Dramatic increase in electricity prices demands TCO review of EVs
Fleet budget forecasts for the running costs of electric vehicles are being undermined by rapidly rises in wholesale and retail electricity.
Soaring energy prices are undermining fleets’ total cost of ownership calculations for electric vehicles (EVs). The cheaper price of electricity per kilometre, compared to petrol and diesel, is an important factor in helping EVs compete on cost with internal combustion engine vehicles. In favourable conditions, the electricity cost per kilometre can be as little as one-third of the cost of petrol or diesel.
But a global spike in demand for gas has driven up gas prices, with an alarming knock-on effect for electricity costs.
Eurelectric, the federation which represents the European electricity industry, said wholesale natural gas prices are now five times higher than in 2019. This has a direct impact on power costs, because European countries rely on gas to generate 20% of their electricity.
Increase in electricity prices, 2019-21
In Portugal and Spain, average wholesale electricity prices have almost tripled in just six months, reaching about €175 per megawatt-hour. Italy is bracing itself for a 40% rise in the price of wholesale electricity from October, on top of a 20% price rise in the last quarter, according to Roberto Cingolani, Minister for the Ecological Transition. And in Germany, prices in September were three to four times higher than the averages seen in 2019.
EU Energy Commissioner Kadri Simson said: “Energy prices are making the headlines across the EU. Winter is coming and for many, electricity bills are larger than they have been for a decade. We have seen gas prices surge across the world, driven mostly by demand in Asia. As the world starts to recover from COVID, it is hungry for energy.”
Wholesale electricity prices in the UK exceeded their all-time high of £195 (€230)/mWh seven times in September, and are now the highest in Europe at more than €183/mWh. A price cap on domestic power costs has prevented energy companies from passing on these spiraling costs to private consumers, in the short term at least, leading to at least 14 energy companies going out of business. But the price cap does not apply to businesses or public recharging networks, which will suffer the impact of higher electricity tariffs.
High prices to continue
The International Energy Agency (IEA) has warned that the links between electricity and gas markets are not going to disappear in the near future, with gas likely to remain an important tool for balancing electricity markets until the renewable sector develops significantly.
And the EU has cautioned that the markets expect wholesale gas prices to stabilise by April 2022.
Impact on fleets
These inflationary pressures have two principal impacts on fleet electrification plans, said Paul Hollick, Association of Fleet Professionals. Firstly, fleet budgets should be reviewed so that cost per mile forecasts reflect the new price of electricity.
And secondly, fleets need to find a fair way to reimburse drivers for business miles, because (in the UK) official government figures for tax-free reimbursement no longer reflect the true cost of recharging. The current 4 pence per mile rate has not increased since 2018, and does not reflect either the sharply increased cost of electricity nor the greater energy use of the new generation of electric cars with bigger batteries.
In 2017 the average retail cost of standard electricity in the UK was 14.4p/kWh, but this had increased to 17.4p/kWh in 2020 and is likely to be closer to 19p/kWh today. Moreover,according to the AFP and BVRLA, which represents the rental and leasing industry,a representative basket of EVs in 2018 was able to travel on average 4.63 miles/kWh, compared to 3.69 miles/kWh in 2021, representing a 20% decline in average efficiency due to larger, heavier, batteries and more SUVs in the model mix. The AFP and BVRLA are campaigning together for the UK Government to review its business mileage reimbursement figures more regularly.
EV vs ICE
While the rising price of electricity is pushing up the cost of running EVs, zero emission vehicles still enjoy an advantage over ICE cars, with petrol and diesel prices also increasing sharply in the last few months. The European Commission reported a 21% rise in the pre-tax price per litre of Euro-super 95 across Member States from €0.546 in May to €0.662 in October, and a 24% rise in the price per litre of diesel from €0.583 to €0.722 for diesel.
Moreover, EVs are the only sector of the European new car market recording growth in the latest set of official sales figures. In August, EVs and plug-in hybrids actually outsold their diesel counterparts as they posted their second highest ever monthly market share of 21%, according to the ACEA manufacturers' association.
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