Stop the hosing at the electron pump
Stop the hosing at the electron pump
Failure to regulate prices at charging stations will slow EV adoption
This article appeared first in the fall issue of Washington Monthly.
Electric vehicle owners face a gnawing fear every time they take a long road trip. Will they run out of juice before finding the next charging station? That fear has a name: range anxiety.
During my first long trip in an EV earlier this year, range anxiety was a real concern. While I found charging stations using PlugShare, a trip-planning smartphone app, my new car came dangerously close to running out of power before I reached one in the parking garage at a fancy shopping mall, less than a mile off the interstate. My wife and I enjoyed a relaxing meal at the food court while the charger took 40 minutes to refill the car’s battery.
But I had a new worry as I pulled away from the electron pump. The roadside charging station, run by the for-profit company EVgo, charged nearly three times the price I pay for electricity at home. During two charging sessions (coming and going), the station charged an average of 45 cents per kilowatt hour in addition to the $5 monthly fee I had to pay for their “low cost” plan. The average residential rate for electricity in the U.S. is under 14 cents per kilowatt hour. Compared to $4.50 per gallon for gasoline, my EPA-rated 112 MPG-equivalent EV was getting about 40 miles per gallon on the road, significantly less than the hybrid I had just traded in.
Unless that price comes down significantly, the U.S. will have a difficult time meeting the Biden administration’s goal of EVs reaching 50 percent of vehicle sales by 2030. The recently enacted Infrastructure Investment and Jobs Act and the Inflation Reduction Act contain tens of billions of dollars in new incentives to help people buy EVs. It established a major program to build a network of charging stations across the U.S. and plans to invest a substantial share of the money in disadvantaged neighborhoods. The auto industry is betting heavily on a rapid shift toward EV adoption. Every major car company is building new assembly and battery plants.
But will people buy EVs if the price per mile at the electron pump is no different than what they pay at the gasoline pump now? Tens of millions of American households will not have the chance to charge at home, where electricity prices allow owners of energy-efficient EVs to shave two-thirds of the cost off their daily commute. They will be dependent on the private operators of the new charging stations.
Deploying EVs quickly and broadly is mandatory if we’re to succeed in slowing global warming. It will establish the U.S. as the leading competitor in the emerging global EV manufacturing industry, which China now dominates. But the key to achieving those laudatory goals is ensuring that the pocketbooks of middle- and lower-income Americans are taken into account as we make the switch.
Right now, the emerging policy framework is ignoring price. But there’s still time to change course—by encouraging small businesses, nonprofits, and local governments to compete with national chains in the EV charging station market, and by directing state utility commissions to establish rate structures that lower prices at the electron pump.
Who needs public stations the most?
The people without an at-home charging option will include those without off-street parking; those who live in homes without garages or who can’t afford to upgrade their homes to accommodate the 240-volt line needed for at-home charging; those who live in buildings where landlords or condo associations won’t or can’t afford to install the necessary infrastructure; and those whose employers don’t set up workplace charging stations. This group, disproportionately poor and working class, may decide to leave the lower-priced EV models that will soon be rolling off assembly lines sitting on dealer lots. Why switch when the price of the daily commute or around-town travel stays the same?
“If we want to expand access to EVs to folks with lower incomes, price really matters,” John Howat, a senior policy analyst for the National Consumer Law Center, told me. “Whether it’s through state attorneys general or some other regulatory entity, it is appropriate to ensure that the price of electricity is affordable for drivers and the charging companies don’t realize a windfall profit.”
Early next year, state highway departments will begin doling out $5 billion in federal construction grants to finance up to 80 percent of the cost of building new fast-charging stations along the nation’s interstates and other major highways. Another $2.5 billion is available for grants to build stations away from these major corridors, with a special emphasis on disadvantaged neighborhoods and rural areas.
The impetus for the initial program is to eliminate the range anxiety on long-distance trips that inhibits many would-be EV buyers. There are only 6,000 fast-charging stations in the U.S. today. The federal program is a down payment on the estimated $35 billion that must be invested in 1.2 million open-to-the-public chargers by 2030 to meet expected demand, according to a McKinsey & Co. report.
The U.S. Department of Transportation’s proposed rule for the expanded network, released last June, says the new chargers should be “convenient, affordable, reliable and equitable.” The rule requires standardization of plug-in ports and convenient methods for payment. Ports must also work 97 percent of the time, which has been a huge problem for the nascent industry. A recent study of chargers in the San Francisco Bay Area found that nearly a quarter of the region’s 657 chargers were out of order.
The rule also sets Buy America guidelines for the equipment and requires union-like wages for the work. And, in line with President Joe Biden’s Justice40 executive order, it establishes the goal of investing 40 percent of the money in disadvantaged and rural communities.
