Time of Use Pricing: Evaluating the True Cost of EV Charging Stations
By Joseph Tohill
Although EV charging stations are continuing to pop up in cities all over the country, they are still a relatively new addition to the urban landscape. As with any new technology, many people are asking questions about installing EV charging stations and how to ascertain an accurate cost-benefit analysis.
This article will look at how to determine the true cost of EV charging stations and how to recoup these costs by establishing an effective service plan that accounts for time-of-use pricing.
How Electricity Pricing Works
Although utilities across the country have numerous ways of calculating electricity costs, essentially what it comes down to is a charge per kilowatt-hour (kWh) – e.g. 15 cents/kWh. However, utilities are increasingly incorporating time-of-use (TOU) pricing in their billing plans. This means that the cost per kWh will be different over the course of the day to accurately reflect consumer demand.
Electricity prices during the daytime would be most expensive because this is when the most electricity is drawn from the grid (demand is high). But at night time, electricity prices would be cheaper because far less people are using electricity.
For instance, Pepco, the utility that services Washington D.C. and some communities in Maryland has TOU options for non-residential users. Under its time-of-use plan, Pepco has a rate structure that divides weekdays into on-peak, intermediate, and off-peak periods.
When it comes to EV charging stations, TOU pricing is the most accurate cost associated with charging an EV. This is because the cost of charging an EV could vary depending on the season or the time of day.
However, only utilities are allowed to charge per kWh. This means that EV charging station owners need to come up with their own pricing plan that properly accounts for TOU rates.
Recouping the Cost of an EV Charging Station
The first cost that would need to be factored in would be the initial capital cost for the charging station. This would of course vary depending on the charging station developer and construction costs.
The second element that would need to be accounted for would be the electricity prices. Since only the utility can charge per kWh, the station owner would need to develop a pricing plan that incorporates both the initial capital costs and the estimated electricity cost into one hourly rate. After averaging out TOU rates, it would typically cost about $0.80 to charge an EV per hour.
Then the station owner would need to determine what hourly rate to charge the user in order to both pay for the electricity cost and recoup their initial capital expenditure on the station. There is currently no regulation on how much a station owner can charge, so at this point it is totally up to them. With an hourly cost of $0.80, a station owner could charge $2.00 per hour, thus allowing them to pocket $1.20 per hour. Although this may not seem like much revenue initially, it could allow them to break even over the span of 2 years. After that two year period, they could turn a profit as more and more EVs hit the market.
The Benefits of an EV Charging Station
The time is ripe to reap the benefits of the emerging EV market. Demand for EVs is increasing, but the supply of new EV stations is still relatively low.
And although EV charging stations have the potential to become a profitable venture in the long-term, they provide many other benefits that are less easy to quantify. The presence of an EV charging station adds a sustainable and cutting-edge dimension to the places in which they are located. Their presence raises awareness about the EV market and visually informs EV owners of a new place to charge their car.
The earlier a prospective charging station owner installs an EV charging station, the better traction they will gain with their potential consumer base. Establishing a reputation as a “hot-spot” for EVs early in the game will provide them with a competitive advantage as increasing numbers of EVs hit the streets.
Joseph Tohill is a freelance writer and online communications specialist for organizations in the sustainability sector. He has a B.A. in Interdisciplinary Studies from the University of British Columbia and spent most of his academic career studying sustainable urban development; namely the interdisciplinary relationship between built form and natural environment.
Back to Blog