By Dan Frakes and Alex Keros 10/28/13
With resounding bipartisan support, the United States finalized the details of a comprehensive energy policy that leverages our nation’s technological prowess to meet our economic, environmental, and social goals. In a broad commitment to accelerate the market development of clean energy and advanced transportation, the United States has finally established a global framework for developing jobs, ensuring national security, and meeting the needs and health of future generations. What a momentous occasion!
Wake up, Dan! Wake up, Alex!
We policy-types can certainly dream and, like many of you who work at the intersection of advanced technology and our nation’s policies, our goal remains bringing about a clean energy future. And absent a comprehensive energy policy, we work hard to take on each challenge one step at a time. Also, without important market drivers, such as customer demand and market transparency, progress will remain slow. So, we got to thinking about one corner of the energy-transportation intersection -- what policy axioms and drivers bridge the next chapter of electric vehicles and clean energy?
Complexity defines us… Individually, the energy and transportation markets are immensely complex with more than 100 years of data and debate driving our execution. Our policies—from codes and standards implementation at the local level to balancing supply and demand for electricity on an hourly basis—intertwine with diverse market complexities. With this in mind we suggest one common goal is to ensure these complexities are ultimately transparent to customers. In the transportation sector, for example, more efficient vehicles cannot sacrifice performance, comfort, and safety.
We also believe a primary policy goal when marrying the transportation sector, in the form of electric vehicles, and the energy sector, in the form of our electric utilities, is to simplify and reduce barriers. For example, there is evidence the early adopters of electric vehicles are seeking “green” energy, both directly through the installation of solar panels on their home or through renewable energy programs at their utility. Typically, these customers face complex decisions about their energy usage and must determine how time-of-use rates will impact their overall household, if separate electric-vehicle charging equipment and rates are available, and if net metering is possible and its relationship to the other options. In some cases, installing an oversized solar system in anticipation of purchasing an electric vehicle has its challenges.
These customer decisions are tied to a complex array of rules. Rules established within those 100-year old forums. So as we think about how PEVs and our utility systems interact, transparency is likely not enough. We also need flexible and nimble forums so our policies can adapt as we compare our historical experience (business-as-usual) with the new ways customers will interact with those processes. For example, when launching our infrastructure support for the Chevrolet Volt in late 2010, our rubrics would sometimes change by Friday from what we learned from our customers earlier in the week.
It involves Washington… From a transportation perspective, the country has continued along the path to establish alternatives to traditional gasoline-powered vehicles. The collaboration toward a common goal like energy security can actually result in unequivocally beneficial policies, and the resulting transformational momentum is exciting. One such path has included incentives programs for natural gas, hybrid, fuel cell, and plug-in electric vehicles (PEVs). These programs are designed to directly influence consumer behavior by offsetting the cost of advanced vehicle technology.
The current Federal tax credit for electric vehicles (IRS Federal Tax credit 30D), originally created in 2008, is an example of this type of program. This well thought-out and executed program was not the typical flat rate tax credit but a variable credit that focused on the size of the battery that propels the vehicle. While a significant cost-driver for a plug-in electric vehicle, the battery size also determines how much benefit (i.e. electric miles) can be associated the vehicle.
Tying the credit to battery size, and the potential benefit of a larger range, was creative. Most importantly, it has clearly influenced purchase decisions. The sale of plug-in electric vehicles has been on a steady increase since the end of 2010. In 2011, the first full year of PEV sales by major manufacturers was around 17,000 units. This number effectively tripled to nearly 53,000 units in 2012, and 2013 is looking to be another promising year for the industry with PEV sales trending between 75,000-100,000 units. The continued growth of this new market is exciting; the 30D tax credit is having a tangible impact.
It continues in your backyard… One of the most significant ways to bring about change is through the desire and engagement of your local community. Several state and local governments are promoting alternative energy vehicles within their borders and city limits with visible results. This is not more evident than in California, where several active policies at the state and local levels have made a clear impact.
