Even the most casual observers of the energy and automotive industries are aware that electric vehicle (EV) sales in U.S. markets are on the rise. Over the past 10 years, sales of plug-in EVs have steadily increased, with nearly 327,000 sold in U.S. markets in 2019 alone—an increase of nearly 1,900% from sales in 2011. Sales projections for 2021 are even higher, after more than 290,000 EVs were sold in the U.S. in the first six months of last year. Nearly everywhere one looks, it seems that analysts, policymakers, and market participants are projecting continued growth for EV penetration in the U.S.
The election of Joe Biden as president was widely considered to be a catalyst to facilitate continued EV growth in the U.S., and the administration has continually reaffirmed its commitment to EVs. The administration proposed a substantial monetary investment into EV initiatives with its American Jobs Plan. In August 2021, Biden issued an Executive Order setting a nonbinding goal that 50% of all new passenger cars and light-duty trucks sold in U.S. markets be zero-emission by 2030.
The enactment of the far-reaching infrastructure plan in late 2021 further encouraged EV growth through both monetary and non-monetary mechanisms designed to spur development of publicly available network charging infrastructure across the U.S. The legislation provides $7.5 billion to build a national network for EV charging, and provides $5 billion for zero-emission buses (including EV school buses), and $2.5 billion for zero-emission ferries. It also directs the Secretary of Energy to carry out a program of research, development, and demonstration of second-life applications for electric-drive-vehicle batteries; establishes a 25-member EV working group, which will be led by the secretaries of Transportation and Energy; and revises the Public Utilities Regulatory Policy Act of 1978 to require all state public service commissions (or similar state regulatory agencies) to institute proceedings considering measures that, if implemented, would promote greater electrification of the transportation sector.
Notwithstanding the various policy and legislative efforts to promote EVs and encourage their deployment, market participants (automakers, utilities, or charge point operators [CPOs]) must successfully confront numerous issues to convert aspiration to reality on a wide-scale basis. Among the challenges are:
Establishing a Financially Viable Charging Network. Models premised on direct retail energy sales by CPOs to EV owners, advertisement-based network charging, and subscription services are all commonly tested examples in U.S. markets. At its core, however, a network charging business model must consider three threshold issues. First, potential CPOs must account for potential regulatory implications of a proposed business model, such as a model where the CPO makes a direct retail sale of energy to a charging customer. Although the current regulatory landscape has determined that making direct sales of energy to retail customers does not trigger regulatory oversight in many states if the seller is a CPO, only about half of U.S. state regulators have confronted the issue. Second, potential non-utility CPOs must consider how to recover capital costs in addition to generating a profit margin. Third, utility CPOs must consider whether and how to successfully include charging infrastructure costs in a state regulator–approved rate base. These issues must be addressed in order to facilitate widespread network charging development and alleviate any range anxiety that presently exists among potential EV customers.
Developing Comprehensive Site Host Agreements. In many (or most) instances, a CPO does not own the land on which it installs charging infrastructure. Enter the site host agreement between the CPO and the landowner (site host). Unlike a standard lease or easement-type arrangement, a site host agreement governing EV network charging infrastructure must address numerous issues unique to EV infrastructure and do so in a way that protects both parties to the agreement. For example, site host agreements should consider: exclusivity in installation; operation and maintenance responsibilities; revenue sharing and/or leasing payments; ownership of infrastructure post-termination; and indemnification and insurance.
Diversifying an EV Use Case. One advantage that many perceive to EV deployment is that an EV serves functions beyond transportation. Already, technology is being deployed to accommodate bidirectional charging and, in turn, facilitate vehicle-to-grid (V2G) capability. However, V2G operations necessitate an energy services function if and when V2G occurs in a non-residential circumstance, such as a fleet basis. In those instances, the EV owner and the CPO or energy manager must consider various issues to effectively monetize the V2G capability of the EV and the bidirectional charger. Such issues include, for example, whether and when to utilize chargers to provide grid services through wholesale energy or ancillary services markets, and battery usage/route optimization order to support longer operational battery life through optimal charging practices, if vehicle batteries will continue to be charged and discharged during downtime to support grid services.
The issues identified are only representative of some of the most novel and interesting considerations as U.S. markets prepare for increased EV deployment. These issues are solvable to be sure. And, as they are addressed, the role of EVs in 2022 and beyond surely holds tremendous promise.
—Levi McAllister ([email protected]) is a partner at Morgan Lewis, where he leads the firm’s EV working group.