The untold story of the economic benefits of electric vehicles

The untold story of the economic benefits of electric vehicles

By: Chris King, Chief Policy Officer of Siemens eMobility

The environmental advantages of electric vehicles (EVs) are well known. However, there’s an equally promising story about their economics. Over its lifetime, every EV will deliver thousands of dollars of benefits not only to the driver (or fleet owner), but also to utility ratepayers, in-state power generators, and EV charging providers.

 

The benefits fall into three main categories:

 

Fuel-cost reduction

 

Let’s start with EV drivers. The Union of Concerned Scientists estimates the average light-duty vehicle – a car or pickup truck – will consume $22,674 in gasoline in its 14-year life. Using national average electric rates, the comparable figure for EVs is $12,132 – a savings of 54 percent.

 

Savings for all ratepayers

 

Turning to utility ratepayers, the benefits are equally impressive – $3,504 per EV life – created by more efficient use of the existing transmission and distribution grid. Today’s network operates with a capacity utilization of less than 50 percent, because it must handle the highest peak demands each year that last only a few hours. That leaves plenty of capacity for EV charging. And with over 80 percent of EV charging occurring at home or workplaces (“long-dwell sites”), EVs have the flexibility to avoid the peak. In jurisdictions with time-of-use prices, over 90 percent of EV charging occurs off-peak.

 

Where does the $3,504 come from? When EVs are charged, their drivers pay electric rates that have two primary components: grid (transmission and distribution) and generation. Grid costs are primarily fixed, consisting of capital investments and maintenance expenses that vary but little with the volume of electrons sent through the wires. Therefore, the grid rates paid for EV charging create new utility revenues with minimal added costs. With U.S. average grid rates of about five and a half cents per kWh and a typical EV consuming close to 60,000 kWh in its lifetime, these new revenues add up to an estimated $3,504. Through regulatory ratemaking, most of this will be distributed to all ratepayers (though the specifics may vary significantly from utility to utility).

In-state economic development

 

Now let’s look at economic growth. For internal combustion engine (ICE) vehicles, most of the lifetime fueling dollars flow to out-of-state oil producers (see figure). In contrast, for EVs, we have already seen that most of those dollars translate into in-state EV driver and grid ratepayer savings – funds that can now be spent for other goods and services.

 

The remaining EV fueling dollars drive other in-state economic activity, primarily electricity generation and EV charging services, as well as providing local tax revenues. Amounting to a total of about 31 percent of the money that would otherwise have gone to gasoline purchases, this added in-state economic activity adds up to over $7,000 per EV life.

 

Role for policymakers

 

In sum, each EV life will result in roughly $12,000 in fuel savings, $3,500 in ratepayer benefits, and $7,000 in economic growth. Such dramatic economics are a compelling reason for policymakers to help remove the barriers to EV adoption, with insufficient charging infrastructure being the biggest one. Such initiatives should include funding, streamlined permitting for charger installation, building codes that make new construction EV-ready, and regulations that allow for utilities to assist in providing charging infrastructure.

 

Figure: Where the fueling dollars go – ICE vs. electric vehicles