EVs’ Rise Doesn’t Need to be Auto Dealers’ Demise

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Some argue that the growth of electric vehicles will be the end of auto dealerships. Car dealers today derive significant revenues by providing parts and service for the internal combustion engine (ICE) vehicles they sell. If EVs, with their far fewer moving parts and far lower maintenance requirements, displace ICE vehicles, the reasoning goes that dealer revenues are doomed to decline.

Of course, this wouldn’t happen overnight. In 2017, U.S. auto dealers sold 17 million cars. Of that total, only 1.2 percent of all sales (199,826) were EVs. That said, EV sales in 2017 increased about 25 percent over 2016. So while EVs still represent a small market segment, it is growing rapidly.

Whatever the rate of EV adoption, dealers do have their work cut out for them. Along with continuing to support ICE vehicle sales and service, dealers will have to emphasize new training and develop new EV-related expertise. Nate Chenenko, a Massachusetts-based transportation consultant, contends that even though EVs will go longer between service appointments than their ICE counterparts, “dealers still can persuade EV owners that the dealership is the best place for service after the factory warranty expires.” After all, this is new technology, and customers will want the support of trusted experts.

Also, let’s not forget the attractiveness of used EVs. Thousands of them are coming off leases, making used models available and affordable. Auto dealers are ideally positioned to be the go-to resource for shoppers interested in a pre-owned EV.

But dealerships could face competition from new ways of selling cars. Tesla, for example, takes a direct sales approach.  Will that catch on as a dominant model? Will auto buyers gravitate toward “Experience Centers” where they can enjoy a low-pressure environment while being educated about choices and even offered test drives? Might customers start buying cars like they buy computers today at the Apple store, or even through “car vending machines” like Carvana? Dealers will have some control over this if they become and remain trusted experts on EV sales. If they drag their feet, another sales model is likely to bypass them.

While this change looks disruptive—and it certainly may be—it brings opportunity as well. Consider one potential EV-related revenue sources that auto dealers could work with.

RAP’s series of blogs on beneficial electrification principles considers how flexible EV charging load, among other electrified end uses, has value to the grid. “We All Wish We Were More Flexible: Electrification Load as a Grid Flexibility Resource” points out how the batteries that power EVs can be charged whenever doing so is most beneficial to the grid. This improves utilization of the electric transmission and distribution systems, shifting loads that would otherwise add to the system peaks that drive grid investment and increase cost. Utilities can also schedule EV load to pair it with inexpensive renewable resources that often run when there is low demand and risk being curtailed.

Furthermore, EV charging flexibility also provides the potential for vehicle-to-grid (V2G) services, or two-way charging, which would allow for EV batteries to serve as storage devices that can discharge power back onto the grid when called upon. This would enable a utility or aggregator to provide “ancillary services” to the grid, including frequency regulation (a transmission-level service) and voltage support (a distribution-level service), to help ensure that the grid operates efficiently and reliably.

In short, EV charging has value to utilities. But they need to unlock this full value, and they might be able to do so effectively by partnering with auto dealers, who can educate and market these benefits to prospective EV owners. After all, dealers are:

  • Among those best suited to help get new EV owners into the driver’s seat;
  • Well positioned to sell Level 2 EV chargers (which are “smart,” or communications-enabled, and more efficient) rather than the comparatively “dumb” and inefficient Level 1 chargers that come with a new EV as standard equipment;
  • Well positioned to develop, market, and aggregate charging packages that provide EV owners with lower-cost, cleaner renewable electricity.

Dealers can do all of these things—and in the process capture for themselves some of the value that EVs can provide to the grid.

“Give Me a Little Piece of the Pie if You Make it a Hit”

Consolidated Edison (Con Ed) offers a program in New York State called SmartCharge New York. It’s a partnership between the utility and a Canadian company called FleetCarma, in which FleetCarma signs up EV drivers in Con Ed’s territory and arranges for them to charge at off-peak times. Actively managing demand in this fashion saves Con Ed money—enough money, in fact, for FleetCarma to make a business of it, by aggregating EV drivers, educating them, and arranging for sharing of the resulting savings among Con Ed, FleetCarma, and the EV customers. The utility, the aggregator, and the EV customers “share the pie.”

