An AECOM-led study of plug-in electric vehicle economics for the New South Wales, Australia government concluded that electric vehicles are economically and financially viable in the NSW market today. However, the economic and financial returns accrue over the longer term. The move towards a plug-in electric vehicle market also generates large savings in greenhouse gas and air pollution emissions.
AECOM is a global provider of professional technical and management support services to a broad range of markets. The report, Economic Viability of Electric Vehicles, was originally published in September 2009, and has been made available online.
AECOM developed an economic model to assess viability and a vehicle choice model to forecast take-up of different engine configurations. The economic model considers the costs and benefits to infrastructure providers, consumers (in terms of vehicle purchase and operating costs) and externalities such as greenhouse gas emissions and air pollution. The financial model considers the costs and benefits only to infrastructure providers and consumers.
Many studies of this type do not estimate take-up of different engine configurations and instead make assumptions based on experience elsewhere. This study has decided to directly estimate take-up for two reasons. Firstly, as this is a new market, there is not a lot of information on past experience from which to draw meaningful assumptions about the future of EVs in Australia. Secondly, by directly estimating take-up it is possible to consider the impact of various potential sensitivities around prices (electricity price, fuel price, vehicle price) and how these affect take-up.
After an extensive literature review on the factors affecting the decision to purchase a vehicle, a logit model was developed which takes into account the vehicle cost, fuel costs, vehicle range, emissions, availability of charging infrastructure, multi-fuel bonus and an electric vehicle bonus.
—“Economic Viability of Electric Vehicles”
The authors used three scenarios, focused around the different levels of charging infrastructure that may be required to facilitate the electric vehicle market, and compared those to a base case:
Base Case: Assumes there are only ICEs and HEVs available and no PHEVs or EVs.
Scenario 1: Household Charging Only (Level 1 - more than 3 hrs per 40 km).
Scenario 2: Household Charging (Level 1 and 2 - 25 minutes per 40 km) plus Public Charging Stations (car parks, hotels, shopping centers, street parking).
Scenario 3: Household Charging (Level 1 and 2), Public Charging Stations plus Electric Vehicle Service Stations (2.5 minutes per 40 km).
The study examined eleven market segments: Passenger Vehicles by vehicle size (small, medium, large) and by distance travelled (low, medium and high vehicle kilometers travelled (VKT)); Light Commercial Vehicles (LCV); and Taxis. Vehicle size was considered important because prices and availability of vehicles will vary significantly between vehicle sizes. Distance travelled was considered important because high VKT vehicles benefit more from the cheaper cost of using electricity as a transport fuel.
The vehicle choice model predicts a transition to Hybrid Electric Vehicles (HEVs) in the short term (5-10 years); to Plug-in Hybrid Electric Vehicles (PHEVs) over the medium term (5-20 years); and to full Electric Vehicles (EVs) over the longer term (20 years plus). In the short term there is increased uptake of alternative engine configurations in the small vehicle category.
Significantly, despite the high vehicle price, small EVs are around the same lifetime cost per kilometre as ICE vehicles in 2010 due to large fuel cost savings over the life of the vehicle. As vehicle prices fall, the vehicle range increases and more charging infrastructure becomes available, owners of larger vehicles and vehicles that travel large distances tend to purchase a higher proportion of EVs. This is due to the fact that operating costs are more important for these vehicle owners.
Higher levels of charging infrastructure (as represented in the different scenarios) significantly increase the take-up of plug-in electric vehicles and hence increase the viability of the market. Other key factors affecting both take-up and viability include the vehicle cost and rate at which it converges with ICE vehicles (this is largely driven by battery costs), fuel prices (particularly higher oil prices), vehicle range and the existence of local supply constraints.
Vehicle costs and vehicle range are expected to converge over time as technology improves and production increases, therefore the removal of supply constraints and the provision of charging infrastructure are the key areas that warrant further attention if the take-up of EVS is to be encouraged.
—“Economic Viability of Electric Vehicles”
Issues for Consideration. The report lists a number of issues that arose during the study that were not able to be incorporated into the model, but are important in understanding the EV market and its evolution, the authors wrote. These include:
Battery issues: There are various battery issues including the evolution towards standardization of technology; the current high costs which are expected to reduce over time with increasing production resulting in economies of scale and industry learning curves; a lack of industry practices to ensure safe battery disposal; uncertainty about battery life; and the residual value and potential for a secondary market.
Global supply constraints: A major issue to the take-up of EVs in the short term (next 5 years) will be supply constraints. These are likely to be exacerbated in the Australian market which is relatively small and not a key market for vehicle manufacturers.
Market structure: The current market structure of vehicle travel is characterized by vertical separation. The business models chosen by providers of electric vehicle infrastructure can have a strong influence on customer decision-making. While this should not change the fundamental cost and benefits of electric vehicle travel, it could change the perception of relative costs and benefits by customers and hence affect their choice of vehicle. It also has the potential to create competition issues.
Lifecycle Considerations: The lifecycle of batteries and associated electric-drive components will clearly be a determining factor for the overall sustainability of the plug-in vehicle industry. Early efforts to characterize the lifecycle of electric-drive vehicles are revealing some positive indications. However, given Australia’s current reliance on fossil fuels, the ongoing use of these fuels for manufacturing process energies and electric power generation will be a critical factor, and further lifecycle assessment will be required based on Australia’s unique local context.
Electricity issues: The most significant electricity issue arises in respect of how electric vehicle charging infrastructure is priced and how consumers respond. Clearly there is interplay between cost of charging and convenience, which will affect the take-up of EVs.
The role of government policies: Governments all around the world have developed policies to encourage the take-up of EVs. Some policies are designed to support industry (charging infrastructure, development of technology) while other policies are to encourage increased demand through subsidizing the purchase and operating costs for consumers. It is important to consider the applicability of government policies in Australia.
Wider economic impacts: This study is a partial equilibrium model and as such there are a range of other effects that may occur as a result of changes in the vehicle market that have not been considered in this study.
Economic Viability of Electric Vehicles (2009, AECOM)