New Berkeley Lab technical brief provides an introduction to designing EV retail electric utility rates

August 4, 2022

We are pleased to announce the release of a new Berkeley Lab technical brief titled “EV Retail Rate Design 101.”

Electric vehicle (EV) adoption has increased significantly over the past several years. More than 640,000 light-duty plug-in EVs were sold in the US in 2021, which was more than twice the number sold in 2020. State regulators and policymakers are addressing barriers to EV adoption, integration of EVs into the electricity system, and the equitable sharing of benefits among EV owners and other electricity customers. One of the most significant activities among state utility regulators is the development of EV-specific retail rates that reflect different objectives and design options.

We identify five policy-driven objectives that are used as the basis for EV retail rate design:

  1. Promote EV adoption - The objective is to encourage and promote drivers to adopt EVs.
  2. Grid management - The objective is to incentivize or control EV charging in response to utility grid needs at the bulk and/or distribution levels (e.g., reduce bulk power system peak demand, support local distribution network voltage).
  3. System economic efficiency - The objective is to optimally charge and/or deploy EVs in a manner that minimizes long-run marginal costs.
  4. Decarbonization - The objective is to charge EVs to reduce direct and indirect carbon emissions.
  5. Equity - The objective is to equitably share the benefits of EVs across all customers.

In practice, the rate objective will constrain the utility’s rate design choices. For example, a rate promoting EV adoption will limit design choices in terms of cost and simplicity in order for customers to make like-for-like comparisons between gasoline and electricity costs. In contrast, design choices for EV grid management rates communicate distribution and/or bulk power system conditions either via temporal and/or locational price or load signals, as well as submetering the EV charging. EV rates for system economic efficiency are likely to have temporal differentiation on an hourly or sub-hourly basis and/or demand charges consistent with the temporal differentiation of marginal costs. Similarly, EV rates to achieve sectoral and/or economy-wide decarbonization are designed around marginal or average emissions rates and with differentiation consistent with the emissions type and location. Finally, designing rates for equitable EV deployment is based on choices that limit incremental costs, many of which are paid by all ratepayers, and manage potential electricity bill risk and volatility. 

There are a number of non-rate elements that can further achieve EV-related objectives. First, EV rebates and other financial incentives (e.g., tax credits) reduce the upfront purchase costs and encourage EV adoption. Programs that improve the customer economics for EVs can be targeted to low- and moderate-income customers, as well as programs that encourage adoption of used EVs, and further equity objectives. Second, utilities may invest in charging networks, including public and home charging. A more robust charging network may address customer concerns about sufficient charging stations and utility investments could be targeted in multi-family dwellings and other locations that lack third-party charging networks, which is particularly important for ensuring equitable access to EV charging. Utilities may also invest in EV chargers with direct control and/or communication capabilities to better manage system demand. Third, utility investments to appropriately size or modernize the distribution system can further enable new EV charging loads, especially from medium- and heavy-duty EVs.

The technical brief can be downloaded from here: https://emp.lbl.gov/publications/ev-retail-rate-design-101.

Berkeley Lab is grateful for the funding support from the U.S. Department of Energy’s Office of Electricity as part of the EV Grid Assist Initiative.

 

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