With increased interest in energy efficiency and distributed generation, electricity demand has fallen flat. In the meantime, clever intermediaries, including Community Choice Aggregators – currently allowed in at least six states and growing – are nibbling away at customers, one community at a time.
What is there to look forward to if you are an incumbent electric utility these days? Two promising areas come to mind: Grid modernisation and electric transportation – including investment in infrastructure required to entice more drivers to part ways with their internal combustion engines (ICE) in favour of electric vehicles (EVs).
While grid modernisation offers enormous investment opportunities, electric transportation not only requires massive investments but – if successful – is likely to lead to increased electricity consumption as petrol and diesel loses market share to electricity in the transport sector. In places like California, it is giving utility executives something to do, and investors something to bank on.
In a briefing to investors in mid-April 2017, Pedro Pizzaro, the president of Edison International, the parent of Southern California Edison (SCE), announced that as much as $1-billion will be required for the EV charging infrastructure to meet the state’s ambitious targets – which requires reducing greenhouse gas emissions by 40% from their 1990 levels by 2030.
The company’s CEO, Kevin Payne, expects the state will need to at least double the 4,2-million plug-in electric vehicles. As reported in California Current on 12 April, SCE had originally planned on 100 000 level 2 and 10 000 fast chargers to meet the EV demand in its service area, roughly the southern half of the state, except for a small portion served by San Diego Gas & Electric.
Now it says twice as many charging stations will be needed. Moreover, SCE says that its original cost estimates were too low. It says chargers cost around $22 000 per installation. Its current estimate is 60 000 chargers adding roughly $1,32-billion to the regulated utility’s rate base, on which it can earn a regulated rate of return (ROR).
Regulated utilities in California make no money selling energy (kWh). The cost of energy is treated strictly as a pass through. They only make money by investing in infrastructure, on which they can earn an allowed ROR, which explains why utility CEOs are looking forward to being given permission to invest in electric charging infrastructure.
Recognising the tendency to over-invest in infrastructure – in EV charging or whatever they can get away with – the regulator, Californian Public Utilities Commission (CPUC), has thus far limited the role of the utilities in both installing and operating charging infrastructure. By doing so, it was hoped that independent competitors would emerge.
However, this has not happened as quickly or in the scale which was expected, leaving a shortage in the number of chargers required to feed the growing numbers of EVs anticipated by 2030. State-wide, as many as 500 000 level 2 public charging stations and another 50 000 fast chargers will probably be needed, according to SCE’s executives. This suggests that a massive amount of new investments will need to be added to the three investor-owned utilities’ (IOUs) rate base over the next 15 years, even if they will make up a third of the total, leaving room for other players.
Needless to say, the number of EV chargers which will ultimately be required, who will build, own and operate them and how the investments will be recouped, are highly contentious issues. The IOUs, of course, need the regulator’s permission to proceed and by all indications, they cannot wait for the green light to do so.
Customer advocates are generally of the opinion that EV charging infrastructure should be financed by EV owners – who tend to be more affluent – rather than the entire utility customer-base, many of whom do not own or operate EVs. Putting the investment cost of EV chargers in a utility’s rate base and passing it on to all, they contend, is akin to subsidising the rich at the expense of the poor.
This article was first published in the June 2017 edition of EEnergy Informer, and is republished here with permission.
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