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Many think the charging infrastructure for electric vehicles will end up in utility rate bases, but several companies are hoping to prove the utilities wrong by testing alternative business models.
Various car manufacturers have announced dramatic increases in electric vehicle production in response to domestic and international pressure to electrify the transportation sector. Prices of lithium-ion batteries are falling.
Manufacturers face a chicken-and-egg problem that has long surrounded scaling electric vehicle production: there is a need for investment in charging infrastructure before consumers will feel comfortable moving en masse to electric cars, and investors need confidence that significant consumer demand for such cars exists to support returns.
Solving this problem has not rested solely with utilities, but has brought together an entire ecosystem made up of financiers, hardware and software providers, auto manufacturers and governments.
This article describes some of the private investment models in EV charging infrastructure and highlights the government and utility incentives surrounding the EV marketplace generally.
Charging stations can generate four revenue streams: energy use fees, per-use user fees, subscription fees and onsite advertising.
Depending where the charging station is located, the owner may be subject to regulatory oversight if it collects revenue on an energy use basis. This is because the owner will be considered a “utility” since it is supplying electricity at retail. However, some states make exceptions for vehicle charging stations.
A threshold business decision involves whom to have own the charging stations. ChargePoint and EVgo are interesting case studies. Each uses a different business model.
ChargePoint is the largest global operator of an EV charging network with more than 50,000 charging stations. It does not own stations; it owns the underlying technology and sells stations to retailers, workplaces, hospitals, cities and others after developing and connecting the stations to its network. The stations can be accessed through a smartphone app. CEO Pasquale Romano likens the company to Airbnb, which can be seen as the largest hotel chain in the world, but does not own a single hotel.
ChargePoint generates returns in three ways: by selling charging station hardware to property owners, by offering its cloud-based software services, and by offering operational services such as maintenance, repair and support.
Under the ChargePoint model, property owners pay to have a charging station put on their property. The ChargePoint stations are networked, meaning that they are intelligent and property owners are able to manage who uses the station, pricing policy and power levels.
While owners set their own charging rates, the company provides rate setting consulting services. Unlike Tesla, whose charging business is designed only for its own cars, ChargePoint is agnostic as to car model. Drivers on the network can use the app to locate nearby charging stations, determine station availability, receive charge notifications and pay for charging. ChargePoint collects and remits the payments from drivers to the station owner.
ChargePoint has partnered with auto manufacturers to install ChargePoint software directly into vehicles. Daimler and BMW as well as Siemens own significant stakes in the company.
ChargePoint partnered with Key Equipment Finance in 2013 to create a lease-to-own program where business owners could pay as little as $3 per day to lease a charging station that costs $6,000 to install, according to published reports. The owners recouped costs by charging drivers a fee for service. The leases were structured as capital leases, allowing business owners also to claim a federal tax credit for charging stations, which was 30% for costs up to $37,000 per address installed in 2013. Key would buy the charging stations, check creditworthiness of owners, work out lease terms and pay for electrical contractors for installations. ChargePoint managed the stations and the network as lessee.
EVgo, which uses a different business model, is a public fast charging network, originally created by NRG. The network currently has more than 1,000 chargers in 66 metropolitan markets.
Unlike ChargePoint, EVgo owns and operates its stations and sets its own pricing. EVgo bears all of the risk of investment and relies on earning a profit from the sale of its service.
EVgo recently simplified its pricing scheme, offering customers two different options for charging: a pay-as-you-go rate and a fixed monthly membership price. EVgo says its membership pricing will be on par or cheaper than average gas-powered vehicles on a per-mile basis. Special pricing deals are available for buyers of EVgo’s manufacturer partners, Nissan and BMW.
Auto manufacturers have much to gain from widespread charging infrastructure. Nissan partnered with EVgo to provide free public charging to its drivers for the first two years of car ownership.
Demand response is another way owners of charging stations might earn additional revenue.
Grid-scale demand response aggregates a network of grid-connected charging stations into a single unit of demand. Utilities will make payments to network operators in return for an agreement to back down load during periods when the grid needs to reduce electricity demand.
The demand-response model is trending for residential charging stations. The model is less popular for public charging stations where customers pay for charging as a service and are less inclined to be inconvenienced by shifting their charging times. eMotorWerks, a company recently acquired by Enel, markets a smart grid charging platform specifically for EVs.
