By - Jim Vess

Demand charges seen as a barrier to the growth of public EV charging stations

Energize Weekly, April 12, 2017

The growth of electric vehicles (EVs) and the charging stations they need is often described as a “chicken-and-egg” problem—but the prospects for adding stations is being scrambled by high electricity rates, according to a study by the Rocky Mountain Institute (RMI).

The analysis of 230 California stations run by EVgo, the nation’s largest operator of public fast-charging stations, found that utilities applying “demand charges” to the stations made the stations uneconomical.

The dilemma is that without more charging stations, it will be difficult to sell more electric vehicles and without more EVs, it will be hard to make a profit on the stations.

“If we are going to solve this chicken-and-egg problem, we are going to have to have a viable business model for public charging stations,” says Chris Nelder, a manager in RMI’s electricity practice and a co-author of the study.

The report was funded by Houston-based EVgo, which operates more than 670 charging locations across the U.S.

“For a market that is just getting started, the demand charges are a barrier,” Nelder says. If the stations had utilization rates of 80 percent, they might be able to absorb the demand charges, but at 10 percent utilization, they become unprofitable, he said.

Utilities put demand charges on large industrial and commercial users who place high demands upon the grid and are based on the customer’s peak use of electricity. In California, utilities have put demand charges on each of EVgo’s stations.

The result is that in some cases, these charges were responsible for more than 90 percent of a charging station’s electricity costs—as high as a $1.96 a kilowatt-hour at some stations during the summer months.

EV stations need to be able to charge around 29 cents a kilowatt-hour to be competitive with gasoline or put another way, to sell electricity to drivers at 9 cents a mile or less, according to the RMI report.

“Demand charges are especially challenging to new charging infrastructure that has not yet reached a sustainable utilization rate,” the study says. “This issue will be compounded by the deployment of next-generation fast-charging stations.”

Earlier this year, EVgo, in collaboration with Swedish technology company ABB, introduced its newest high-power, fast-charging station, which operates at a rate of 150 kilowatts or three times faster than most fast-charging stations installed in the U.S.

There are several issues with demand charges on charging stations, the study says. First, operators of charging stations have little control over when customers use them and as a result, unlike commercial and industrial customers, cannot manage to reduce peak usage. “The use rates of charges also vary widely by location and type of charger,” the study notes.

In analyzing every charging session at every EVgo California station over the course of 2016, RMI found an up to 70 percent variation in sales from month to month, while there was a smaller, 16 percent variation in peak demand each month. So, a station with low sales could still get pinched with a high demand charge.

“In short, these charger networks look and behave nothing like a large commercial or industrial facility, but they are being billed as if each location is a separate commercial facility,” the report says.

California has regulations in place requiring a percentage of all cars sold in the state to have zero emissions—in effect requiring electric cars. The goal is to have 1.5 million EVs on the road by 2020.

The state has also pushed California’s three large investor-owned utilities to run pilot programs in which they will install 12,500 charging stations. Regulators have also asked the utilities to propose new rates that reduce the impact of demand charges on operators of public fast-charging stations.

South California Edison (SCE) and San Diego Gas & Electric (SDG&E) have submitted proposals. Pacific Gas and Electric has yet to field a plan. The SDG&E proposal includes replacing a demand charge with a more flexible “dynamic adder,” and the plan proposed by SCE calls for suspending demand charges for five years.

“We will have to wait and see how the market develops,” says Nelder. “At the very least, the new tariffs they have proposed are going to work better for guys like EVgo.”

The report sets out what it calls best practices for EV charging station rates.

  • Time-varying volumetric rates for electricity, such as time-of-use rate that charges more when electricity demand is high and less when it low. “Ideally, these volumetric charges would recover all, or nearly all, of the cost of providing energy and system capacity,” the report said.
  • Low fixed charges, which primarily reflect routine costs for things like maintenance and billing. 
  • The opportunity to earn credit for providing grid services.
  • Rates that vary by location. For example, a utility could offer low rates for fast charging stations installed in overbuilt and underutilized areas of the grid, in order to increase the efficiency of existing infrastructure and build new EV-charging infrastructure at low cost. 
  • Limited or no demand charges.

“You can’t really imagine to get to the future of widespread EVs without public charging stations,” Nelder says. “So we really have to get the rates right.”

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