Forget the Death Spiral: Electric Vehicles Offer a Major Growth Opportunity for Utilities

Published July 22, 2014, on

Elias Hinckley argues that utilities can benefit by taking oil’s share of the transportation market.

Energy use in the U.S. can be split into two large pies. One pie is electricity use in homes, buildings and industry. The other is transportation, which is powered primarily by liquid fuels like gasoline and diesel.

There are some exceptions, as well as a few overlapping categories of fuel use. For example, there’s direct industrial use of liquid fuel (a fairly significant quantity), some liquids burned to make electricity (this used to be a significant amount, but is now only a very small amount), and now a very small amount of electricity used to power electric vehicles (EVs).

American consumers spend, on average, more than $1 billion every day on each of these energy uses. Electric utilities have never made a serious effort to attack the transportation market at scale. Historically, this made sense. Transportation infrastructure was built around liquid fuels and there was no viable electric-drive alternative. Within the past few years, a technological transformation has occurred in the electric vehicle sector. The possibility of a utility taking a piece of the oil companies’ market share is becoming much more likely.

There are now better batteries, faster charging options and proven EVs on the road. Virtually every auto manufacturer is building a full electric or plug-in hybrid model. This evolution has happened independently of the electric utilities. Aside from rolling out a handful of charging stations or the occasional plan for how to manage large amounts of EVs on the distribution network, utilities have been little more than observers to this evolution.
Fighting the wrong battle?

There is an opportunity right in front of utilities. Yet the industry seems more focused on the threat of distributed energy and the possibility of a utility death spiral. The risk to utilities is real. A combination of distributed energy, energy efficiency, changing behavior and weak economic growth has resulted in virtually no growth for new electricity demand since 2008. That will force higher rates for each unit of electricity sold, which in turn will make the alternative technologies more attractive and accelerate consumer adoption.

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Elias Hinckley is a strategic advisor on energy finance and policy to investors, energy companies and government agencies. An energy and tax partner with the law firm Sullivan and Worcester, he helps his clients solve the challenges of a changing energy landscape.