Driving Smart Growth: Electric Vehicle Adoption and Off-Peak Electricity Rates

 

Peter E. Gunther

Senior Research Fellow

Connecticut Center for Economic Analysis

University of Connecticut

(Nepean, Ontario, Canada)

with

Fred V. Carstensen, Marcello Graziano and Jill Coghlan

Connecticut Center for Economic Analysis,, University of Connecticut


 

Gradual adoption of electric vehicles (EVs) allows consumers to substitute cleaner and lower cost transportation fuel with fewer repair costs for vehicles powered by internal combustion engines (ICEs).  This paper examines the economic impacts of that transition on the Connecticut economy at the zip code level out to 2030 by applying savings in gasoline expenditures realized by EV owners in Connecticut to re-charging with electricity and allocating consumer net savings to other consumption.  An earlier paper demonstrated that with the long-term rising gasoline costs that EVs have become more cost-competitive against a growing variety of new medium and full-sized light vehicles powered by ICEs. Current trends continuing, EVs are likely to become increasingly competitive with design improvements.

Dollar savings under off-peak charging rather than flat electricity rates are higher and more heavily concentrate consumer reallocations of family expenditures.  Two initial simulations on Regional Economic Model Inc’s (REMI’s) Connecticut model establish these basic differences.  Subsequent simulations with REMI forecast environmental amenity benefits from reduced greenhouse gas emissions measured in tonnes of carbon dioxide equivalents (CO2eq).  Accounting for GHGs captures only part of the amenity values anticipated because reductions in either noise or particulate matter are not considered. Curtailing the latter is expected to lower asthmatic incidents.  Because vehicle batteries are not produced in Connecticut, there is no need to include any offsetting releases embodied in EVs.  For the purposes of this paper any incremental energy is assumed to be generated by green sources. Germane to off-peak consumption, Connecticut’s base power is largely nuclear and/or water power generated from James Bay. The approach shows that off-peak pricing enhances the consumers’ benefits of adopting EVs and significantly delays required investments by utilities in upgrading generating capacity as transmission infrastructure including transformers. Those capital cost savings are reflected in lower employment impacts but are effective in avoiding waste through misallocated resources..

Methods

This paper utilized design specifications for General Motors' Volt and U.S. Census data on commuting and population patterns by residential zip code to determine the applicability of EVs. A problem that arises in all these simulations is that REMI’s dynamic general equilibrium model actual capital stock adjustments lag behind its estimated optimal capital stock.  Given the importance of reliable electricity for the economy, subsequent REMI simulations accelerate investments - closing the gap between optimal and actual capital stock in the initial scenarios.  Utility investments are allocated to construction, engines and turbines and upgraded transmission.  As noted in the paper the timing and amounts of these investments will depend on the rate structure and investment to precede expanded electricity demands, not follow them.  Because nightly charging of EVs puts less pressure on high-cost generation, transformer and transmission capacity, spreads in electricity rates are strong determinants of the timing of required incremental capital stock.  In addition, the amount and capacity of transmission capacity will be influenced by the rollout of green rather than conventional generation and interstate and international transfers of electricity. GIS has been employed at zip-code level to map the results.

Results

By 2023 the number of Connecticut zip codes requiring transformer upgrades with flat rates will be 263 in contrast with 50 with off-peak rates. That 213 gap closes between then and 2028 to 63 (317-254) suggesting the need for significant investment in that period. Among the macro-economic impacts Connecticut Real Gross Domestic Product, personal income, and employment are positively impacted by EV adoption but employment distribution among sectors changes with the drop-off in retail gasoline sufficiently that other retail does not soak-up that drop as noted for 2030 in Chart 1.



Chart 1: 2030 Sector Employment Impacts (#Jobs)

 

Significant amenity benefits are also enhanced by off-peak pricing. Annual emissions from light vehicles amount to 6.16 tonnes of CO2eq.[1] Valued at $38.98/tonne,[2] amenity values from adopting EVs would grow from $961,000 in 2013 to an estimated $287 million by 2028 in 2010 $.  These estimates only account for the elimination of GHGs - covering neither particulate matter nor noise.  By 2022, CCEA projects GHG savings in the 341 zip codes to reach 240,000 tonnes of CO2eq growing to 1,479,000 tonnes of CO2eq by 2027.  (Charts 3)  The beneficial impacts of reduced GHGs are concentrated in the more heavily populated areas where the uptake of EVs is also expected to be the strongest due to shorter commuting distances.

Conclusions

Off-peak pricing is critical to the efficient adoption of EVs. It is beneficial to both EV adopters and the utilities. The main impact of effective off-peak rates on utility planning is to delay most major investments in upgrades required to meet EV electricity demands into the mid 2020’s and beyond. Increasingly diverse offers of EVs with longer trip capacities suggest that adoption of EVs and the consequential beneficial may be accelerated over a tighter schedule. By 2028, a regulatory regime that would allow for only flat electricity rates could cost CT utilities an extra $600 million in unnecessary upgrades to the electrical distribution system compared to a peak and off-peak rate system. Aside from unnecessary capital expenditures, off-peak rates and amenity benefits both add to the economic impacts.

 


[1] http://www.epa.gov/oms/climate/420f05004.htm adjusted to accommodate further distance averages and improve miles per gallon.

[2] Technical Support Document:- Social Costs of Carbon for Regulatory Impact Analysis - Under Executive Order 12866 Interagency Working Group on Social Cost of Carbon, United States Government p. 3. “A domestic social cost of carbon (SCC) value of $33/ton in 2007 is meant to reflect the value of damages in the United States resulting from a unit change in carbon dioxide emissions.” Adjusted $33 in 2007 for inflation to 2010 and converting from tons to tonnes (metric tons) obtains $38.98/tonne.

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