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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. Telsa brining new model that could run 200 miles with one; charge then it would be great to buy Telsa new electric model rather then shelling out money on patrol or diesel cars.of other brands. And a little bit contribution to set our environment free from smoke and pollution raise by ordinary patrol cars. But Charging at charging station must be free or at a fixed price without any monopoly.

  2. “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 by “real time price” you mean marginal cost, you would need to bump up your “fixed fee per charge” to account for Brother Borenstein’s fixed cost of electricity generation and transmission.
    P.S. You say “hippie,” man? Ain’t been no hippies ’round here for centuries. You been freeze-dried or doin’ hard time? — Stitch Jones

  3. Max, has anyone looked at the effects of a proposed California 50% renewables generation mandate? From the one study I’ve seen, it appears that rates would go way down during sunny days. (This assumes very high PV use.) In fact I bet they could be negative for brief periods when ramp constraints are active. EV charging, if the rates are real time, could be a great complement to PV penetration. But “someone” would need to install a lot of at-work charging stations to increase penetration of daytime charging.
    Topsy-Turvy, admittedly.

  4. As a nerd EV driver I would like to add a real world perspective on this topic. My favorite mall in Riverside has free Clipper Creek chargers as shown in the pictures in your blog. While plugged in and getting free electricity, I spend way more money in goods, services, food and entertainment than the total cost to charge my car. The Galleria at Tyler knows how to attract nerd customers.

    • Like free Wi-Fi in restaurants, on steroids. What is your car’s max charge rate? If it’s 1KW, then this costs them less than $.30 per hour, plus it makes you more likely to use their mall next time.

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