With a front-row seat and access to new EV owners, forward-thinking auto dealers could do the same thing: turn a looming challenge into a chance to make some money. In his song “Horses,” songwriter Slaid Cleaves tells a story about meeting a guy who’s down on his luck. In Willie’s tale of woe, Cleaves sees an opportunity. And that’s just how auto dealers need to start thinking about EVs:

I met Willie by the still, he was brewin’ a batch
He had a short cigar and one last match
He was tellin’ me ’bout his latest trouble with the government
He had child support and alimony
He was looking depressed and kinda lonely
Just tryin’ to figure out where all his hard-earned money went

“Well I’ll be go to Hell,” he said,
“I got nothing but a Ford and a barn full of hay
If it weren’t for horses and divorces
I’d be a lot better off today”

Well I said, “Willie, that sounds like a song,”
He said, “Son you know you may not be all wrong
Could you give me a little piece of the pie if you make it a hit?”

Purple Haze, or Purple Mountain Majesties? How Energy Efficiency Can Reduce Regional Haze

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Tourists visit our national parks to see the majestic vistas, not haze-obscured views. The two images of the Grand Canyon below illustrate this point: In the view on the left, one can see for more than 200 miles, while on the right, visibility is only about 60 miles. That’s because the view in the right-hand picture is obscured by air pollution, which also impairs public health and the environment.

Source: Grand Canyon National Park Webcam, Yavapai Point, Ariz.

This phenomenon is not unique to the Grand Canyon; the US National Park Service operates webcams at many national parks, and they document local visibility every day.

The Clean Air Act regulates lack of visibility due to pollution as “regional haze,” and since 1999 the federal government has required states to reduce it in national parks and wilderness areas. The pollutants that create regional haze come from vehicles, power plants, and other sources: nitrogen oxides (NOx), sulfur dioxide (SO2) and tiny airborne particles. This “particulate matter” (PM) is less than 2.5 microns ­in diameter, small enough to lodge in the lungs and damage them. (By comparison, a human hair is approximately 50 to 70 microns in diameter.) Historically, the power sector has been responsible for a significant portion of NOx, SO2, and PM emissions.

State air quality agencies are charged by the Environmental Protection Agency (EPA) with improving visibility in national parks and wilderness areas. States develop long-term plans to return visibility to natural conditions and have to update those plans soon. Thus far, states have relied primarily on adding pollution control equipment at power plants, which can be expensive and reduces the output of the facility, and each type of control equipment acts on only one or two air pollutants. Energy efficiency, however, can reduce emissions of all pollutants at once—and at a low cost. RAP is working with states to help them employ energy efficiency to meet federal visibility improvement obligations.

Many states are aggressively pursuing energy efficiency to reduce consumer costs, but they may be missing an opportunity to claim the air quality improvements that EE achieves. The potential is immense: One estimate, from the Electric Power Research Institute (EPRI), calculated that EE could save 741,000 GWh of power by 2035, enough to achieve at least a 16 percent reduction in electricity use in the United States, at a cost of less than 5 cents per kWh (about half the cost of generating electricity in parts of the country and about a third in other areas). One GWh is enough electricity to power more than 100,000 homes for a year.

The American Council for an Energy-Efficient Economy ranks states on their EE gains each year, along with those that have most improved their scores. Many states are achieving at least a 1 percent per year reduction in sales of electricity; the leading states are surpassing 2.5 percent per year. These energy reductions can translate into thousands of tons of avoided NOx, SO2, and PM emissions per year, depending on the emissions characteristics of the region’s utility grid. A good tool for quantifying these reductions is the EPA’s AVERT model, which estimates the emissions that can be avoided through energy efficiency and renewable energy. Using the AVERT model with the EE potential in EPRI’s work referenced above, for example, the Southeast states could avoid more than 80,000 tons of NOx, SO2, and PM per year. In the region that includes the Grand Canyon, AVERT suggests that EE could avoid almost 12,000 tons of NOx, SO2, and PM per year. In most states, achieving reductions of thousands of tons provides a good start toward the next phase of visibility improvements.

Along with improving air quality, energy efficiency has many other attributes. EE can reduce or delay the need for upgrades in transmission and distribution system infrastructure, and it provides a host of other environmental benefits, including improved water quality, reduced solid waste from fossil fuel extraction, and less land disruption. These advantages demonstrate why efficiency remains critical, even as renewable energy declines in cost—why RAP continues to emphasize “efficiency first.”

