MEMO: Comments on PEV Infrastructure Technical Conference To: Michigan Public Service Commission Date: July 31, 2017 The Michigan Public Service Commission s August 9th Technical Conference on plug-in electric vehicle (PEV) infrastructure represents an enormous opportunity for Michigan residents and its economy. As the automotive sector has continued to shift towards a cleaner and more service-based industry, technology innovation and development has forced traditional automakers and regulators to grapple with new challenges. The term future of mobility has been coined to describe this seismic evolution. At the forefront of this discussion is the growth of electric vehicles on the road and the need for charging infrastructure to support them. Clean Fuels Michigan, a nonprofit trade association built of over 30 leading companies dedicated to the growth of the alternative fuels supply chain, supports this conference and appreciates the Commission focusing on this topic. Our members feel that alternative fuels, and more specifically electric vehicles, will play a pivotal role in the future of Michigan s economy, workforce and environment. Because of Michigan s dominance as both a consumer and producer in the automotive sector, electric vehicles represent enormous potential for market growth within the state. By 2030, vehicle electrification is expected to be a multi-trillion dollar business, but the current lack of 1 infrastructure is impeding that growth. The forceful emergence of battery electric vehicle innovation and development has lead to vociferous debates over their future. Advocates from different schools of thought typically quarrel over these now age-old questions: do they provide enough range? Do they need to cost $100/kWh for mass commercialization? What have been the breakthroughs in development and how has this spurred growth in the electric vehicle market? 1 http://www.persistencemarketresearch.com/market-research/electric-vehicles-market.asp
Today, there are over 30 plug-in EVs from over 15 carmakers for a total of over 600,000 electric vehicles on the road in the U.S. and 2 million worldwide. More than 20 additional models are expected by the year 2021 and electric vehicles are projected to makeup 2 54% of new vehicles sales by 2040. Currently the average range of electric vehicles is roughly 145 miles.that average is expected to continue increasing over the next several years and studies have shown that the average range of electric vehicles is expected to be 180 miles by 2021. Technology costs attributable to battery developments drop approximately 20% per year and the average cost of an electric vehicle battery is around $239/KWh. Some claim that battery costs need to be $100/KWh to be cost competitive, though this does not seem to be slowing the expansion of the electric vehicle market, particularly while coupled with incentives. Last year 2016 electric vehicle sales grew by 60 percent. In fact, Bloomberg New Energy Finance states that, at current cost levels, electric vehicles have a 20 percent market share potential. Further predictions show EVs will likely be cheaper and have lower lifetime costs than internal combustion engine (ICE) vehicles 3 by 2025-29. Given the relatively rapid growth of market share, number of models available and investment from the automotive sector, electric vehicles are expected to be a competitive option for car buyers by 2020. In sum, many feel that the future of electric vehicles is bright. But challenges remain in ensuring current and future customers investing in this technology will have the access to charging infrastructure. This lack of access leads to range anxiety, or consumer skepticism that electric vehicles are unable to fulfill their transportation needs. These comments will discuss some of the facets of deploying electric vehicle charging infrastructure. There are many roads toward a successful statewide deployment plan but a one-size-fits-all approach puts that success at risk. Thoughtful consideration and flexibility around electric vehicle charging infrastructure needs to be given towards different models of ownership, consumer segments, and incentives that maximize multi-source investment, public awareness, and ratepayer benefits. The Commission should eventually put into place a set of guidelines that value charging infrastructure as a public good and foster a competitive marketplace while prioritizing incentives that leverage current and future assets and focus on providing benefits to disproportionately low income communities. 2 https://about.bnef.com/electric-vehicle-outlook/ 3 https://data.bloomberglp.com/bnef/sites/14/2017/07/bnef_evo_2017_executivesummary.pdf
