Study finds that low carbon vehicles will make progress in closing TCO gap by 2030, but will still require financial support for wide adoption
|Required support for alternative vehicles in 2025 to make the four year TCO comparable to conventional ICE vehicles. Click to enlarge.|
An analysis of future vehicle total costs of ownership (TCO) in the UK found that low carbon cars can make substantial progress in bridging the current cost gap by 2030. By 2030, the TCO premium for plug-in vehicles has decreased to £2,400 (US$3,825) for a PHEV (plug-in hybrid electric vehicle) and £3,000 (US$4,782) for the pure EV (electric vehicle). In 2010, this cost differential is closer to £20,000 ($32,000) for the pure EV, excluding current incentives and OEM discounts.
The study, based on assumptions for the UK market, also concludes that as conventional ICE vehicles continue to increase in efficiency, the effect of changes in fuel cost become less important as fuel costs contribute to a lower portion of the TCO. The fuel contribution to the TCO changes from 16% in 2010 (for the C&D class ICE vehicle) to 9% by 2030. According to the report, low carbon cars are likely to require continuing financial support in the form of differential taxation if they are to be widely adopted in future.
|Support required for alternative vehicles to make their TCO comparable to the ICE vehicles in 2025 as a percentage of the TCO of the alternative vehicle. Click to enlarge.|
The report was prepared by Element Energy for, and in collaboration with, the expert membership of the UK Low Carbon Vehicle Partnership (LowCVP) that includes major vehicle manufacturers and oil companies. It examined how the total cost of owning a car can be expected to change to 2030 with the introduction of lower carbon technologies. These lead to higher purchase prices than for conventional cars (with only an internal combustion engine) but have lower running costs as they use less and/or cheaper fuels like electricity and hydrogen. For ultra-low carbon cars to be widely adopted the total cost of ownership, for the first buyer of the vehicle, must be competitive, the LowCVP notes.
Methodology. The calculation of the TCO of alternative vehicles was based on an analysis of vehicle component costs and performance assumptions combined with assumptions on future ongoing cost such as fuel and insurance. All assumptions were peer-reviewed by the project Steering Group and through consultation with the wider LowCVP membership.
The report authors defined future vehicle characteristics based on expected incremental improvements of MY2010 vehicles. These vehicles were separated into A&B-, C&D- and E&H-class vehicles. Cost and performance attributes for an average vehicle in each class were then calculated from publicly available data. With an established baseline, the authors then applied performance evolutions to generate the vehicle properties in 2020, 2025 and 2030. The vehicles powertrains considered were:
- Conventional internal combustion engine vehicles
- Non-plug-in hybrids
- Plug-in hybrid electric vehicle (PHEV) with a 30 km (18.6 mile) electric range
- Range-extended electric vehicle (RE-EV) with a 60 km (37.3 mile) electric range
- Battery electric vehicles
- Two H2 fuel cell cars, in hybridized and non-hybridized configurations
To calculate total costs of ownership for each vehicle type, the authors added to the capital costs the following costs of ownership for each vehicle type: Fuel and electricity costs, based on trip statistics data from the National Travel Survey and improvements on current vehicles; Insurance costs, taking into account overall market trends as well as specific costs for insuring novel powertrains; Servicing and maintenance costs; and Depreciation.
Distributions constructed for each component in the TCO were then used in a Monte Carlo analysis to generate an overall distribution of total costs for each vehicle. Following the Monte Carlo analysis, a series of scenarios was used to test the effects of disruptive changes in technology costs and macroeconomic factors on the economics of low carbon cars. The scenarios considered included:
- Policy interventions to equalize the TCO for low carbon and conventional cars;
- Battery and fuel cell cost reductions;
- Fuel shocks inflating the fuel price;
- The use of different discount rates; and
- The effect of changing the ownership period on the TCO calculation.
Findings. The internal combustion engine cars and hybrid vehicles continue to have the lowest TCOs through 2030, based on the analysis in the report. The spreads of their TCOs are much smaller than those of the alternative vehicles as there is much more certainty about the capital costs of these vehicles. All of the alternative vehicles have a wide distribution on possible TCOs, particularly the EV where battery costs are the biggest contributor to the total vehicle cost.
