Economics of Plug-In Hybrid Electric Vehicles |
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PHEVs have gained significant attention in recent years, as concerns about energy, environmental, and economic security—including rising gasoline prices— have prompted efforts to improve vehicle fuel economy and reduce petroleum consumption in the transportation sector. PHEVs are particularly well suited to meet these objectives, because they have the potential to reduce petroleum consumption both through fuel economy gains and by substituting electric power for gasoline use. PHEVs differ from both conventional vehicles, which are powered exclusively by gasoline-powered internal combustion engines (ICEs), and battery-powered electric vehicles, which use only electric motors. PHEVs combine the characteristics of both systems.
Current PHEV designs use battery power at the start of a trip, to drive the vehicle for some distance until a minimum level of battery power is reached (the “minimum state of charge”). When the vehicle has reached its minimum state of charge, it operates on a mixture of battery and ICE power, similar to some hybrid electric vehicles (HEVs) currently in use. In charge-depleting operation, a PHEV is a fully functioning electric vehicle. Some HEVs also can operate in charge-depleting operation, but only for limited distances and at low speeds. Also, PHEVs can be engineered to run in a blended mode of operation, where an onboard computer determines the most efficient use of battery and ICE power. PHEVs are unique in that their batteries can be recharged by plugging a power cord into an electrical outlet. The distance a PHEV can travel in all-electric (charge-depleting) mode is indicated by its designation. For example, a PHEV-10 is designed to travel about 10 miles on battery power alone before switching to charge-sustaining operation. Although PHEV purchase decisions may be based in part on concerns about the environment or national energy security, or by a preference for the newest vehicle technology, a comprehensive evaluation of the potential for wide-scale penetration of PHEVs into the LDV transportation fleet requires, among other things, an analysis of economic costs and benefits for typical consumers. In general, consumers will be more willing to purchase PHEVs rather than conventional gasoline-powered vehicles if the economic benefits of doing so exceed the costs incurred. Therefore, an understanding of the economic benefits and costs of purchasing a PHEV is, in general, a fundamental factor in determining the potential for consumer acceptance that would allow PHEVs to compete seriously in LDV markets. The major economic benefit of purchasing a PHEV is its significant fuel efficiency advantage over a conventional vehicle (Table 6). The PHEV can use rechargeable battery power over its all-electric range before entering charge-sustaining mode, and its all-electric operation is more energy-efficient than either a conventional ICE vehicle or the hybrid mode of an HEV (or the hybrid operation of the PHEV itself). On a gasoline-equivalent basis (with electricity efficiency estimated “from the plug”) a PHEV’s charge-depleting battery system gets on average about 105 mpg, well above even the most efficient petroleum-based ICE. When the PHEV enters charge-sustaining mode, it also takes advantage of its hybrid ICE-battery operation to achieve a relatively efficient 42 mpg. As a result, the total annual fuel expenditures for a PHEV, combining both electricity costs and gasoline, are lower than those of a conventional ICE vehicle using gasoline. The fuel savings are amplified when the PHEV’s all-electric range is increased, when gasoline prices are high, or when the difference between gasoline prices and electricity prices increases (Figure 7). Although the lower fuel costs of PHEVs provide an obvious economic benefit, currently they are significantly more expensive to buy than a comparable conventional vehicle. The price difference results from the costs of the PHEV’s battery pack and the hybrid system components that manage the use and storage of electricity. The incremental cost of the battery pack depends on its storage capacity, power output, and chemistry. For example, the electricity storage requirements for a PHEV-40, designed to travel about 40 miles on battery power alone before switching to charge-sustaining operation, are considerably larger than those for a PHEV-10. In terms of power output, PHEV batteries will be engineered to meet the typical performance needs of LDVs, such as acceleration. Currently two competing chemistries are seen as viable options for PHEV batteries—nickel metal hydride (NiMH) and lithium-ion (Li-Ion)—with different strengths and weaknesses. NiMH batteries are cheaper to produce per kilowatthour of capacity and have a proven safety record; however, their relative weight may limit their use in PHEVs. Li-Ion batteries have the potential to store significantly more electricity in lighter batteries; however, their use in PHEVs currently is limited by concerns about their calendar life, cycle life, and safety. Different vehicle manufacturers have reached different conclusions about which battery chemistry they will use in their initial PHEV offerings, but the majority consensus is that Li-Ion batteries have the most promise for the long term [51], and in this analysis they are assumed to be the battery of choice. The second cost element associated with