DIFFERENT OWNERSHIP MODELS Generally, the models of ownership fall on a spectrum between two types: the Own and Operate Model and Make Ready Model. In the Make Ready approach, utilities are able to recoup costs from the ratepayer on investments made to get a site ready for the installation of a charger, such as cost inputs from permitting, labor, equipment, electrical materials etc. The Own and Operate model would allow for the entire expense of building a vehicle charging station to be recouped by the utility. Both models have benefits and costs associated with them under different market conditions. As the Commission and other stakeholders have noted, concerns have been raised that allowing utilities to build, own and operate charging infrastructure unconditionally could stifle competition and impede private market investment. Clean Fuels Michigan believes a dynamic approach should be taken by the Commission to identify market barriers to private investment that allow greater incentives to invest where there is presently little free market incentives to do so. In the plan developed by Southern California Edison, there were several areas of focus. SoCal s Charge Ready program is a turn-key incentive that utilizes a customized make ready approach for both residential and 4 commercial charging station site hosts. They then offer rebates to site hosts on the purchase of charging equipment. The program also provides rebates of up to $450 for EV owners and several rate structure options to encourage off peak and time of use (TOU) charging. Finally, 10 percent of the total number of charging stations are being built in disproportionately low income areas. This multi-faceted approach encourages the growth of electric vehicle charging and multi-source investment while accounting for market barriers. RECOGNIZING DIFFERENT TECHNOLOGIES AND CONSUMER SEGMENTS Over 30% of vehicle purchasers consider buying an electric vehicle, yet less than 5% ultimately do. Developing a successful marketplace for EV infrastructure requires a clear understanding of consumer segments, or verticals and the best type of charger to fit their needs. There are generally considered three types of chargers, type 1 AC (120V and 2-5 miles per hour of charge), type 2 AC (240V and 10-20 miles per hour of 5 charge) and DC Fast Chargers (208-480V and 50-70 miles per 30 minutes of charge). Installed and utilized the most, tier 1 chargers are typically installed at home and account for the majority of charging done by EV owners, somewhere between 75-85%. Because of their ubiquity and convenience, tier 1 will likely remain as the primary form 4 http://www.edison.com/home/our-perspective/charge-ready-a-plan-for-california.html 5 https://www.afdc.energy.gov/fuels/electricity_infrastructure.html
of charging for EVs into the foreseeable future. Rebates and special rate incentives should be used to continue to place type 1 chargers in Michigan homes. By no means does it mean that tier 2 and DC chargers are not necessary to the development of the EV marketplace. In fact, it is far from the case. Many of the free market challenges surrounding electric vehicles and charging equipment are being resolved through private investment. Yet challenges surrounding the social barriers to adoption still hinder its success. For example, studies have shown that adoption rates are driven by increased access to public charging, some showing a consumer is twenty times more likely to purchase an electric vehicle if they see their employer offering 6 workplace charging. Increasing access to higher regional concentrations of public DC fast-charging infrastructure across the state is also crucial to the long-term success of electric vehicle adoption in Michigan. The Federal government has recognized this and at the beginning 7 of last year, announced the Alternative Fuel Corridor initiative that will place alternative fuel infrastructure, including DC fast chargers, along every 50 miles of several federal highway arteries throughout the country. Michigan s portion of Interstate 94 is a part of this initiative, marking a significant investment that could be leveraged by state regulators through state road networks that connect the I-94 corridor. The National Research on Energy Laboratory (NREL) conducted a case study on Massachusetts to study the possible correlation between access to charging infrastructure and number of PEV consumers. The paper aggregated baseline data from other studies, like density of registered PEV owners per zip code, household travel surveys, cell phone use tracking, and others and applied it to an analysis into optimizing benefits of public charging infrastructure in Massachusetts. The study came to several conclusions that the Commission ought to consider for future plan development. First, it showed a strong correlation between number of registered PEV owners and number of charging locations, both public and otherwise. The study also saw that an increase of benefits from access to charging in long-dwell charging scenarios, such as workplace charging, led to an increase in electric vehicle miles traveled. This suggests that increased access to charging, particularly in regions considered PEV-dense, increases the utilization of EVs. This also represents an interesting challenge- as more EV miles are driven, the need for access in less PEV-dense regions increases over time. It also 6 https://transportevolved.com/2014/12/02/u-s-doe-staff-20-times-likely-buy-plug-car-employer-offers-workcharging/ 7 https://www.fhwa.dot.gov/environment/alternative_fuel_corridors/