As air quality agencies work to meet their obligations for the next round of regional haze compliance plans, now is the time to explore how additional EE can help—by lowering electricity demand enough to improve visibility, decreasing the need to run high-emitting power plants, and avoiding additional emissions control costs for such units. If state environmental agencies work with their energy office and utility commission counterparts, it may be possible to align utility resource planning with the development of regional haze plans and other air quality improvement plans, as RAP envisions in E-Merge, a streamlined approach integrating energy and environmental regulation.

Please contact RAP if you’re interested in how EE can benefit your regional haze compliance plan. We can help you document how EE has reduced emissions in your state using the EPA’s criteria, as envisioned in its EE/RE Roadmap. We also have already outlined a variety of strategies for linking air quality and EE.

Just as you can see farther on a clear day at the Grand Canyon, taking a “longer view” of air quality management tools—and including energy efficiency—can help states clean up regional haze, meet energy goals, and save consumers money.

California’s Mandatory PV Code Amendment: Is It Really Time for This?

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The press has been abuzz this summer about the California Energy Commission’s (CEC) new building code amendment that will require most single-family residential and low-rise multi-family dwellings to incorporate PV systems at construction. The amendment takes effect in 2020. Buildings located where solar will not perform well will be exempt, but the typical California neighborhood of the future may look something like the Hawaiian one pictured below.

Criticism of the amendment has come from several places, including the Haas Energy Institute at UC Berkeley. One concern offered by critics is that residential PV is not cost-effective compared with central station solar. Another concern is the ramping and storage issues surrounding solar, such as the “duck curve.” These are important, but were adequately considered by the CEC.

California is again unambiguously ahead of the curve on this front, but it isn’t the “first state” this time. Hawaii mandated solar water heating on single-family homes more than a decade ago. It has worked out well, and to my surprise, some builders installed PV-to-electric water heaters in order to meet the standard, instead of installing traditional solar-thermal water heaters. PV has gotten that cheap.

Today, the average Hawaii residential consumer uses about 15 percent less grid-supplied electricity than a decade ago, and a significant portion of the decline is due to solar, both water heat and PV. In Hawaii, where electricity is expensive, this has been a significant benefit to occupants of new homes.

The duck curve challenges in California—and Hawaii—are very real, but both states are taking steps consistent with the ten strategies we presented in Teaching the Duck to Fly. These include time-varying rates, targeted energy efficiency, pursuit of peak-oriented renewables, ice-storage air conditioning and grid-integrated water heating, and other effective measures.

I too was initially skeptical of California’s blanket mandate. But California’s notion that “making it code” will turn rooftop PV into a lower-cost commodity has certainly been true for other mandated technologies, such as high-performance glazing, heat pump water heaters, and high-efficiency refrigerators.

One recent news story on the CEC action stated, “For residential homeowners, based on a 30-year mortgage, the Energy Commission estimates that the standards will add about $40 to an average monthly payment, but save consumers $80 on monthly heating, cooling and lighting bills.” Many readers of this post would want to see a long-run marginal cost analysis, not a retail bill analysis, but its 2:1 benefit:cost ratio for the consumer makes it attractive, not a penalty, so I would approach that analysis with some confidence.

And CEC has explicitly called out one of the biggest benefits of rooftop PV: its shading effect that reduces air-conditioning loads. One study from San Diego showed that for every kWh generated by a PV system, consumers saved another 0.3 kWh in air conditioning usage. Another, from Arizona, showed an 11 percent reduction in electricity costs, taking in to account both reduced AC load and increased heating load. Taking reserves, marginal line losses, and distribution capacity costs into account, this is a big boost to PV cost-effectiveness that most analysts ignore.

Solar prices have indeed come down sharply, but the prices for small-scale residential installations remain higher than those of large-scale systems. However, residential systems have other advantages over central-system solar. They include avoided transmission and distribution costs, avoided distribution losses, and reduced air-conditioning requirements due to roof shading. The CEC considered all of these factors.

The graphic below shows a recent comparison of PV system costs. Residential rooftop systems cost about three times as much as large utility-scale systems. If Xcel Energy’s recent bids (and those received by utilities from Mexico to India to the United Arab Emirates) are representative, this means 3 cents per kWh for utility-scale systems compared with about 9 cents per kWh for small rooftop systems. But one stated goal of the CEC is to make rooftop solar a “commodity” to reduce the “soft costs” of installation. With a mandate, for example, “customer acquisition” costs drop to zero. If the installed residential PV system drops to about 6 cents per kWh with a combination of cost reduction and financing through low-cost mortgages, the societal cost-effectiveness will be pretty solid.