Industry opposes price oversight
But to meet the law’s affordability goals, the Department of Transportation, run by the former presidential candidate Pete Buttigieg, limited its proposed guidance to pricing transparency, claiming that this will “protect the public from price gouging.” The comments on the proposed rule from the companies running the existing charging networks—the ones most likely to take advantage of the government grants—suggest that they have other priorities.
“We strongly urge the government to avoid a state-by-state price regulation system,” Tesla and EVgo, which run two of the largest existing charging networks, and ChargePoint, which operates 1,500 stations and sells equipment for charging stations, said in a joint statement. “While we recognize the public investment at the heart of the program, it has also been designed to support, not supplant, an existing competitive market.
“The current economics of EV charging, driven largely by EV adoption, rely heavily on recouping capital investments over the useful life of chargers as utilization increases. Potential state limits on this return would chill private investment,” they wrote.
In plainer language: The price of filling up an EV battery at the new, government-funded stations is going to depend on how fast the venture capitalists and other investors can generate positive returns on their portion of the investment in a nationwide EV charging station network. Those pricing priorities could mean that anyone who visits a privately owned charging station, even if it is built substantially with government funds, will wind up paying electricity prices much closer to the current price of gasoline than to what they would pay if they could charge their car at home.
Failure to bring those prices down will eliminate one of the biggest incentives for rapid adoption of EVs, which all the major car companies are banking on. New EV prices are expected to fall dramatically over the next few years as battery technology improves. Early adopters ditching their old EVs for newer models will soon create a robust used EV market. More importantly, new incentives will make those used EVs more affordable for lower-income Americans, who will be allowed to use tax credits to purchase used EVs next year. And the law allows the credits to be taken directly off the price at the car lot.
But if the day-to-day cost of operating those vehicles is no different than the cost of their existing internal combustion engine cars, why should they bother to make the switch? Sure, there are reduced maintenance costs. But few people think about those kinds of long-term expenses.
As we saw earlier this year when gasoline prices surged, what people care about most are their immediate fuel costs. For a family that drives 13,500 miles per year, the U.S. average, buying a new or used EV and paying 20 cents per kilowatt hour, which is half the rate currently charged at many private EV charging stations (and would still be 46 percent more than the average cost of home-based charging), would save about $700 a year compared to paying $4 per gallon for gasoline. To put that in perspective: Reasonable prices at the electron pump will save the average four-person family who buys a new or used EV enough money on annual fuel costs to pay their grocery bills for more than a month.
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A primer on EV charging
Why is the price so high? To answer that question requires a quick primer on EV charging. There are four levels of charging. If you plug your EV into a standard 120-volt wall socket (Level 1 charging), it takes about two days to bring a 300-mile range EV from under 20 percent to 80 percent full, which manufacturers recommend for prolonging battery life. No EV owner who plans to use their car for a daily commute can get by with just a home-based Level 1 charger.
Install a 240-volt line at home (Level 2), and charging time drops to five or six hours—adequate for almost all home charging needs. If their local utility offers residential time-of-day pricing, drivers can save money by charging overnight.
For long-distance travel, commercial EV fast chargers (Level 3) use higher-voltage direct current, which reduces charging time to under an hour. Installing superfast chargers (Level 4) reduces charging time to under 15 minutes. The initial aim of the government program is to build a national network of Level 3 and 4 chargers. The estimated cost for building Level 3 or 4 charging stations with at least four ports ranges from $300,000 to $1 million.
Yet commercial operators of EV stations with Level 3 and 4 chargers say the cost of construction isn’t the major reason for their higher rates. Rather, they claim that their prices are driven by the high rates utilities charge them for electricity, which include the additional demand charge that regulated utilities levy on all commercial and industrial customers. Utility demand charges, which are based on the peak electricity usage during a billing period, are designed to ensure that utilities have adequate resources to build and maintain the generating capacity needed to avoid blackouts when demand peaks. But unlike factories, shopping malls, or commercial office buildings, whose peak demands for power extend over many hours and occur on predictable schedules, peak demand at a charging station occurs sporadically; it may take place only a few times a day, for brief periods of time.
“Rate reform is essential to making the charging industry economically viable,” says Matthew Nelson, the director of government affairs for Electrify America, the Volkswagen subsidiary that currently operates 800 EV fast-charging stations across the U.S. and has plans to open 1,000 more by 2026. The company agreed to invest $2 billion in EV charging stations as part of its 2016 settlement with the United States and California for cheating on diesel emissions. “There are some markets where the cost of electricity is above $10 a gallon of gas equivalent,” Nelson told me.
States considering reforms
Numerous state utility commissions are considering rate reforms, and Colorado has already made changes. ComEd, which serves the Chicago area, has submitted a plan to the Illinois Commerce Commission that “would help alleviate the upfront cost of installing new charging infrastructure by offering an alternative to demand-based rates,” a spokeswoman said in an emailed statement.