PHEVs is the cost of the additional electronic components and hardware required to manage vehicle electrical systems and provide electrical motive power. The conventional vehicle systems on a PHEV may be less costly than those on conventional gasoline vehicles, because the PHEV’s engine and (if required) transmission are smaller, but the saving is negated by the additional costs associated with the electric motor, power inverter, wiring, charging components, thermal packaging to prevent battery overheating, and other parts. An example of the differences in various vehicle system costs (excluding the battery pack) between a PHEV-20, designed to travel about 20 miles on battery power alone before switching to charge-sustaining operation, and a similar conventional vehicle is shown in Table 7 [52]. The estimated incremental cost of the PHEV-20 shown in the table represents the combined incremental costs of all vehicle systems other than the battery, at production volumes expected in 2020 or 2030. The combined costs of the PHEV battery and battery supporting systems together represent the total incremental costs of a PHEV compared to a conventional gasoline vehicle. In the long run, however, the costs of PHEV battery and vehicle systems are not expected to remain static. Successes in research and development are expected to improve battery characteristics and reduce costs over time. In addition, as more Li-Ion batteries and system components are produced, manufacturers are expected to improve production techniques and decrease costs through economies of scale (Figure 8). To incentivize purchases of initial PHEV offerings, the recently passed EIEA2008 grants a tax credit of $2,500 for PHEVs with at least 4 kilowatthours of battery capacity (about the size of a PHEV-10 battery), with larger batteries earning an additional $417 per kilowatthour up to a maximum of $7,500 for light-duty PHEVs, which would be reached at a battery size typical for a PHEV-40 [53]. The credit will apply until 250,000 eligible PHEVs are sold or until 2015, whichever comes first. ARRA2009, which was enacted in February 2009, modifies the PHEV tax credit so that the minimum battery size earning additional credits is 5 kilowatthours and the maximum allowable credit based on battery size remains unchanged at $5,000. ARRA2009 also extends the number of eligible vehicles from a cumulative total of 250,000 for all manufacturers to more than 200,000 vehicles per manufacturer, with no expiration date on eligibility. After a manufacturer’s cumulative production of eligible PHEVs reaches 200,000 vehicles, the tax credits are reduced by 50 percent for the preceding 2 quarters and to 25 percent of the initial value for the preceding third and fourth quarters. ARRA2009 is not considered in AEO2009. As a result of the EIEA2008 tax credit, the combined cost of a PHEV battery and PHEV system in 2010 will be lower than it would be without the credit. Moreover, even after the credit has expired, incentivizing the purchase of PHEVs in the near term will allow both battery and battery-system manufacturers to achieve earlier economies of scale through greater initial sales, thus allowing battery and systems costs to decline more quickly than would have been the case without the tax credit. As a result, the combined incremental costs for PHEVs are expected to be significantly lower in 2030, when economies of scale and learning have been fully realized (Figure 9). A typical consumer may be willing to purchase a PHEV instead of a conventional ICE vehicle when the economic benefit of reduced fuel expenditures is greater than the total incremental cost of the PHEV. On that basis, PHEVs face a significant challenge. Even in 2030, the additional cost of a PHEV is projected to be higher than total fuel savings unless gasoline prices are around $6 per gallon (Figure 10). In the meantime, the cost challenge for PHEVs is even greater (Figure 11), which leads to an important problem: if consumers do not choose to buy PHEVs because they are not cost-competitive with conventional vehicles in the near term, then PHEV sales volumes will not be sufficient to induce the economies of scale assumed for this analysis. In addition to the economic challenge, PHEVs also face uncertainty with respect to Li-Ion battery life and safety [54]. Further, they will continue to face competition from other vehicle technologies, including diesels, grid-independent gasoline-electric hybrids, FFVs, and more efficient conventional gasoline vehicles, all of which are likely to become more fuel-efficient in the next 20 years. Future advances in Li-Ion battery technology could address economic, lifetime, and safety concerns, paving the way for large-scale sales and significant penetration of PHEVs into the U.S. LDV fleet. For example, a technological breakthrough could conceivably allow for smaller batteries with the same capacity and power output, thus lowering incremental costs and making PHEVs attractive on a cost-benefit basis. Also, there are at least two non-economic arguments in favor of PHEVs. First, PHEVs could significantly reduce GHG emissions in the transportation sector, depending on the fuels used to produce electricity. Second, PHEVs use less gasoline than conventional ICE vehicles (Figure 12). If PHEVs displaced conventional ICE vehicles, U.S. petroleum imports could be reduced [55].
Contact: John Maples/Nicholas Chase
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