Electrification of Transportation Sector Nears Tipping Point

Transportation accounts for nearly 70 percent of U.S. oil consumption and 28 percent of the country's greenhouse gas emissions, making it a prime target for technological improvements that can reduce emissions and combat climate change. Electrification of the transportation sector represents one of the highest impact strategies to help achieve that goal.

Demand is rapidly growing for electric vehicles due to long-term cost savings, tax incentives, declining battery costs, and environmental awareness. In 2020, it is anticipated that 2.7 percent of global passenger vehicle sales will be for electric vehicles (EVs). That percentage is expected to grow rapidly - to 10 percent in 2025, 28 percent in 2030 and more than half of all vehicle sales (58 percent) in 2040. In the year 2040, more than 30 percent of passenger vehicles on the road worldwide will be electric. Even stronger gains are expected in electric buses, delivery vans and trucks, mopeds, scooters, and motorcycles.

The environmental impact of this paradigm shift will be significant in reducing pollution and carbon emissions. Today, electric vehicles displace 1 million barrels of oil demand every day. By the year 2040, electric vehicles will displace 17.6 million barrels of oil daily and reduce road CO2 emissions by 2.57GT annually.

One of the challenges that electric vehicles face is the initial capital investment; however, that cost-benefit analysis is rapidly changing as technology advancements and efficiencies drive down the cost of battery packs. In fact, both Boston Consulting Group and BloombergNEF predict that electric vehicles will achieve price parity with internal combustion vehicles within the next two - 10 years.

COVID-19: A Short-Term Challenge to Growth

2019 was a record-breaking year for electric vehicle sales, but the pandemic and economic downturn slowed growth in the United States and around the world. In 2020, electric vehicle sales are expected to decline 18 percent in the United States (to approximately 1.7 million vehicles). BloombergNEF's Electric Vehicle Outlook predicts that sales will not rebound to 2019 levels until 2025.

But the pandemic has also highlighted two critical advantages for electric vehicles:

  1. Even with falling gasoline prices, the long-term costs of electric vehicles are lower than internal combustion vehicles. Specifically, the cost of driving the same distance an internal combustion vehicle can travel on one gallon of gas is approximately $1.00 for an electric vehicle. As oil and gasoline prices rebound, the savings will continue to grow.
  2. The current pandemic exposed how dependent the United States continues to be on global oil markets, despite being a net exporter of oil. Electrification of the transportation sector will be a key driver in strengthening American energy security and independence.

Opportunities for Innovation

In addition to being cost competitive, providing environmental benefits, and supporting energy security, electric vehicles create new opportunities to stabilize the electricity grid. As renewable energy integration grows, so does the need to ensure that the energy produced by intermittent resources like wind and solar can be delivered in a predictable, balanced way. To date, stand-alone battery storage has been the primary solution for achieving this goal.

Utilities and investors are beginning to recognize the potential of electric vehicles to serve the same role. For example, Dominion Energy is partnering with Proterra, an electric transit vehicle manufacturer, to replace 50 diesel school buses in Virginia with electric buses and using those buses to support load balancing and peak shaving when they're not transporting children. If the pilot is successful, Dominion Energy plans to replace half (1,000) of the school buses in its Virginia footprint with electric buses by 2025 and the entire fleet by 2030.

This innovative approach shows tremendous potential and could become a model for other utilities and states nationwide.

Prepare the Grid, Pave the Way

While rapid growth in electric vehicle sales will have significant environmental benefits, it will also create more demand on the electric grid and require infrastructure investments. Therefore, there are several important steps needed today to prepare for the increased demand.

First, if there will be 18.7 million electric vehicles on the roads in the United States in 2030, approximately 9.6 million charge ports nationwide will be needed to support that demand. Most of these will be chargers in private homes, but the number of public charge ports will have to increase as well. Investment is needed from private companies and federal and state governments. In fact, Morgan Stanley and Bloomberg predict an additional $400 billion and $500 billion in investment is needed between now and 2040.

Second, electric vehicles will consume 5.2 percent of energy demand worldwide by 2040, so there needs to be innovative ways to spread demand throughout the day. For example, several states, including New Hampshire, are considering policies that would incentivize owners to charge their electric vehicles at off-peak times.

Third, to promote universal adoption of electric vehicles, there must be ways to address underserved markets. This will include investment for installing EV chargers in multi-family housing, expanding access to public transportation, transforming school buses and other transit vehicles, and promoting electric bicycle and scooter sharing programs.

Electrification of the transportation sector will require creativity, investment, and innovation. But pursuing this goal is one of the most important ways humanity can combat climate change and reduce environmental impact.

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Megan Colonel

Megan Colonel is the technical diligence manager at Leyline Renewable Capital , which provides development-stage capital to renewable energy projects nationwide.

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