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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.

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

  1. I think that a potential concern is that the utility can use its monopoly power undercut the competition or to manipulate the market. Investor Owned Utilities have affiliate transaction rules and it is not clear to me why the PG&E proposal should be in the regulated business and not a spin off affiliate.

  2. Given the inventory of charging stations that you describe, I think your suggested pricing strategy is off the mark. Charging-station congestion is probably the biggest opportunity cost that drivers face. A simple parking meter may be the best strategy for now — pay by the hour for occupying the space, whether you are pulling juice or not. Once there are sufficient stations, it will make sense to start metering the juice.

    • I like this idea a lot. If you have scarce charging stations you should charge for electricity and space! That reminds me, I should probably move my car out Berkeley’s sole charging spot 😉

  3. Like others have said, I think the problem is the way they are funding the charging stations. They should be recovering the cost of the stations in a fixed price for charging, not by raising prices for all ratepayers. How is their proposal any more fair for non-EV owners than net metering is for non-solar customers?

    • I think I am sympathetic to this point. On the other hand, are there subsidies the current operators and owners of charging stations receive? If noone receives subsidies, you are probably right. If not, the story becomes more complex.

  4. I sent your blog to some of my colleagues, who would not have responded to the blog and they were of the opinion that you might have ignored some elements in your analysis: (1) More charging stations in your neighborhood does not necessarily make it a good idea for a regulated utility to take on a model that is not a “regulatory function” – As one colleague put it: “If PG&E proposes to buy & install 1,000,000 washing machines, to address the smell on
    BART trains by reducing the “proliferation of dirty clothes”, should the Commission agree?” (2). Secondly, the notion that PG&E is actually interested in putting more charging stations in your neighborhood is misleading if not naïve because PG&E is primarily interested in increasing its rate-base; that being the case, why should PG&E be allowed to kill-off potential competition from NRG and ChargePoint with ratepayer funding; 3) The fact that available charging stations provide the service “free of charge”, does not mean the electricity was free; someone paid for it, retailers like Costco and Wholefoods are using them to attract customers; (4) As for PG&E being a regulated monopoly, “well, the proof’s in the pudding: Does the CPUC regulate PG&E well?” Which ever way you answer the question, there has been a lot in the news lately to make you doubt yourself.

    One colleague did question providing free charging services during peak hours when the electricity system cost would go up, causing everyone to pay a little bit more. Finally, have you looked at PG&E’s EV charging rates? Apparently, off-peak charging is only 10c/kwh, which is not very expensive and might explain a 99cents flat fee for a parking space one is not likely to occupy for more than 3 hours.

  5. I understand that wholesale electrical prices in the middle of the night are far less than during the day. Why not price EV charging stations at a fixed markup over wholesale?

  6. I’ve been looking into this issue in a tangential way, and it seems clear that we’re massively undercharging people for kWh to their EVs if the goal is adoption. This is a net negative-cost technology over time (vs a comparable conventional vehicle), and everyone already knows they’ll save on fuel. The reason we don’t see more EVs is the up-front cost. It’s clearly a political non-starter, but how about taxing electricity to EVs and using the revenues to further subsidize their purchase?

    • Actually, I spend more money driving in EV mode than I do in gasoline mode. This fully depends on the price of electricity and the price of gas.

  7. Many stations are free or charge a flat fee because the owner/provider runs the risk of being deemed a utility. That situation would seem to put PG&E and other utilities in a position superior to Chargepoint and others because they are already regulated. I agree entirely that EV owners should not have an expectation of unlimited free energy. We need a pricing model that encourages the placement of more stations, that encourages more individuals to purchase vehicles and that discourages people from leaving their vehicles sitting at stations all day long.

  8. The problem is that the utility proposal allows them to put charging stations into their rate base, which means they get a guaranteed rate of return on investment–highly anti-competitive! In any case, they will be called on to provide grid support and upgrades with greater electrification of the transport sector, and car-charging prices will need to cover those, as well as reflect time-of-use, as you note. But allowing them to rate-base charging stations would be a huge mistake.

  9. I am curious why you characterize PG&E’s EV rate as “pretty expensive”? Have you compared bill results for different users using the EV rate as compared to standard (E-1) rates? While EV charges $0.42 on peak, it charges $0.22 and 0.09 for partial and off-peak. I would be very curious how tiered rates (with tier 3 at $0.27 and tier 4 at $0.33) compare to the EV rate, for either an “average” user (using about 200% of baseline), or an “above-average” user (most likely if you have an EV). Presumably you could model the same consumption load profile for non-EV use, and add-on EV charging either off-peak or at some other profile.

    • I only checked this for my own consumption profile. There is a calculator on their website which lets you try out different rates for different vehicles. I am sure these rates are beneficial for some folks.

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