The Compelling Economic Benefits of Electric Vehicles

Chris King and Tim Echols

The expression “Show me the money” was made famous in a 1996 movie, but it certainly describes what electric vehicles need to do for U.S. consumers. With more than 1.3 million of them on U.S. roads, electric vehicles are no longer a fad and have established their place as a long-term component of our transportation ecosystem. Their adoption brings a variety of advantages to society and consumers—and foremost among these is EV economic benefits.   But how long will it take for elected officials, policy makers and transportation planners to connect these dots?

EVs Benefiting the Grid and the Local Economy

In red states like Georgia, electric vehicles have fallen out of favor with Republicans—who control the state’s agencies and policies.  EV enthusiasts have lobbied tirelessly citing environmental benefit and lower vehicle cost, but a key benefit has been ignored up to the point.  The power grid, and the customers who pay for it, is a key beneficiary of EV—and something business leaders value. Today’s electricity system of generation, transmission, and distribution operates at a capacity factor of less than 50% – compared to the U.S. all-industries average of nearly 80%. The reason is that the system has been built to ensure utilities can serve the highest annual peak demand, which lasts only a few hours each year. It’s the same concept as building a massive NASCAR track that will fill up once a year for a race, but is completely underutilized the entire rest of the year.

Chris King is the Global Policy Officer of Siemens Digital Grid.

The system’s low usage factor is a great opportunity for capturing EV savings, by generating more electricity from existing power plants and by pushing more electrons through substations, transformers, and feeders. If this is done off peak – encouraged by the right time-of-use or other dynamic price signals – there is no additional cost to the distribution network and only the marginal operating cost of the power plants (which is nearly zero for renewable such as solar and wind).  At the same time, EV drivers are still paying for this power, so revenues grow – as do profit margins, because the marginal costs are lower than the average costs used to set rates.  All that to say, EVs charged at home overnight fractionally lower everyone’s power bill.

Tim Echols is vice chairman of the Georgia Public Service Commission.

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 transmission and distribution revenues add up to approximately $3,500. Through regulatory ratemaking, most of this will be distributed to all ratepayers (though the specifics may vary significantly from utility to utility).

The remaining portion of electricity rates paid for EV charging is primarily for generation, but also utility operating costs. These rates are a bit higher, on average, than the grid rates and mostly end up flowing to in-state power generators – both utility and non-utility producers. For those times EVs are not charged at home, EV charging service providers receive a portion of the revenues, driving further investment in local charging stations. Finally, electricity taxes assessed by cities and counties benefit those communities.

The key with EVs is that the vast majority of the fueling dollars create in-state economic activity, whether it is money saved compared to gasoline prices or rates and fees paid to electric utilities, generation companies, new EV service companies, and local tax authorities. In contrast, ICE vehicle fueling dollars flow mostly out of state to oil producers, refiners, and gasoline distributors.

But the benefits go far beyond the grid and the overall state economic picture.  Over its lifetime, every EV will deliver thousands of dollars of benefits to vehicle owners. Here’s how.

EVs Benefiting EV Owners

First, EV fueling costs are 50 to 75% lower than for ICE vehicles, contributing to a very attractive Total Cost of Ownership (TCO). The driver’s lifetime savings? About $12,000. Moreover, EV maintenance expenses are much lower than those for ICE vehicles. There is no need to change spark plugs, oil, or air filters, and there are far fewer pumps, circuits, valves, coils, and the many other ICE components that periodically fail.  And oh yeah, there is no transmission to fail or radiator to overheat.

Putting this all together, a study of EVs in Texas and California conducted four years ago found the EV TCO was already lower than for an ICE vehicle, with battery electric vehicles (BEVs) lower than both plug-in hybrids (PHEVs) and hybrids. The caveat to the study was that these figures included state subsidies (tax credits) for EV purchases. However, declining battery costs are rapidly making up the difference so that the EV TCO will continue to be lower, even after state subsidies are removed.

Where do we go from here?

These dramatic economics are a compelling reason for policymakers to act. Legislators and regulators can help remove barriers to EV adoption by providing tax incentives for EV purchases and funding for EV charging infrastructure. They can also promote initiatives such as streamlined permitting for charger installation, charger rebates, building codes that make new construction EV-ready, and regulations that allow for utilities to assist in providing charging infrastructure.

Changing the public’s mind about EVs may take a bit longer. A recent Cox Automotive report showed that “Non-EV-Considerers” named battery life and charging anxiety as the leading barriers to EV adoption. (Cox Automotive Commentary, 2019). And apart from market leader Tesla, EV awareness remains low for most automakers today.

Time is on our side though because technology is advancing with autonomous and even flying cars in the future.  There may be a day when our great grandchildren wonder what a gas pump was all about.  Stay tuned for an exciting future.

Chris King is the Global Policy Officer of Siemens Digital Grid. Tim Echols is Vice Chairman of the Georgia Public Service Commission.