Time-of-Use Pricing Is Key to Electric Vehicle Affordability

A new study shows that electricity pricing policies may become a major obstacle to electric vehicle (EV) affordability, but time-of-use pricing – a hallmark of competitive markets – could be the solution.
 
Consumer adoption of plug-in vehicles in early target market states like California may hinge on consumer cost-savings compared to conventional gas-powered vehicles and traditional hybrids. The economic argument in favor of electric vehicles goes that generating electricity from power plants is more efficient than burning gasoline in millions of cars – electricity is cheaper than gasoline, and the consumer saves money. 
 
But rigid electricity pricing may drive the cost of charging these vehicles too high for consumers. A recent report from Purdue University finds California’s tiered electricity pricing system could make the cost of electricity for EV owners so high that they just can’t afford to charge their vehicles.
 
In tiered systems, consumers are bracketed into pricing groups based on how much electricity they use – a system designed to encourage users to conserve electricity and save on their bills. However, with most Californians already reaching the highest pricing tier each month, adding the monthly usage of a plug-in vehicle would increase the average use of electricity nearly 60 percent per household – virtually guaranteeing consumers will pay the highest rate.
 
However, the answer to making plug-in vehicles affordable lies in more innovative electricity pricing plans. Some utilities have announced charging a flat rate per electric vehicle owner per month, but the report’s authors say the most affordable solution is time-of-use (TOU) rates, also called dynamic pricing.
 
Unlike more rigid tiered pricing plans, TOU plans offered in competitive electricity markets are perfectly suited for EV use. Since plug-in hybrids take several hours to fully charge, most would be plugged in overnight –when electricity prices are at their lowest. 
 
The appeal of dynamic pricing for EV owners is clear, but it also strengthens grid reliability. Charging cars in off-peak hours under a TOU plan will help alleviate the expected increase in demand for electricity created by these new vehicles coming on line 
 
Competitive markets are helping drive the advanced metering and affordable time-of-use pricing that will ultimately make electric vehicle to grid integration possible. At a recent COMPETE conference on this topic, Commissioner Philip Moeller of the Federal Energy Regulatory Commission touted dynamic pricing as “the absolute key to integrating electric vehicles onto the grid.”
 
Regulatory agencies, consumers, and utilities alike should heed the words of Commissioner Moeller and the findings of Purdue researchers – EVs are the future, and TOU pricing unlocks the way there.

Joel Malina | January 20, 2011