But there is also a technological solution, which would not only lower rates but also help reduce the need for new generating capacity to meet EV demand. The new EV stations could install large storage batteries, which are already commercially available and are an allowable construction expense under the Transportation Department’s proposed rule. Storage batteries could be charged late at night when electricity is cheapest and stations see little use, and then drawn down when EV driver demand is at its peak, thus avoiding high demand charges.
In addition to price, mass adoption of EVs will depend on deploying charging stations convenient to where people without access to home-based charging live and work, making them as ubiquitous as gas stations are today. That will require convincing landlords, high-rises with multistory parking lots, shopping and strip mall operators, employers, churches—indeed, anyone with a large parking lot—to install appropriately sized charging stations with a mix of Level 2 and Level 3 ports. Existing gas station franchisees, most of whose profits come from selling soda, candy, and cigarettes, not gasoline, might also be willing participants if someone helps them get into the mix.
Getting these stations built will be especially important in lower-income neighborhoods where there will be fewer home chargers. The infrastructure bill addressed that need by including an additional $2.5 billion for non–highway corridor EV station building grants.
While for-profit networks like EVgo and Electrify America will be the likely operators of many highway corridor stations, it remains an open question who will take advantage of the additional grant money, especially since much of it will be earmarked for disadvantaged communities. To date, most of the big retailers that have set up charging stations, like Whole Foods and Walmart, have partnered with the for-profits.
That doesn’t have to be the case. The U.S. has a long tradition of nonprofits getting into the electricity game, ranging from the municipally owned utilities set up during the Progressive Era to the massive rural electrification and hydroelectric dam projects built during the Great Depression. Today, more than 2,000 cities and towns in 49 states draw their power from publicly owned utilities. The one in seven Americans who live in those communities enjoy rates that are 4 percent lower on average than surrounding communities served by their for-profit counterparts, according to the American Public Power Association.
The Biden administration’s infrastructure and climate change bills have provided a golden opportunity to open the next chapter in that story. City and town governments and nonprofit neighborhood economic development and housing groups are well positioned to take advantage of the flood of money about to pour into the nation’s EV charging infrastructure. They know the local employers, landlords, retailers, churches, schools, and empty lots that can provide convenient sites. State governments looking to incentivize EV adoption can help them come up with the 20 percent match funds that are needed to draw the federal grants.
With no-cost capital and sharply reduced demand charges, these nonprofits could offer electric charging at half the price currently being charged by the for-profit chains, and still have sufficient cash to maintain and service their stations after paying their electricity bills. They will go a long way toward helping the Biden administration meet its Justice40 goals. And they will provide competition to the for-profit charging industry, which will lower rates for all drivers when they hit the road.
But the time to act is now. The Biden administration has already approved the EV charging station programs outlined by the states, which are now preparing their program rollouts. You can bet that the for-profit EV charging station chains are gearing up to apply for grants.
By this time next year, with the 2024 election on the horizon, the Biden administration will be anxious to make sure that projects funded by its signature legislative victories are visible to the public. As happened with the stimulus package that helped end the Great Recession, shovel-ready projects will move to the head of the line.
EVs a mixed blessing for working class
There are many reasons for working-class Americans to fear the coming EV revolution. While 150,000 jobs are expected to be created in new assembly plants and battery factories by 2030, states that depend on making parts of internal combustion engines and transmissions (Michigan, Ohio, and Indiana are the three largest) will see many of those jobs disappear over the next decade. The same will happen to a significant portion of the jobs maintaining and repairing internal combustion engine vehicles, which will affect nearly every city and town in the U.S.
The country needs to learn from the mistakes made during the deindustrialization era, which stretched from the mid-1970s until now and devastated many regions of the country. We need to adopt robust income support, training, and economic development policies for the workers, families, and communities that lose jobs during the transition.
But as consumers, working-class Americans—like all Americans—have a lot to gain by making the switch. EVs are much less costly to drive when the electricity is appropriately priced. The changeover will extend the purchasing power of every household, not just through reduced fuel prices but also through sharply reduced long-term maintenance costs. Families across the economic spectrum will benefit from reduced health care costs by eliminating the number one cause of air pollution, which is the major driver of the rising asthma rates in the U.S. (And EVs are fun to drive. You’ll never have to worry again about being able to accelerate fast enough to enter the highway.)
Widespread EV adoption will greatly benefit the climate of the planet, the competitiveness of the country, and the quality of life and economic security of individuals and families. But the nation will come up short on each of those goals if, in crafting the policies for rolling out this new technology, policy-making elites ignore the needs of middle- and lower-income Americans.