By 2030 the distributions of the TCOs for different powertrains have narrowed and have started to converge to £2k–£3k more than the ICE vehicle. Plug-in vehicles now have a higher TCO than EVs, which implies that there is a cross-over point where providing extra battery capacity is cheaper than the additional costs of a hybrid-powertrain. This assumes that by this time the range of battery electric vehicles (240 km for a medium size car) is sufficient to meet consumers’ needs. Where greater range is required, H2 vehicles are considerably more cost-effective than battery electric vehicles.
To calculate the relative cost effectiveness of each low carbon powertrain, the authors calculated the financial support required to equalize TCO with that of a conventional ICE car and dividing by the relative CO2 savings per kilometer. This “£/g/km” metric allows all powertrains to be compared against the conventional ICE car in a given year.
Based on that analysis, the PHEV emerged as the most cost-effective solution for reducing tailpipe emissions in 2025. A RE-EV with a higher range lowers emissions and fuel costs (by £70-£100 per year), but this is outweighed by the cost of a larger battery, even based on 2030 battery costs. The tailpipe emissions of PHEVs are projected to reach around 30 gCO2/km by 2030, with incentives equivalent to £750 (US$1,200) per year required to be competitive against a conventional car.
More stringent emissions targets (below 30 g/km) would require deployment of H2 and pure electric vehicles. The analysis suggests that these vehicles will have similar TCOs over the 2020-2030 timeframe, and the relative market shares will depend on other factors such as vehicle functionality and the availability of recharging versus refueling infrastructure.
Under a scenario of large reductions in battery and fuel cell costs (to £67 (US$107)/kWh and £20 (US$32)/kW, respectively) EVs and hydrogen RE-EVs become cost-comparable to ICE vehicles on a TCO basis.
This suggests that a radical reduction in the costs of these components (beyond the cost reductions assumed in the first part of the study) will be required if pure EVs and H2 vehicles are to compete against conventional vehicles without ongoing incentives or regulation.
Under a fuel shock scenario, the significant fuel prices rises go some way to levelling the TCO across the various powertrains. Fuel prices of £3/L ($18/gallon US) for hydrocarbon fuel, 40p (US$0.64)/kWh for electricity and £8 (US$12.75)/kg are almost sufficient to equalize the TCOs of the conventional car and the PHEV.
The differential for the pure EV also drops from £5,000 to only £1,500. It is also clear that the pure EV is relatively insensitive to the costs of electricity (even with a tripling relative to today’s prices). This may become a key selling point for EVs, especially compared with the exposure of the conventional car to shocks in fuel prices.
The report also concluded that other factors such as insurance have an increasingly large effect on the TCO of vehicles if current trends continue. Differentials in insurance or maintenance costs between conventional and low carbon cars must be minimized if drivers are to benefit from the significantly lower fuel costs of new technologies, the authors suggested.
Emissions. The report concludes that it is possible for ICE vehicles to deliver the required efficiency savings for the EU new sales fleet average emissions of 95 gCO2/km in 2020. Assuming the current market shares for each vehicle segment remain constant, fleet average vehicle emissions from ICE vehicles alone would be 95.7 gCO2/km in 2020, including the future provision for biofuels (10% by energy).
Substantially reducing fleet average emissions after 2020 will require the deployment of non-plug-in and plug-in hybrid vehicles, as ICE vehicles alone can reduce the fleet average emission by a further 14 gCO2/km only. The most cost-effective solution to reduce vehicle emissions further is the PHEV with an electric range of approximately 30 km. A new car fleet comprised entirely of PHEVs would have emissions of c. 30 gCO2/km by 2030.
The PHEV continues to outperform the RE-EV (with a 60 km range) in terms of cost-effectiveness to 2030, since the cost of providing extra electric range outweighs further reductions in emissions and fuel bills. However, this conclusion is dependent on the real world range electric range (and hence fuel bill savings) offered by these vehicles in under different driving patterns. The hydrogen RE-EV and EV become the most cost effective vehicle technology in the C&D class vehicle in 2030.
If future vehicle emissions targets move below c.20 g/km (tailpipe emissions only), PHEV and RE-EVs cannot deliver this level of reduction even with predicted efficiency improvements in internal combustion engines. Only pure electric and hydrogen vehicles can offer such low tailpipe emissions.
Element Energy is a strategic energy consultancy specializing in the analysis of low-carbon energy in the transport, buildings and power sectors.