Pain at the Pump

With high gasoline prices, barriers to EV adoption continue to drop.

You may have noticed a trend in recent weeks: rising gas prices. Between January 23 and February 21, the average price for a gallon of regular gasoline in the U.S. climbed steadily from $3.26 to $3.74 and continued to inch upward. Numerous factors may account for the increase, notes the Washington Post, including limited refinery capacity, according to the Atlantic. It’s not a particularly big surprise—gas prices often climb this time of year. Regardless, once again consumers are feeling some pain at the pump.

That pain translates into real changes in vehicle miles traveled and fuel consumption. Though the degree of the impact varies by market and demographic, in general several trends hold true. When gas prices rise and drivers feel the sting in their wallets, VMTs go down and so does fuel consumption in the short term. Meanwhile, in the longer term the purchase and use of fuel-efficient vehicles, carpooling, and use of public transportation all go up.

These trends raise the issue of total cost of vehicle ownership—not just raw sticker price, but also ongoing maintenance and especially fuel costs. Which for me highlights a fundamental difference between gasoline-powered internal combustion engine autos and battery-powered electric vehicles: their cost to drive. As we’ll see, it can be significantly lower for EVs, and a look back at 20 years’ worth of gasoline and electricity prices gives a hint why.

Gasoline vs. Electricity Price Trends

Though the real-time prices of crude oil and to a similar extent regular gasoline can be highly volatile, the macro scale of the national average retail price consumers pay for a gallon of regular gasoline and a kWh of electricity, based on data from the U.S. Energy Information Administration, drive the vehicle cost of use point home. Across two decades, the residential retail price for electricity has proven relatively stable and slower to rise, growing by 50% since 2000. Gasoline, on the other hand, has proven much more prone to rising prices, increasing 250% during the same time period (despite a major but temporary price slump during the Great Recession that hit in 2008).

There are various reasons for this difference. For one, crude oil (and thus, gasoline) is a commodity influenced by geopolitical and other major levers in a competitive global market with heavy futures speculation. That’s a problem, says RMI transportation consultant Greg Rucks. “Gasoline-powered vehicles are beholden to a single fuel source—oil—one of the most volatile world commodities in existence.” All their eggs are in one gasoline-filled basket, and even flex fuels such as corn-based ethanol don’t offer much relief. They come with their own volatility, notes Rucks, in part tied to oil prices as well, since fertilizers and other agri-chemicals are frequently petroleum derived. Ethanol is likewise subject to weather, population trends (such as the globally growing middle class), commodities markets, and increased use of grain stocks to meet demand for meat, which also drive volatility.

In contrast, the electricity rates consumers pay are generally held more constant due to a variety of factors, notes RMI electricity principal Lena Hansen. For one, utilities’ electricity generation is in some sense fuel agnostic; it is not committed to one fuel source. This “diversified generation portfolio,” says Hansen, “is optimized to provide a lot of flexibility in how utilities meet consumer demand. They have a mix of very low cost resources, plus some higher cost resources that they generally use only during peak hours.”

There’s also the opportunity for not just diversified generation, but actual fuel switching, from higher-cost sources to lower-cost ones. Re-tooling a power plant to switch from coal-fired generation to cheaper natural gas-fired generation is one good example. This can be an expensive proposition, but one utilities from Colorado to Delaware to New Jersey are starting to explore as a less expensive alternative to upgrading aging coal plants with pollution control equipment, according the Wall Street Journal. Earlier this year, Georgia Power became one of the latest to announce such a fuel switch, with plans to convert two units at its Plant Yates facility from coal-fired to natural gas, according to Bloomberg.

Other factors come into play as well. The economic downturn, followed by greater adoption of energy efficiency, as well as the smaller but growing integration of distributed renewables such as residential rooftop solar PV onto the grid, have mitigated load growth in some regions, says Hansen, so some utilities don’t need to build as many large new power plants as quickly. Those large infrastructure capital costs, plus operating expenses and a reasonable profit margin, would otherwise get built into the electricity rate base. Finally, regulation shields consumers from electricity generation price volatility. “Utilities are mostly regulated monopolies,” explains Hansen. “Unlike oil, which is driven by factors such as politics and global demand and supply, and where the price we pay may be way above the cost, in electricity, the price we pay is more directly tied to the actual production cost. Rather than let pure market forces of supply and demand work, a regulator’s job is to ensure low-cost power.”

EVs’ Significantly Lower Energy Costs per Mile

The result is that in the last three years—roughly the modern EV era, starting with the 2010 release of the Nissan LEAF and Chevy Volt—the energy cost to drive an EV has remained essentially a stable flat line of $4 per 100 miles, less than one third the cost to drive a gasoline-powered internal combustion engine auto, which has hovered between $14 and $16 over the last two years, when you combine the nationwide average monthly price for a gallon of regular gasoline with the University of Michigan Transportation Research Institute’s eco-driving index of average mpg for new vehicle sales in each of those months.