seems to suggest that allowing for artificially low costs of charging while a market is maturing might be beneficial to its future health. As a market matures, these rate incentives may be less important. The study s findings, and others like it, also stress the importance of reducing the operational cost for electric vehicle consumers. It should come as no surprise that consumers want the most benefit from electric vehicle charging equipment for as little cost as possible. Fundamentally, the information points to the need for site hosts, as well as potentially other private stakeholders, to be allowed mechanisms to control or reduce charging costs that will maximize benefits for that site. Typically, this means a flat use fee coupled with a per KWh charge that may fluctuate over the span of use. Other mechanisms may also be employed as well, and this flexibility is crucial in allowing for future market maturity. INCENTIVES THAT MAXIMIZE MULTI-SOURCE INVESTMENT, PUBLIC AWARENESS, & RATEPAYER BENEFITS No matter what free market solution employed, the return on investment (ROI) simply is not present with many current and future charging site locations. Yet their existence and deployment is crucial for the development of EV ownership. As adoption rates increase, so too will the viability of the infrastructure built. How should the Commission grapple with this issue? Though there is no silver bullet financing structure that works in all charging equipment scenarios, some financing models tend to achieve greater success for some charging sites over others. Best practice do exist for maximizing benefits for EV consumers at the lowest possible costs. Clean Fuels Michigan strongly supports any plan that encourages all forms of investment. Rebates and rate incentives are the two best ways to encourage this growth while maintaining competition in the marketplace. This is particularly the case for site locations that are considered important to the overall objective of achieving public access to charging, such as interconnecting a network of charging within a region. Encouraging the expansion of infrastructure despite these challenging market scenarios has been shown to be beneficial to ratepayers long term 8 by increasing reliability and decreasing the overall cost of the grid. Utilities can play a unique role in advancing electric vehicle adoption in areas where there are market failures, or areas where the benefits of vehicle electrification are high but adoption rates remain low. Again, multi-unit dwellings in urban areas represent such an example. Allowing for targeted marketing campaigns to raise public awareness are shown to be 8 https://transportevolved.com/2014/12/02/u-s-doe-staff-20-times-likely-buy-plug-car-employer-offers-workcharging/
particularly effective when coupled with immediate financial incentives, such as a rebate or lowered rate charge. This would help increase access to electric vehicle charging infrastructure, grow adoption rates, and increase overall benefits to ratepayers and the grid. Encouraging competition in the marketplace should also be a top priority of any regulatory model the Commission considers. Because there are a multitude of competitive strategies that are employed by stakeholders, whether they be utilities, equipment manufacturers or site hosts, this is not always easy to determine. The Commission should avoid an overly prescriptive regulatory model that, unintentionally or otherwise, picks winners and loses. That also does not mean that every financing model should be developed on a case by case scenario. It is the recommendation of Clean Fuels Michigan that the Commission look at differing consumer verticals or types of sites that would service a certain consumer segment in a given area, and explore differing financial incentives for them respectively. This could include incentives for the consumer in the form of rebates on at-home charge rates or charging equipment, rebates to the site host on the equipment or charge rate that reduces their risk of making the upfront investment of charging equipment or a special rate structure for residential, commercial or public chargers. Allowing for flexibility in financial incentives will help encourage adoption, while ensuring all stakeholders, including the vehicle owner, have skin in the game. In order to promote vehicle electrification as a public good, the Commission should emphasize access and affordability to disproportionately low per-capita incomes income areas with high concentrations of harmful emissions. Market failures have been discussed earlier that point towards a need to incentivize private investment in places it would not typically see a rate of return, such as a densely populated multi-unit dwelling in an urban setting. As previously mentioned, increasing access to electric vehicle charging in these instances would not only produce benefits to the ratepayers in the form of improved economies of scale and grid reliability, they also represent a rare chance for private business to provide environmental benefits in areas of need. Nearly one out of every six Detroiters suffers from a respiratory issue, in part from low air quality. Many of these same areas are affected by poverty and a lack of community resources. Through establishing rules or guidelines that promote multi-source funding, identify barriers and needs in the market, and allow for a flexible and dynamic financial mechanisms to be utilized to incentivize growth, the Commission could play a unique role in making Michigan a leader in the clean, high tech future of mobility.