This guest blog post from NRDC analyzes a recent study that demonstrated that electric vehicle customers are not being subsidized by other customers and, in fact, are putting downward pressure on rates. Because the transportation sector is the nation’s largest source of climate-warming pollution, it’s a sector we must transform to avoid the worst effects of climate change. Put simply, this requires widespread adoption of electric cars, trucks, buses, etc. powered by electricity increasingly generated from emissions-free resources like wind and solar.

Guest Blog | May 28, 2019 | Clean Transportation, Electric Vehicles

This blog was first published by Max Baumhefner, a senior attorney with the Climate and Clean Energy at Natural Resources Defense Council. The original posting can be seen here.

Electric Vehicles Are Driving Rates Down

Can the addition of more electric vehicles to the grid actually lower utility bills for all consumers? A recent study demonstrated just that, showing that electric vehicle customers are not being subsidized by other customers and, in fact, they are putting downward pressure on rates.

Because the transportation sector is the nation’s largest source of climate-warming pollution, it’s a sector we must transform to avoid the worst effects of climate change. Put simply, this requires widespread adoption of electric cars, trucks, buses, etc. powered by electricity increasingly generated from emissions-free resources like wind and solar.

The EV Story

There’s a misconception that widespread charging of electric vehicles (EVs) will necessarily stress the electric grid, resulting in costly upgrades that drive up electric rates. However, analysis conducted by Synapse Energy Economics found the opposite has been observed in the real world—EVs are pushing electric rates down because they generally charge overnight when people are sleeping and there is plenty of spare capacity on the grid. This means there’s little marginal cost associated with accommodating EV charging, but significant new revenues (money that would otherwise go to oil companies) that is returned to all customers in the form of lower rates and bills.

How Do EVs Impact Electricity Rates?

Synapse examined the two utilities in the United States with the most EVs zipping around in their service territories, Southern California Edison (SCE) and Pacific Gas & Electric (PG&E), to determine their impact on the grid and electricity rates of all customers.

Synapse evaluated the revenues and costs associated with EVs for these two utilities from 2012 through 2017. They compared the new revenue the utilities collected from EV drivers to the cost of the energy required to charge those vehicles, plus the costs of any associated upgrades to the distribution and transmission grid and the costs of utility EV programs that are deploying charging stations for all types of EVs.

In total, EV drivers contributed $322 million more than the associated costs. You might assume that utility shareholders kept that extra cash, but thanks to an accounting mechanism known as “revenue decoupling” that money is automatically returned to utility customers in the form of lower rates and bills. In states that have yet to adopt revenue decoupling, there may be a lag between utility rate cases, but EV charging should still put downward pressure on rates to the benefit of all customers.

From Theory to Reality

Numerous studies have found that widespread EV adoption could push utility rates down in the future. For example, MJ Bradley and Associates conducted state-specific analysis concluding that levels of EV adoption consistent with meeting long-term climate goals could potentially reduce utility bills in Minnesota by $10.2 billion by 2050. What the Synapse analysis reveals is that we are on track to realize the future benefits quantified in studies the like Minnesota report. Because Synapse examined the two utility service territories with the most EVs of any in the US, the analysis provides a promising view of the future in states like Minnesota where the EV market is still nascent today.

We are clearly moving in the right direction, but more resources need to be put into programs that increase EV adoption and ensure EV charging is done in a manner that supports the grid. With this study, we’ve seen firsthand the real-world downward pressure on rates that EVs are providing. A future filled with electric vehicles zooming around on American roads promises to be one in which the air is cleaner to breathe, consumers are no longer vulnerable to the vagaries of the world oil market, and utility customers pay less out of their pockets for their electric bills.

Thanks to Emily Deanne from NRDC for her contributions to this blog.