Transportation electrification and EVs: Who pays for grid upgrades? – Utility Dive

Michael Hartnack is senior solution director, customer energy solutions, and Jesse Hitchcock is senior analyst, EVs, at E Source

As EVs proliferate here in the U.S. and internationally, so too do the widespread benefits to customers, utilities, our planet and the power grid. However, with these benefits come a few big challenges that we’ve never dealt with before and haven’t really figured out how to manage. One challenge is figuring out who pays for the grid infrastructure upgrades needed as a result of EV load growth on a transformer or feeder.

A few utility programs, including those from DTE Energy, PG&E, Public Service Electric & Gas Co. and Xcel Energy Colorado, are beginning to try to figure this out. But when it comes to electrification planning and incentive programs, there has still been relatively little consideration of the needs and costs surrounding utility grid-side service upgrades. Utilities are increasingly challenged by how to pay for these upgrades in a way that’s fair and equitable for customers.

Traditionally, utilities have supported panel or service upgrades as requests are received — a first-come-first-serve basis. Once a feeder reaches service capacity, a customer may have to pay some or all of the upgrade costs associated with increased service capacity at that location. And they might have to even if earlier service upgrades contributed more to total capacity or over-capacity conditions. Yep, that’s right: if you’re the last customer in your neighborhood to, say, buy an EV, and the transformer becomes overloaded once you start charging, you may be saddled with the bill for the transformer service upgrade.

This problem is likely to have substantial energy equity implications. Some utilities have tried to support customers with these costs through charging infrastructure enablement programs, several of which I’ve detailed below.

How do we make this right?

This issue is becoming a serious problem that, to my knowledge, no utility has fully solved yet. To overcome these barriers and successfully transform our energy systems, we’ll probably need to completely rethink how we decide what utilities can and can’t pay for. For example, the “obligation to serve” limitation on most utilities today — which requires that a customer must request a service upgrade before work can begin — is insufficient to meet our electrification and decarbonization goals.

One possible alternative to our traditional cost-based regulatory framework is a transition to a more performance-based ratemaking approach that can incentivize efficient and equitable service upgrade processes. E Source recently published a white paper on this topic: Performance-based regulatory strategies to accelerate beneficial electrification.

We’re also seeing some utilities shift funds from other customer programs to pay for electrification costs. For example, the Sacramento Municipal Utility District has completely reimagined its demand-side management program portfolio, which used to be dominated by efficiency measures (even though, like many utilities, savings were often driven by commercial lighting projects).

Now, with performance metrics for portfolio carbon reduction in place, SMUD is investing heavily in electrification programs, including residential EV and building electrification incentives. Over time, SMUD expects that the bulk of its spending will be on electrification and a relatively small share of budgets will be spent on efficiency. To learn more about how SMUD made this transition, see Recurve’s article How SMUD Re-Engineered Itself to Focus On Decarbonization Through Flexibility and Electrification.

Electrification programs, at least in theory, are load-building activities: you upgrade electrical panels, service lines and transformers to deliver (and sell) more electricity. The aversion to load-building (and the inability to speak openly about it) has been spreading to the rest of the country of late. However, the amount of new revenue utilities can derive from vehicle and building electrification isn’t equivalent to simply directly fuel-switching all gas-powered end uses. That would be too expensive and too negatively impactful for the grid.

We have to electrify efficiently and account for fuel-neutral energy savings to appropriately account for the impact of electrification. To do that, utilities and their regulators must place strong incentives on efficient electrification and controlling demand from new electric loads. The fact is that we won’t be able to electrify cost-effectively at scale without ensuring buildings are highly efficient and the associated demand is managed appropriately.


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