Source: GTM Research and Solar Energy Industries Association

By making solar a code element, subdivision builders will simply treat it as one more subcontractor task, along with plumbing, electric, roofing, framing, drywall, and painting. And the majority of the “supply chain, overhead, and margin” cost—fully one-half of current small-scale solar costs—would shrink to resemble the utility cost stack.

Before one criticizes California’s decision here, one should consider the results of past policies. For instance, let’s compare two states with very different approaches: Georgia and California. Georgia has lower electric rates. California has lower electric bills.

First there are a few caveats regarding this comparison: It uses 2015 income data but 2016 electric bill data; the picture would be more full with an analysis of natural gas rates, too; and housing stock and climate adjustment might be appropriate (though Georgia’s coal-heavy electricity mix contributes more to that climate adjustment). But overall, while California’s residential electric rates are much higher than those in Georgia—17.4 cents per kWh average vs. 11.5 cents per kWh—California’s average electricity bills are lower than those in Georgia.

Georgia has chosen the low-regulation, high-supply approach to energy. Weak energy codes, no appliance standards, few utility incentive or rebate programs, and electric rate design with relatively high fixed charges and low per-kWh charges.

California has chosen a high-regulation, high-efficiency approach, with lots of appliance and building standards, lots of utility incentive and rebate programs, and electric rate design that encourages efficiency and frugality. Now they’ve added another building standard: integrated PV.

The bottom line is illustrated in the table below. The electricity burden in California is much lower than in Georgia, despite the RPS, EE programs, rate design, and other California policies that have drawn the ire of some. In fact, it is not despite these policies that Californians enjoy lower electricity bills than Georgians, it’s because of them.

Comparison of California and Georgia Electricity Bill Burdens
California Georgia
Average monthly electric bill $95.20 $130.87
Average monthly household income $5,375 $4,270
% of income going to pay for electricity 1.8% 3.1%


California’s past efficiency and rate policies—including the California Alternate Rates for Energy (CARE), a very generous assistance program for low-income households—have kept electric bills manageable for nearly all households. That’s an impressive achievement in a high-cost business environment like California’s, with expensive real estate, labor, taxes, and transportation congestion costs.

The bottom line: California is again ahead of the curve in mandating PV systems in new homes. The experience of Hawaii’s solar water heat mandate shows that a code requirement dramatically reduces costs of the measure over a very short period of time. At lower costs, residential PV will likely be quite cost-effective, countering the critics’ argument that it’s too pricey compared with utility-scale options. And as our state comparison shows, California’s aggressive energy efficiency policies of the past three decades are clearly paying big benefits to the state’s electric consumers. Its rooftop PV requirement will be no different.


Fuel-Switching: We Just Did This in 1990, So Why Are We Doing It Again?

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RAP senior advisor Jim Lazar tells a story about doing a cost and environmental analysis on behalf of the Association of Northwest Gas Utilities in 1990, in which he compared space and water heating run on natural-gas-generated electricity to those same end uses fueled directly by gas. Jim’s analysis at that time found that the electric options were not only twice as expensive to run as direct-gas-fueled space and water heat, but the direct-gas options used 20 percent less gas and produced 20 percent less carbon emissions.

But things have changed in three decades. Jim now admits that “the same analysis that showed natural gas was the right choice in 1990 would conclude that electricity is probably the right choice today.”

What Has Changed Exactly?

A lot. Gas appliances have become more efficient since Jim did his study—but those gains have been far outpaced by innovation in electrical devices. In 1990, for example, gas combustion turbines were about 40 percent efficient; today’s best models are about 60 percent efficient.  Back then the best heat pumps had coefficients of performance, or “COPs,” of around 2.0, and heat pump water heaters were an emerging technology. Today both are available with COPs of 3.0, and can deliver one-and-a-half to three times more heat energy to a home than the electrical energy they consume.

And today, wind and solar generation can be expected to meet much of new electrical load, further reducing both costs and emissions. As Michael Liebreich of Bloomberg New Energy Finance noted in describing the “world record prices” (i.e., the best projects with the lowest risk) for unsubsidized renewable energy occurring around the world: “If you are not planning for two-cent solar, you are not on the money.”

