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Published on September 30th, 2018 | by Paul Fosse

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It Costs Less To Fuel An Electric Car, And Why

September 30th, 2018 by  


Total Cost of Ownership —
Gasoline vs. Electricity

Intro into Total Costs of Ownership

There are 8 major items in the Edmunds True Cost to Own figures: Depreciation, Taxes & Fees, Financing, Fuel, Insurance, Maintenance, Repairs, and a possible Tax Credit.

For this article, I’m only going to focus on how fuel costs compare between gas cars and electric vehicles (EVs).

The other categories should not have much variation. I’ve owned electric cars for the last 7 years, and although they have fewer repairs than my gas cars, the few repairs that have been required have been more expensive. As far as the wild card federal tax credit, that’s covered here.

Gas Prices

For this piece, we’re using the national average (at the time of writing) $2.83 per gallon of regular gas from the EIA.

Gas prices vary slightly by state, from a low of $2.52 a gallon in Alabama to a high of $3.77 a gallon in Hawaii. To find out your costs, look at your local gas station or find your statewide average here.

Electricity Prices

We’re using the national average of 13.02 cents per kWh from June 2018 for this figure, pulled from the EIA.

Electricity rates vary widely across the US, from a low of 9.37 cents per kWh in Louisiana (which mostly uses local natural gas) to 32.76 cents per kWh  in Hawaii (which mostly uses diesel shipped in). Rates have been steadily increasing approximately in line with inflation. To find out what your costs will be, look at your utility bill or check out your statewide average here.

Here are some examples, using some of the most common cars traded in on the most popular EV:

If you trade in a BMW 328i on a Tesla Model 3, expect $13,830 in fuel savings over the next 10 years.

 

 

Based on these assumptions:

 

 

If, instead, you are trading in a Honda Accord, expect to save $12,460 over the next 10 years.

 

 

Personalize these savings based on your car, driving habits, electricity, and gas costs here.

Some Conclusions on EV Fuel Costs

I’ve given over 100 rides in my (now traded in) Nissan Leaf and Tesla Model 3, and almost everyone asks “but what does it do to your electricity bill,” expecting that it adds hundreds of dollars a month. I hope this article educated you to the fact that although costs vary widely based on where you live, an EV is almost always significantly cheaper to power than a gas or diesel car. There are so many reasons to buy an EV, but for me, this was the most important one. My next article attempts the explain the science and the economics of why EVs cost less to run than other cars.

Why EVs are So Much Cheaper to Run & Why that Lead is Only Going to Grow over Time

There are two parts to the efficiency advantage that EVs have over gas cars.

Part 1 is that electric motors are much more efficient at converting electricity into motion than gasoline engines that convert much of the energy into heat, vibration, and sound. The US Department of Energy notes, “EVs convert about 59%–62% of the electrical energy from the grid to power at the wheels. Conventional gasoline vehicles only convert about 17%–21% of the energy stored in gasoline to power at the wheels.”

Part 2 is that there are many more ways to make electricity than to make gasoline. Let’s explore the economic concept of substitution before we go further.

The Economic Concept of Substitution and Why it’s Great for the Future of EVs around the World

There is a concept in economics called substitute good and it is used to describe when you can use one good instead of another. Goods that have more substitutes tend to have more stable prices and a greater chance of declining prices over time. Why is that?  The reason they have more stable prices is that if one of the goods has a supply disruption, the consumer can switch to consuming the substitute good. The reason there is a greater chance of declining prices is that if there is a technology change in any of the substitute goods that dramatically reduces costs, the consumer can switch to that less expensive substitute.

Substitutes in Electricity Generation

So, what does this have to do with EVs? EVs, by definition, use electricity and not gasoline. There are 6 major substitute ways of generating electricity in the US: Natural Gas, Coal, Nuclear, Hydro, Wind, and Solar.

Electricity rates vary widely across the US, from a low of 9.37 cents per kWh in Louisiana (that mostly uses local natural gas) to 32.76 cents per kWh in Hawaii (that mostly uses diesel shipped in). Rates have been steadily increasing approximately in line with inflation.

As is covered by many other articles on this site, the costs of wind and solar have dropped dramatically over the last 40 years and are now competitive with other sources in many regions of the country. Another advantage is that the future costs of existing wind and solar is fixed, since the maintenance costs are known and there are no fuel costs.

Natural gas costs are low at this time, but have been very volatile over the last 20 years, with several significant price spikes. Hydraulic fracking has increased the supply of natural gas, which has the potential to reduce the reduce price spikes.

