EVs Are Good For The Environment And Electricity Rates

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Can the electric grid handle all the electric vehicles (EVs) we need to address the climate crisis? Most people now accept that EVs are companions to solar and wind generation. The electricity system is built for the most demanding hour of the year, but during every other hour there’s excess capacity, and EVs can be programmed to avoid peak hours when the electrical grid is strained. In fact, more and more EV models now can restore electricity to the grid when demand peaks, supporting the grid and preventing blackouts.

EVs are actually a very small part of overall electricity demand, and they won’t become a significant share of electricity use even with millions more EVs on the road. Nonetheless, EV electrical usage and its potential to overtax the grid is a concern for many people. What’s not realized, however, is that EVs can have a positive impact on electricity rates — for EV drivers and non-EV users, too.

The Interplay between EVs and Electricity Rates

When drivers adopt an EV, they help clean the air, fight rising electricity prices, and sell more EVs, which creates a positive cycle, over and over. But how do EVs help reduce electricity prices?

Answering this question requires comparing electric utility revenues from EV charging with utility costs associated with serving EV load. Synapse Energy Economics conducted just such an inquiry. They mused that, if the utility revenues from EVs exceed the utility system costs, then EV adoption could reduce electricity rates for all customers in California because of revenue decoupling. Conversely, if the costs were greater than the revenues, non-EV owners could end up paying more for their electricity. In fact, multiple  prospective studies had already forecast that utility revenues will exceed costs with future electrification.

Synapse evaluated the utility system revenues and costs associated with EVs purchased within the last decade across California, tracking revenues and costs associated with over 997,000 battery electric and plug-in hybrid EVs sold between 2011 and 2021 in California. They analyzed the electricity rates that EV owners pay compared to the marginal cost of providing that electricity (generation, transmission, and distribution costs), plus the expenditures associated with utility EV programs. They used hourly marginal costs based on the California Public Utility Commission (CPUC)’s Avoided Cost Calculator and load curves from the CPUC’s Load Research Reports. They also use a database of EV program expenditures, assuming that these investments will be paid off over 10 years.

The researchers concluded that EVs have increased utility revenues more than they have increased utility costs, leading to downward pressure on electric rates for EV-owners and non-EV owners alike. Electric vehicle drivers in California contributed $2.2 billion more to utilities than their associated costs to the grid over the past 11 years, driving electricity rates down for all customers.

This means EVs are putting downward pressure on electric rates through a new source of revenue that EV charging provides to utilities. Think about it. This “refueling” cost would otherwise go to oil companies, as NRDC notes. Utilities have revenue decoupling in California, so any additional revenue in excess of what was anticipated is returned to all utility customers—not just EV drivers—in the form of lower rates.

Yes, appropriately planned upgrades will prepare the grid to serve these new electricity loads that are beneficial for everyone. California’s Assembly Bill (AB) 2700 and Senate Bill (SB) 410 require utilities and their regulators to get the state’s electrical grid ready for a future with more clean energy and EVs. AB 2700 requires utilities to plan and make the necessary investments to upgrade the grid efficiently, ensuring the grid can handle the additional load from things like EVs. SB 410 sets deadlines for utilities to connect customers more quickly, making sure the infrastructure keeps pace with customer needs and increased electrification.

EVs help reduce electricity rates for all utility customers by efficiently adding load to the electrical grid. Interestingly, state and federal governments can help with EV adoption by making this little known fact about the interplay between driving electric and  lowering electricity prices clearer.

Final Thoughts about EVs and Electricity Rates

EVs in the US cut greenhouse gas emissions by around two-thirds over a car’s lifespan. That’s good for the planet, as decarbonization helps to lower total global anthropogenic carbon dioxide (CO2) emissions to near zero by 2050. While the Earth’s climate system will still experience year-to-year variability, achieving net-zero and limiting warming to 1.5°C will reduce the frequency and intensity of weather events such as heatwaves, heavy rainfall, and droughts.

A March 2024 Statistica poll found that the top five priorities for customers when buying a new car are — in order — fuel efficiency, safety, price, quality, and comfort. EVs can meet all these requirements — and more.

Driving an average EV sedan in California, for example, is still the cost equivalent of driving on $2.62 per gallon of gasoline, which is more than a 40% savings compared to the current $4.75 per gallon average price. EVs affect the electricity rates paid by all households, including those that do not own EVs. This is an important equity question that should be analyzed when determining the role that electric utilities should play in supporting the transition to EVs.

EV charging brings in more money than it costs utilities to serve.

This good news about the reciprocity between EV drivers and electricity rates is important. We’ve recognized that EVs are good for the environment, but now a new reason to buy an EV can be added to the list of attributes — driving an EV benefits everyone who pays an electric bill. We are clearly moving in the right direction, but more resources need to be put toward ensuring EV charging supports the grid and that customers get electricity service in a timely manner. We now understand the real-world downward pressure on rates that EVs provide, and studies from a variety of stakeholders predict that this trend will continue. A future filled with EVs is a scenario in which safe, reliable, efficient, and clean transportation is the norm for everyday drivers.

EVs don’t emit air and climate pollution we hardly notice as a part of daily gas-powered transportation. The important public health and climate benefits of zero emissions transportation cannot and should not be buried. National security is stronger whenever we reduce our dependence on global oil. EVs reduce consumer costs. Fleets can shift from expensive gas to lower-cost, locally-produced electricity and increase — rather than decrease — profitability.