Even with the production tax credit for renewables beginning to phase out, last summer American Electric Power filed a $4.5 billion proposal in Oklahoma, the heart of gas and oil country, for the Wind Catcher Energy Connection project, which the utility says can deliver energy at a levelized cost of 1.09 cents per kilowatt-hour (with no risk of fuel-cost escalation) over the life of the project. Further, the cost of battery electric storage—a key technology supporting electric vehicles (EVs), solar, and grid services—has declined by about 80 percent since 2010.

What’s the Right Analysis?

The shorthand term for the options Jim analyzed in 1990 is “fuel switching.” At the same time that Jim was doing this in the West, Steve Nadel and the American Council for an Energy-Efficient Economy (ACEEE) were investigating gas demand-side management and fuel-switching potential in New York State, and Vermont’s utility commission was directing utilities to develop programs to capture all cost-effective demand-side resources, including fuel-switching.

A fuel-switching analysis asks a deceptively simple question: What are the most efficient investments irrespective of fuel? In other words, what are the least-cost and highest-value investments for consumers that utilities ought to be planning for and making, and regulators ought to be approving?

In 1990, replacing electric resistance space-heating equipment with onsite fossil fuel space-heating and water heating technology offered efficiency savings and reduced emissions. Today, the exact opposite is true; fuel-switching from fossil-powered end uses to electrified ones now produces those results.

Jim’s story reminds us that the answer to that question has changed not only because generation and other technologies have changed, but also because gas prices are not expected to go down. In 1990, replacing electric resistance space-heating equipment with onsite fossil fuel space-heating and water heating technology offered efficiency savings and reduced emissions. Today, the exact opposite is true; fuel-switching from fossil-powered end uses to electrified ones now produces those results.

So while the inputs may have changed since the 1990s, the purpose of fuel-switching, and the basic rule about reducing net energy costs, have not: Efficiency is cost-effective when the net cost of installing and maintaining measures that improve the efficiency of overall energy usage is less than the total cost of alternatives to achieve the same end use over the same lifetime.

State programs are beginning to recognize this and to see that electrification, as the efficient fuel-switching option available today, opens up opportunities for consumers to better control their overall energy costs (even if their electricity consumption increases).  Connecticut’s 2018 Comprehensive Energy Strategy supports this transition and encourages investment in air source heat pumps that can “cost-effectively displace heating supplied by oil, propane, or electric resistance units.” Vermont has also adopted an electrification policy designed to result in a net reduction in fossil fuel consumption by a utility’s customers.

Grid Flexibility is the Key

This new era of fuel-switching offers an advantage that the earlier transition couldn’t: flexibility. Unlike virtually all other electric end uses, water heaters and EVs don’t have to immediately use the power they draw from the grid. When you take a shower, it doesn’t matter whether the water was heated five minutes or five hours earlier. The same goes for your EV. This flexibility produces an array of benefits for consumers, utilities, and our economy.

The big news for utilities and consumers is that the flexible load associated with these end uses can serve as grid resources and be managed through appropriate rate designs and smart-charging programs. These electrified loads can be shifted:

  • Away from more expensive peak times, often served by dirtier fossil-generated electricity,
  • To times when there is less demand for electricity and it is cheaper and frequently cleaner, and
  • When variable renewable energy resources are being curtailed, ensuring that less clean generation investment is wasted and that the grid can get even cleaner as it accommodates even more variable resources.

Flexible loads can also help utilities to defer or avoid costly distribution system upgrades that could be required if this demand were left uncontrolled.

Despite consuming additional kilowatt-hours of electricity, this flexible load enables consumers to be more “emissions efficient” by using less energy overall per vehicle mile traveled or gallon of hot water produced, producing fewer pounds of pollution.

So, What Makes Electrification Beneficial?

Some may think that electrification is simply about increasing load and sustaining utility revenues. We don’t agree, but nor will beneficial electrification happen automatically.

From RAP’s perspective, for electrification to be considered beneficial, it needs to meet one or more of the following conditions, without adversely affecting the other two:

  1. Saves consumers money over the long run;
  2. Enables better grid management; and
  3. Reduces negative environmental impacts.

These three conditions guide our discussion of beneficial electrification and inform the articulation of principles for regulators to consider in developing and evaluating electrification strategies. This is the first of a series of blog posts exploring these ideas, and as future posts will explore, observing such principles will help ensure that electrification develops in a manner that serves the public good.

Fuel-switching worked in 1990, but a lot has changed since then. It’s time to do it again.