The Clean Vehicle Rebate Project (CVRP), which provides rebates of up to $2,500 for the purchase or lease of zero-emission and plug-in hybrid light-duty vehicles, is one clear example of a successful vehicle incentive program. The rebate level clearly influences purchase (and lease) decisions. Furthermore the team administering the program makes it easy for the public to determine what vehicles qualify, the rebate amount for each vehicle, a quick turnaround time to receive your check, and even the amount of incentive dollars that are available for the fiscal year.
Another way states incentivize the adoption of alternative fueled vehicles is through non-monetary incentives. Perhaps, as important as a vehicle rebate, is California’s law which allows single-occupant use of High Occupancy Vehicle (HOVs) lanes by certain qualifying clean alternative fuel vehicles. This incentive is extremely powerful and viewed by consumers as a significant advantage.
As these examples show, some of the most effective programs (whether national, state, or local) are simple, effective and customer-facing. They also lead to other tangible, measurable benefits such as fuel cost savings. Similarly, these programs also tell communities our leaders support technologies that reduce emissions, stimulate sustainable transportation options, and direct investments into our electric utility system. While subtle, these types of reinforcements support transparency and build confidence in the entire system.
Unlocking the value…What perhaps makes the intersection of electric vehicles and the grid most interesting, from both a policy and market perspective, is the potential for “one plus one to equal three.” More specifically, offering services such as demand response or frequency regulation could unlock value within the electric vehicle. At the same time, it could provide the necessary energy storage to support renewable energy development where the magnitude of this value will be determined by the charger’s capability (single or bi-direction) and how often it is connected to the grid. If we want to unlock the value at this vehicle-to-grid intersection, our policies will need to support simple, market execution while answering potentially complex questions, such as, “What is the resource (charging station, the vehicle)?” or “Who is the decision maker (customer, utility, third party)?” We may learn after determining some of those initial answers the market prefers a different solution altogether.
Furthermore, an effort to integrate vehicles and the grid challenges our thinking on existing policy paradigms. For example, one might consider the electric meter the “utility’s cash register.” With that definition comes a set of rules (…understandably so…) on how to manage physicality, accuracy, tolerances, and testing requirements, among many other considerations. But to support a variety of policy goals, such as incentivizing charging during off-peak times, it may also be important to rethink the meter and its relationship with the electric vehicle. Perhaps it is embedded within a charging station or offered as a telematics solution within the vehicle. Without debating the merits of these systems, one can easily see that this disrupts the cash register model whereby policies and paradigms might need to be reconsidered to enable these options.
Recently, a similar policy challenge was faced by the National Council on Weights and Measures. The traditional model of selling fuel on a single, per unit basis is being challenged by emerging business models. These new models offer recharging based not only on the traditional unit-energy basis, but also on mileage, membership, time, and/or location. These emerging models, not unlike the solar model of selling a service, work to enable customer convenience by connecting services at home and away from home. While the NCWM ultimately determined the traditional model offered the necessary transparency, we do know customers are seeking the convenience encapsulated in these business models and policy will likely need to adapt.
Lessons learned…We acknowledge it is easy to both understate and overstate the policy sphere that many of us work within each day (…especially when you are fashioning a handful of paragraphs for an audience). But, the electric vehicle and the grid are at a cusp of a transition—a transition that can act as an accelerant or a barrier for broader energy goals.
Earlier this year, our CEO called for a consumer-driven national energy policy—transportation and renewable energy certainly sit at the cross-roads of such a policy. And as we take our energy systems into the next 100 years, we suggest tapping into our vast experience of using a set of simple principles to generate tangible, reproducible frameworks across our nation and our energy markets. These policy axioms and frameworks will inevitably set the stage for a new energy future.
…Or perhaps we are still dreaming.
Dan Frakes and Alex Keros manage General Motors' Public Policy work on advanced vehicles, infrastructure, and technology. Their diverse background spans from engaging public-private partnerships to electric vehicle infrastructure planning to supporting the launch of the Chevrolet Volt.