Australia’s electric vehicle future must be priced right

Each year, Australia receives 10,000 times more solar radiation than it can use.

And yet, as a country, we’re at risk of falling short of our goals to hit Net Zero by 2050 and to reduce emissions by 2035.

Electrifying Australia’s transport system is a crucial step in achieving these ambitions. Globally, transportation makes up the third largest source of emissions and Australia can’t get to Net Zero without addressing it.

Speaking at the Melbourne Institute’s recent 2023 Economic and Social Outlook Conference, economist Associate Professor Leslie Martin outlined how to get there.

Cleaning up the grid

Electric vehicle (EVs) may be part of the solution, but only with a cleaned-up grid. They swap exhaust pipe emissions for grid emissions.

By driving an EV you avoid using petrol – but each time you plug in, you ask generators to supply a little more coal or natural gas to power that charge.

“In Australia, our grid today is a unique mix of super dirty resources and household-generated clean ones,” says Associate Professor Martin.

“Almost two thirds of our annual electricity generation is still fossil fuels.”

Complicating matters further, Australia’s mix of renewable generation has relatively little hydroelectricity compared with other countries. This means our renewable energy comes disproportionately from intermittent sources (primarily wind and solar).

“The big issue with wind and solar power is intermittency, volatility and unpredictability,” explains Associate Professor Martin.

To combat this, we urgently need to consider storage options like large-scale batteries and pumped hydro.

Using surplus renewable energy in energy-intensive manufacturing could also help produce certified low-emission products like steel, fertilisers or aluminium.

And providing users with price incentives to shift when they consume power to low-cost times is another tool in the emissions reduction kit.

Building the infrastructure

Despite these challenges, Australia needs to start working towards electrifying its transport system.

A first step is developing the wide network of public charging stations needed to make electric vehicles (EVs) attractive. At the moment, Australia has almost no such infrastructure.

We also need a large pool of EV drivers before companies will be willing to invest in public charging stations.

“From a policy perspective, we need to look at what needs to be in place for the EV transition to be successful and, given where we are, how much to promote EV adoption today,” says Associate Professor Martin.

Moving pollution around

Researchers in the US have measured the net effect on greenhouse gases of swapping petrol vehicles for EVs.

They found it depends on when people charge. If the additional generation on the electricity grid is natural gas, EVs are cleaner than their petrol-based equivalents. But when it is coal, they are not.

The same researchers also looked at other air pollutants. In petrol-based vehicles the total suspended particulate emissions linked with respiratory problems are local and concentrated in urban areas.

Swapping to electric means relocating pollution downwind of fossil fuel power plants, dispersing it over a much wider and disproportionately rural area.

Our long-term challenge is to reduce this pollution altogether by replacing fossil fuel power plants with reliable and cost-effective renewable alternatives.

Pricing and intermittency

In the face of growing numbers of EVs, the intermittency and volatility of renewables becomes a greater issue if everyone charges their vehicle when they arrive home from work.

This kind of ramp-up in demand can be difficult and expensive. Changes to residential electricity pricing could help minimise such challenges.

“We have a history of solar policies that have strongly favoured residential instead of grid-level investments,” Associate Professor Martin explains.

“Because we have chosen to reward households for owner-generation, consumer incentives will really matter as we transition to a clean energy future.”

She says EV drivers should be encouraged to charge at lower demand times. Electricity pricing can help with this, with the cost of consumption and generation varying by time of day.

“If you are willing to charge during the day, having solar makes operating an EV a lot cheaper.”

Without solar, she says, household electricity bills increase an average of 35 per cent when charging an EV vehicle.

But if a home has recently-installed solar panels and charges their EV during the day, it costs the equivalent of about 12 cents per litre for petrol. With the cost of petrol in Australia averaging at around 165 cents per litre, that’s quite the saving.

The cost of charging an EV using home solar is equivalent to the feed-in-tariff revenue the household would have otherwise received if it sold its surplus generation back to the grid.

Getting subsidies right

“We should make EV purchase subsidies conditional on adopting residential electricity rates that reward charging at the right times — from 10.00 am to 3.00 pm,” says Associate Professor Martin.

“Solar households on low feed-in-tariffs already have those incentives; other households do not.”

She adds that local government-level subsidies also need to be carefully considered.

And then there’s our road infrastructure. As EVs lower the cost of driving, road use will increase, which will lead to greater congestion on already overwhelmed metropolitan road networks.

Associate Professor Martin says Australia should make funding for public EV charging stations conditional on cities implementing congestion charges to effectively manage the traffic on our already-busy roads.

Recovering costs fairly

“Finally, we want to think about how to recover the costs of large investments already made in transmission and distribution, as well as the massive new investments needed for our changing network,” says Associate Professor Martin.

“If, on the residential side, we keep trying to recover network costs through electricity rates, when everyone who can afford solar no longer pays much into those rates, we spiral into a system where the only ones left paying for the network will be those who can least afford it.”

The same problem is likely to occur with EVs, she adds.

“If we fund all road maintenance through taxes on petrol, roads will be paid for by those who can’t afford the vehicles that don’t use any.

“Our strategy for cost recovery has big implications for the net zero energy transition being both efficient and fair.”

Electrifying Australia’s transport system requires both physical infrastructure and bold policy, demanding huge investments from industry and governments.

If the country is going to hit Net Zero by 2050, it’s time to start investing now.

Associate Professor Leslie Martin presented at the 2023 Economic & Social Outlook Conference organised by the Melbourne Institute and The Australian.

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