Nuclear costs with existing, aging plants are somewhat high and stable. Small modular reactors (SMR) have the potential to be zero carbon, safer, and cheaper than the existing generation, but won’t be approved for widespread commercial use for some time (at best).

It is very hard and slow to build new hydro electric plants due to the environmental impact of large dams.

Regardless of what the current administration says, the industry is in agreement that coal is on its way out for reasons of both cost and pollution.

Gasoline Has Only One Common Substitute — Alcohol or Gasohol

This substitute (alcohol) was thought to have tremendous promise a few years ago, when there was research that we could economically convert grass into alcohol, but that promise has not been realized.

Now, both studies and market experience have shown that alcohol has little promise for dramatically reducing the cost of fueling a car.

Jim Lane, writing for biofuelsdigest.com, claims that the cost of production of ethanol makes it competitive with $70/barrel oil (oil is at $68.98 as of today). This likely includes significant farm subsidies.

Some Conclusions on Substitutes

I like to keep my cars for a long time. I try to keep my cars for 10 years if I like them and they are still reliable. When you buy a car that you are keeping for that long, you need to think not just about your needs and the costs of running it today, but how they will change over time. When you buy a car that uses gas or diesel, you never know if there is going to be a disruption based on war or natural disaster and prices suddenly go way up. When you buy an EV, you can have more confidence that your costs will stay stable.

The next article in the series makes the case that EV drivers will actually be able to look forward to lower costs if they can move their demand to the time of day that has extra electricity supply.

Value Deflation

What is value deflation and how could it dramatically change the economics of the transportation markets around the world?

Value deflation is a term coined by Varun Sivaram to describe the effect of adding more and more solar panels to a given grid. “As that happens, the wholesale price of electricity keeps falling during sunny hours. And each additional solar panel becomes that much less economically valuable.”

The problem is most electricity demand is hard to shift to another time period. You want lights at night and you want heat and air conditioning in your house when you are in it.

Now, a match potentially made in heaven is solar power and EVs. Solar power has the potential to produce large quantities of cheap and clean power, but it can only produce power in the day and, as it scales, it needs a source of demand that is large and can demand power in the day. Luckily for the solar industry, the sales of EVs are booming and every EV sold has a timer on it allowing it to delay charging to take advantage of lower rates.

As utilities roll out increasing amounts of wind and solar generation capacity (something they are doing now), they will increasingly need to use Time Of Use (TOU) rates to encourage customers to shift their demand to times when more electricity is available. Right now, only a few utilities have EV-specific rates, but as both solar and EVs grow dramatically over the next few years, expect this to roll out nationwide to help utilities better manage demand on the grid.

Today, TOU rates can help you cut the cost of electricity up to 50%, but as more solar is added to the grid, expect the discount to grow. Southern California Edison considers noon to 9:00pm the peak period for EV users, but as more solar generation is added, the daytime hours of 8:00am to 4:00pm should become the lowest cost times.

Some Conclusions on Value Deflation, Solar, & EVs

There is a lot of solar power generation being built around the world. The reasons are many. It is more affordable than ever. It is clean and fast to install. Many companies, cities, states, and countries have set goals on using a certain percent of renewable or carbon free power by a target date. Many individuals like solar power because it gives them a certain amount of self sufficiency. Solar isn’t a good resource everywhere, but as costs continue to fall, it is competitive in more places every year.

But all this solar produces power at the same time! You can vary the time a small amount by orienting the panel toward the east or west instead of pointing it south (in the Northern Hemisphere) or toward the north (for those Down Under), but for the most part, it is hard to envision a scenario where there is not a huge surplus of energy in the midday of much of the world in the coming 5 to 10 years. As more storage gets installed on the grid, that will let the utilities move that power to the times it is needed, but until they have a lot more storage (and even after they do), the utilities are looking for ways to get people to move their demand to the times that have the surplus power.

EV owners and utilities can make a mutually beneficial voluntary trade. The EV owners can soak up large amounts of power when it is oversupplied in the day. The utilities can lower the price, giving the EV owner an incentive to charge in the day.


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About the Author

I've been a software engineer for over 30 years, first working on EDI software and more recently developing data warehouse systems in the telecommunications and healthcare industry. Along the way, I've also had the chance to help start a software consulting firm and do portfolio management for several investment trusts. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments in my investment trusts. Tesla investor. Tesla referral code: https://ts.la/paul92237



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