7 Principles for Commercial Rate Design to Enable Transportation Electrification
The transportation sector is the largest source of greenhouse gas emissions in the U.S., making the transition to electric vehicles (EVs) critical to achieving climate goals and improving air quality. 1 Growth in EV adoption is dependent on the availability of accessible and affordable charging infrastructure, especially public direct current (DC) fast charging infrastructure as it helps address range anxiety and enables drivers to incorporate EV charging seamlessly into their daily routines.
Public fast charging also provides access to EV charging for drivers who cannot plug in at home or work, such as renters, multifamily residents, rideshare drivers, and travelers using transit corridors. An increase in drivers' trust in the availability of charging stations will further accelerate the adoption of EVs. This will unlock not only environmental benefits, but also economic benefits as new electric load can help drive down the price of electricity for all utility customers.2
One of the most significant obstacles to the widespread deployment of charging infrastructure is the cost of electricity, by far the largest operating cost for a DC fast charging station. Specifically, the demand charge component in standard commercial rates can be problematic. Demand charges are determined based on the highest level of electricity needed during a specific period. Due to the unique way in which a fast charging station uses electricity throughout the month, demand charges can drive up electricity costs—often making up the majority of an electric bill.3
To overcome this barrier, it’s essential to develop effective alternatives to traditional commercial rate designs. EVgo has extensive experience in rate design proceedings across the country. Based on this experience, we developed a set of seven principles that we suggest utilities and regulators consider when creating alternative rate designs for EV charging:
Alternative rates should be optional. Because there are many different EV charging use cases, rates should be optional—not mandatory. Offering customers the ability to choose from multiple rate options increases competition and leads to better outcomes.
Minimize demand charges to instead utilize time-varying volumetric rates. Demand charges can create significant financial uncertainty for EV charging operators, which can lead to higher costs for customers. Costs that have been historically recovered through demand charges should instead be recovered through volumetric rates that vary based on the time of day, season, and other factors. This can help address the issue of high demand charges and help encourage EV charging at times that provide the greatest benefits to the grid.
Expand applicability of existing rates designed for industry-specific load shapes. Many utilities have existing technology-neutral, low-load factor rates designed to accommodate “spiky” loads that are similar to those at EV charging facilities. Loads related to agricultural activities, houses of worship, and sports facilities are good examples of this. Providing access to these low-load factor rates for EV charging operators can be a simple and effective solution.
Apply rates to new and existing customers. To encourage investment in EV charging infrastructure, commercial rates should be available to all EV charging customers, regardless of whether their sites are new or existing.
Consider different rates for different EV charging use cases. A variety of commercial EV charging use cases and applications exist, including workplace, public and fleet charging. Although all commercial charging customers should have access to the same EV rates, it may be appropriate to consider different rates for different usage scenarios.
Provide certainty with long-duration rates (e.g., 10 years). Providing long-term rate certainty enables EV charging operators to plan for the future and make informed investment decisions.
Limit the use of subscription charges. “Subscription” capacity rates, under which customers specify and pay for fixed blocks of demand in advance, can create significant barriers to entry for EV charging operators.
Rate design is a complicated and delicate challenge, but the good news is that utilities across the country have begun implementing commercial EV rates to help accelerate transportation electrification in their regions. These efforts are likely to continue given language within the Infrastructure Investment and Jobs Act (IIJA) that requires each state to consider measures to promote greater electrification of the transportation sector, including establishing rates that accelerate third-party investment in EV charging.
As efforts to overcome the demand charge barrier gain momentum across the country, we will see more widespread deployment of EV charging, which will drive EV adoption and pave the way for a sustainable transportation future.
Want to learn more? Download our whitepaper on rate design options that can further support a swift transition to electrified transportation.
2 Studies in states such as Arizona, New Mexico, Colorado, Florida, Minnesota, Nevada and Michigan have quantified the amount of bill savings that can be expected to accrue to electric utility customers due to transportation electrification.