How Electric Cars Can Pay For Themselves

By Bill Moore

Posted: 18 Aug 2011

Big surprise: car buyers in India aren’t willing to pay a premium for an electric car over and above the cost of a conventional gasoline car; this according to a recent Deloitte Touche Tohmatsu Ltd survey.

Then again, neither are most other automobile buyers around the world, as nearly every other survey over the last several years has found. Most people start to balk at a 10% premium or around US$3,000. We’re a long ways from even that price spread with your average electric car priced nearly twice what its ICE-age (internal combustion engine) counterpart sells for: case in point, the Nissan Versa versus the LEAF. Tax credits and rebates help, but there’s not nearly enough of that money to go around anymore. Just ask the folks in California who saw their rebates sliced in half to $2,500.

Complicating the picture even more is the federal government’s newest CAFE standard with fleet averages mandated to be 54.5 mpg by the 2025 model year. Here a recent survey by Market Insight of 27,000 online respondents found that “small car” segment shoppers were only willing to pay about $900 more for a vehicle that achieved that kind of fuel economy. They write…

Since today’s alternative fuel technologies add significantly to the cost of a vehicle, “54.5” is outside the payback range of what consumers will currently accept, if given a choice.
Some forecasts see the price gap between ICE-age vehicles and electric-drive models closing to around $3,000 or less by 2020, IF dropping battery cost trends continue. But seen from today’s perspective of falling gasoline prices (likely only temporary), that’s still $2,100 too far apart for many. We may eventually see EV options become seriously competitive, but I am not holding my breath in the intervening years.

What we really need is a paradigm shift, one that doesn’t look at an EV as a pricey liability, but as a revenue generating asset, and I am not talking about renting your car to your neighbor or charging to car pool. What we need to do is take advantage of the EVs biggest asset: its battery pack.

Yes, I am talking about vehicle-to-grid, or V2G in shorthand. It is the ability for the EV owner to sell power back to the grid; and there are some 17 different services that battery could provide that would be of economic value to the power company or local businesses. Dr. Willett Kempton, whom EV World first interviewed back around 1999, has proposed that such services could be worth more than $5 a day to the car owner. My friend and colleague Jigar Shah, who was just appointed to the board of directors for the Earth Day Network, wrote a piece recently on this topic that appeared in Fast Company, explaining, “While the consumer has the car parked a minimum of 95% of its lifetime, the car battery can be used to create additional revenue from the electric utility that more than pays for the ‘premium’ price for an electric vehicle.”

We are a long way from that reality: carmaker are concerned about the effect such services would have on the longevity of the battery, utilities have virtually no physical infrastructure in place to make it practical; and, of course, there aren’t the hundreds of thousands of EVs on the road to make it economically feasible at the moment.

But progress is never stagnate. In the wake of the yeoman-like service both the Nissan LEAF and Mitsubishi i-MiEV performed in the wake of the March 11, 2011 9.0 earthquake and tsunami in Japan in providing emergency power in the stricken prefectures, both companies, along with Toyota, are adapting their electric cars so that drivers can use the electric power stored in the batteries in the even of power outages. Referred to as V2H (vehicle-to-home), it is the first tentative step towards V2G.

The idea is compelling. Store electric energy generated overnight from renewable or even conventional power plants and later share it with the grid in the ultimate consumer-driven expression of capitalism’s central manta of “buying low and selling high.” In effect, every EV owner becomes the operator of not just an automobile, but of a micro grid storage unit, which has economic value beyond moving bodies and goods between points on a map.

So, let’s assume that the $5 a day number is a valid reference point; and it depends, of course, on what the buyer is willing to pay and how much of the energy and/or storage capacity in the battery the owner is willing to sell. $5 a day times 360 days is $1,800 annually. Assume you’ll provide this service for say five years and you come up with a figure of $9,000, which should pretty much close the price gap and then some by the time a V2G system is actually up and running.

Sure, this is pretty much just theory at this point, though the University of Delaware and others are working out the basic concept and underlying technologies. We’ve even heard that the U.S. Air Force has plans to introduce V2G in their ground vehicle fleet.

The point is, we need to find a way beyond government rebates and tax breaks as price gap closers. We need to make the purchase of an EV a compelling economic case and not just one based on emotions. V2G is an important way to get there.

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