In July, BYD, a Chinese electric vehicle company, and Generate Capital, a clean-energy financing company, formed a joint venture leasing program focused on electric vehicles to make it easier for cities and counties to replace their bus fleets.
There are about 345,000 electric buses in use today globally. Only around 300 are used in the US. Municipal governments are often strapped for cash and usually reluctant to upgrade existing bus fleets, even if doing so could save them money on repairs and other operating costs. Leasing buses instead of buying them reduces the cash outlay required up front.
Generate Capital will invest $200 million to buy and lease the buses. BYD and Generate Capital will continue to own the batteries, which still have a use in stationary storage applications. BYD can recycle the battery for a new bus customer after the bus lease where the battery was originally deployed ends.
Buses and trucks tend to be more expensive than cars, so financing can be a larger obstacle. Seeing financing companies partner with manufacturers may become a popular way to offload burdensome upfront costs that constrain transit agencies and trucking companies from replacing their existing fleets.
In 2017, there were 53 pending actions in 21 states and the District of Columbia related to incentives for electric vehicles and charging infrastructure. The initiatives are wide-ranging and look across the entire EV value chain. They range from special utility rates to encourage EV charging to rebates, PACE financing and zero emissions mandates directed at auto manufacturers.
Starting with special rates, PG&E offers two residential EV rates: one that combines the EV electricity costs with those of the residence, and one that keeps the EV electricity costs separate. The lowest rates are offered between 11 p.m. and 7 a.m. Southern California Edison offers an EV rate plan with off-peak pricing between 9 p.m. and 12 p.m. that is charged separately from the residential electricity and a time-of-use rate plan with off-peak pricing between 10 p.m. and 8 a.m.
In New York, Consolidated Edison offers a whole-house residential time-of-use rate for EV charging, and a non-residential time-of-use rate for EV charging with a separate meter. Hawaii has experimented with a tariff program that simultaneously creates time-of-use pricing between utilities and EV charging facilities and then EV charging facilities and customers.
In Rhode Island, the Narragansett Electric Company asked as part of its general rate case for an off-peak pilot program where participating customers receive rebates of 6¢ a kilowatt hour during the summer months and 4¢ a kilowatt hour during winter. The rebates are paid on electricity used during off-peak charging hours.
Aside from rates, utilities and states are also offering financial incentives to buy charging hardware. For example, the Sacramento Municipal Utility District is offering residential customers either a $599 rebate or a free level-two charger for SMUD customers who purchase or lease electric vehicles.
Oregon has made EV charging infrastructure eligible for PACE financing. PACE programs allow property owners to borrow money to pay for certain clean energy improvements and repay the amount borrowed essentially as additional property taxes through a special assessment on the property.
Some states participating in the Regional Greenhouse Gas Initiative, called RGGI, are considering use proceeds from auctioning greenhouse gas allowances, Volkswagen settlement funds and state public benefit funds to fund consumer rebate programs and other initiatives to support the EV industry.
The California Public Utilities Commission approved a plan in May to expand EV infrastructure and rebate programs with a budget of $750 million. Around the same time, the New York governor’s office announced a pledge of up to $250 million through 2025 to its EV expansion initiative called Evolve NY. The New York Power Authority will work with the private sector to install up to 200 DC fast chargers along its interstate corridors with the goal of making them available every 30 miles. Similarly, the Public Service Enterprise Group in New Jersey announced a $300 million pledge to build out up to 50,000 charging stations along highways, in residential areas and at workplaces.
California, which is among the more ambitious states on EV policy, currently has a zero emission vehicle mandate, requiring 15% of new vehicles to be zero emission vehicles by 2025. The Trump administration proposed new rules in early August that challenge California’s right to set its own tailpipe pollution standards that are more stringent than the federal government’s. The action would nullify the mandate.
The mandate currently in place requires manufacturers to accumulate credits based on their average sales in California over the three model years preceding the last. For example, the 2018 requirement is based on sales of 2014, 2015 and 2016 model-year vehicles. The amount of credits a manufacturer receives varies based on range battery efficiency and the type of vehicle sold. The program is dynamic in the sense that automakers that accumulate more credits than they need can bank credits for future use up to a certain amount and can transfer credits to other states and sell or trade credits with other manufacturers. Other states may be quick to adopt similar mandates to compete for sales. They may also enact legislation that allows for regional cooperation as they have done with cap-and-trade programs.
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.