Over that same period, EV energy efficiency has steadily remained roughly 35 kWh per 100 miles, from the Chevy Volt to the Nissan LEAF to the Tesla Model S 60 kWh battery model. Many models, in fact, are more efficient, coming in at the low 30s or even high 20s (such as the Honda Fit EV) for kWh per 100 miles. And some EVs are admittedly less efficient, logging 40+ kWh per 100 miles, such as Toyota’s RAV4 EV.

While 35 kWh per 100 miles remains a reasonable and conservative average efficiency for EVs, there is obviously some variability that will impact the economics of EV energy costs. Driving a less efficient EV in a state with high electricity prices and a highly efficient internal combustion engine car in a region with low gasoline prices will reduce the operating cost difference between them. Yet the story told looking at the population of U.S. drivers in aggregate remains compelling. In terms of energy/fuel costs per mile, EVs win out over gasoline-powered autos.

Looking to the Future

Though RMI isn’t in the business of speculating future fuel and energy prices, the last 20 years of price trends plus contemporary factors give us some valuable food for thought.

Rucks, for example, points out that gasoline prices—including discussions of whether we’ve already or will soon hit peak oil—are largely irrelevant. “Vehicle electrification is a good idea regardless of whether there’s an unlimited supply of oil or not,” he says. “Oil is a dirty fuel; there are atmospheric emissions, geopolitical tensions, and other externalities to consider. Meanwhile, the instant torque, quietness, and efficiency of electric drive have the potential to create a fundamentally better driving experience. If we can create more efficient electric vehicles that people love to drive, then for market reasons we can drive that adoption.” Not to mention that, if history is our guide, gasoline prices may continue to rise long term relative to electricity prices.

Hansen, for her part, notes that though electricity prices will almost certainly remain more stable than oil prices, we will see more base price growth. For example, the grid will require large infrastructure investments in the foreseeable future, which will impact base rates. There’s also the role of currently low natural gas prices, which may remain so for a few more years, but which will almost certainly go back up long term. (Consumers in New England are already seeing higher electricity rates this winter as a result of regionally high natural gas prices.)

And then there’s the uncertainty of renewables’ impact on electricity prices. “It depends on who owns and therefore pays for the renewable energy,” explains Hansen. If a utility builds a commercial-scale wind farm or solar PV installation, those capital costs will get put into the base rate. Yet, renewables have no fuel costs once installed. Though it’s hard to predict the net effect of those competing influences, “there needn’t necessarily be a greater rate impact than a business-as-usual situation,” she says.

Further, renewables (with limited operating costs) bidding into wholesale power markets drive down market prices. Similarly, scenarios such as solar leasing programs promise to lower consumers’ electricity bills without adding solar’s capital costs to the local utility’s base rate (and without placing the shock of upfront capital investment on the consumer), since the solar PV is owned by a third party and paid off via shared savings with the homeowner. (For consumers that own the solar on their roofs, they’d have to add the cost of the system into their levelized cost of electricity. Utilities, meanwhile, are wrestling with the question of what grid costs might be incurred to support the reliable integration of growing amounts of customer-sited PV.)

Beyond such factors, there’s also the simple likelihood of greater price transparency for consumers. Rather than pay an averaged rate meant to account for actual fluctuations in electricity generation costs, consumers would pay a variable rate that better reflects real-time fluctuations. This is already happening for EV owners who have a time-of-use rate arrangement with their utility, paying less if they charge their vehicle overnight and paying more if they charge during peak daytime hours.

With this EV-favorable relationship between electricity and gasoline prices likely into the foreseeable future, EV ownership is looking better and better. In our blog about the price drop of the Nissan LEAF, we showed how a simple payback compared to its gasoline equivalent (the Versa Hatchback), hitting the 3-year payback threshold preferred by many consumers. But as these longer-term trends show, EV adoption more broadly is becoming the attractive option, with lower maintenance costs compared to gasoline-powered cars and significantly lower operating costs per mile.

There still remains a large cost chasm between the purchase price of traditional gasoline-powered autos and their EV counterparts. But as sticker prices continue to drop—as they did, for example, with the LEAF, in theory forthcoming for the Volt, and via Tesla’s less expensive 40 kWh battery option for the Model S—EVs’ total cost of ownership is going to start beating out (handily) that of internal combustion engine autos. Which eventually leaves only the convenience driving factor on the table. As auto manufacturers continue to improve the range aspect of EVs (the DOE’s RANGE grant recently announced $20 million in funding to spur development of a $30,000 EV with a 240-mile range on a single battery charge), the question will then become: How can we as consumers and our cities, towns, and highways prepare for a future world with higher EV adoption rates?

Recommended Reading 

• Going the Distance: Range Anxiety Overlooks EVs’ Sweet Spot
  
• When a LEAF Falls
• Why So Many Critics After 17,000 EV Sales in First Year?

Gas pump image courtesy of Shutterstock.com. EV charging image courtesy of Shutterstock.com.