especially in cold climates (40%+ less efficient while gas cars while gas cars are almost as good since they use waste heat). Life cycle energy in EVs is quite high as well. Also if the marginal generation source when they are getting charged is coal or oil, the emissions are quite high as well. What I’ve heard is that EVs are better from a GHG and most emissions standpoint in the West, but really bad in the midwest.

  6. Max, interestingly there is good data showing that free charging of EVs is more than made up for with the grid benefits of smart charging (allowing the grid operator to turn charging on or off as required to stabilize the grid), but customers would have to officially sign up for smart charging to realize that benefit. This is being discussed currently at the CPUC. In terms of PG&E’s EV charging station proposal my client, the Green Power Institute, has submitted comments supportive of the proposal but requesting that the CPUC require PG&E to build the infrastructure for said chargers but allow third parties to own the chargers. This is the model that SCE is pursuing with their similar proposal and it strikes a good balance between getting the needed chargers deployed but not squelching the third party market in favor of more profits for the incumbent utility.

  7. If charging is free, it turns electricity from a “scarce resource” (otherwise why is there so much talk about managing, or more precisely rationing, demand?) into an entitlement much like our expectation that public places will have free wi-fi.

    Regarding Chargepoint’s petition, I’ve heard their absurd argument in other contexts. If PG&E runs charging stations as a regulated enterprise, it might force competitors who need higher prices out of the market, but that isn’t necessarily a bad thing (it’s also a risk competitive firms take when they enter a business where regulators can and often do change the rules with the stroke of a pen). If PG&E runs charging stations as a competitive undertaking, there’s little to be concerned about since PG&E’s track record in competitive businesses is abysmal.

    Your suggestion that electric charging be based on real-time energy prices is eminently sensible, which is why it wont happen. Politicians and EV advocates will find all kinds of reasons to do something different…and much less efficient.

  8. PGE will “use your money to own and operate new EV charging stations in your neighborhood”??? Oh wow, that’s a really devious business model. I don’t think I’ve ever heard of any other business recovering the cost of its investments with revenue provided by its customers. Wow, PG&E is so evil! How dare it expect a return on its investment! Thank goodness we have consumer-friendly Chargepoint who use their own money to give their service away to customers for free. Thanks, Chargepoint! /sarcasm

    You shouldn’t sign the petition. Chargepoint is quite transparently attempting to use the CPUC’s regulatory power to exclude PG&E from competing with Chargepoint. It is using PG&E’s status of the monopoly provider of transmission & distribution as bogeyman. There’s no reason why you can’t have a competitive market in electric vehicle charging, and PG&E should be allowed to participate. The only requirements on PG&E should be (A) that it provide fair access to other EV charging market participants who need to connect to their electric distribution system, and (B) that the cost of PG&E charging stations be solely recovered through rates paid by EV drivers using their stations.

    • This post actually has two strands: 1) Is offering free electricity to EVs a good thing? and 2) Should PG&E be able to offer this service from its regulated company? There’s lots of work done and being on the first question, so I’ll turn to the second one. I also notice several people who are potentially influential to the PG&E decision are on this thread.

      If we look at this from a static standpoint, well, what could be the difference between a competitive or regulated firm offering EV charging service? On a risk adjusted basis they will generate the same amount of net profits and the costs should be about the same. But we don’t live in a static world. In fact we are in the midst of multi-factor acceleration of technological innovation in the electricity world, much of it well documented on this blog.

      So the question is what is the difference in “dynamic” aspects? Our history says that economically-regulated companies are slower to adopt new technologies, or to block the entry of competitive technologies. Think of AT&T fighting customer ownership of phones. I wrote here about how the telecom revolution progressed through regulatory changes: https://mcubedecon.wordpress.com/2014/10/15/the-telecom-path-well-travelled-what-does-it-hold-for-electricity/. Similarly, gas-fired combined cycle power plants were available in the early 1990s with huge efficiency gains for steam turbines, but CCGTs weren’t built in large numbers until unregulated merchant generators could enter the market. Restructuring taught us much about the relative merits of innovation under different regimes. I wrote about that here: https://mcubedecon.wordpress.com/2014/09/25/retrospective-on-restructuring-and-what-it-means-for-our-future/.

      Turning back to innovation in EV charging, we face the same dilemma. The fact is that charging technology is more complex than Max notes here, the most important issues probably being “fast” charging and provision of ancillary services to better integrate other distributed energy resources. A regulated utility has a strong incentive to either protect its investment against other innovations, e.g., hydrogen fuels, or to overinvest in infrastructure to generate the largest absolute return to shareholders. Until we are willing to have utility shareholders face real risks, they won’t have real incentives to innovate. And this has implications for how we should move forward in the world of Grid 2.0, which I’ve written about here: https://mcubedecon.wordpress.com/2014/11/05/reexamining-growth-and-risk-sharing-for-utilities/.

      • We own a Tesla. Yes, it is great to have free charging. But here’s the pickle. Even the Tesla charging stations are crowded. The Tesla has become too popular. So expect to wait in line just to get a charge.

        For me, convenience is king. I would rather have more FAST charging stations by anyone (ex. chargepoint, utilities, individuals, LLCs…) available so that it is convenient. I don’t mind paying for the comfort of knowing that I can get a charge any time and any place. It is the freedom to travel without having to dread that you will run out of a charge in the middle of nowhere.

        In 2017, Tesla and GM are coming out with the Model 3 and the Bolt, respectively. These vehicles will be able to drive 200 miles on a single charge. The price of these vehicles about $30,000.

        I think that the demand for quick charging stations will soar because there is a growing NEED. This need will only continue to grow as the electric battery RANGE increases and the purchase price goes down. Because of the 200 mile range and the $30,000 price tag, I believe we are on the verge of a tipping point – an electric car revolution, so-to-speak.

        I don’t like that PG&E is using our money to make a profit. I don’t have a problem with them making money, just not on my dime.

        I would like to talk to you about setting up an electric charging station. Would you be open to talking to me.

        Teresa 🙂

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