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Smart Pricing, Smart Charging

Can time-of-use rates drive the behavior of electric vehicle owners?

Fortnightly Magazine - October 2011

to be: a) the normal driving habits of each driver, presumably gleaned from an analysis of their behavior with gasoline-powered or hybrid-electric vehicles; and b) the driver’s reasons for buying the LEAF—risk taking, affluence, greenness and so on. Such data is now beginning to be collected by organizations such as UC Davis’s Institute of Transportation Studies.

There are also several critical decisions that will need to be made about the scope and design of the pilot.

TOU Rate Design: The peak period price of a TOU rate reflects both the marginal cost of energy and capacity. Typically, in existing TOU rates this peak price is largely driven by the marginal cost of generating capacity. But PEV charging is likely to drive new investment in the distribution system. It could make sense to base the peak price on the cost of upgrading the distribution system when designing a TOU for PEVs.

Control Technologies: Another viable option for influencing PEV charging is through the use of technologies that control the timing of the vehicle’s charge. This could be a simple a timer on the plug or outlet, or a more sophisticated technology that is controlled by the utility and capable of optimizing charging across a local network of PEVs. Control technologies could be included as additional treatments in the PEV pilot.

Participant Recruitment: Recruiting pilot participants in a way that avoids self-selection bias will be a challenging aspect of the pilot design. In order for the pilot results to reflect the likely preferences of the broader future population of PEV owners, the sample of pilot participants will need to be representative of that broader population. If participants are limited to the very early adopters of PEVs, then this principle could be violated. Alternatively, providing PEVs to a random group of customers will introduce its own challenges, such as larger budgetary requirements to cover the cost of the vehicles.

Charging Outside the Home: Pilot participants might have the option to charge their vehicle away from their homes at any of a growing number of public charging stations. It will be important to address the interaction of this option with the participants’ home charging behavior before and after enrolling in the TOU rate.

The results of this analysis suggest that TOU rates might help reduce future grid reliability problems as PEVs penetrate the vehicle market. However, the extent to which properly designed rates could assist in maintaining grid reliability will remain unknown until we’re able to empirically test PEV owners’ price responsiveness through experimental pilots. As PEVs can be expected to present significant challenges to the distribution system over the next few years, that’s a question that we can’t afford to leave unanswered.



1. Ahmad Faruqui and Ryan Hledik, “Sizing up the Smart Grid,” presented at Connectivity Week, San Jose, California, June 11, 2009.

2. The Obama Administration’s goal is described in this report by the U.S. Department of Energy.

3. Specifically, we focus on time-of-use rates that provide a constant price signal during peak and off-peak periods, rather than