Climate Change is real — we need to decarbonize our electricity, our cars, and our buildings. And we need to do it faster.
One idea to consider is an electrification rate that actively encourages the use of renewable electricity to replace fossil fuels. Why is this needed? Vermonters drive cars and trucks that mostly use gas, and heat primarily with fuel oil, propane, and natural gas. The only realistic path off fossil fuels is switching to renewable energy. And most renewable energy needs to be delivered in the form of electricity because electric cars, trucks and heat pumps run on electricity. Unfortunately, Vermont has some of the highest electric costs in the U.S.
This is why the legislature should create an electrification rate to encourage the switch from fossil fuels to renewable electricity.
What is an electrification rate? An electrification rate is a special electric rate that encourages customers to switch from fossil energy to renewable electricity. If you buy an electric car or a heat pump to replace a gas car or an oil furnace, you can sign up for an electric rate to run that new car or heat pump at half of current electric rates.
How is that possible? Replacing the 500,000,000 gallons per year of fossil fuels Vermont consumes means doubling the amount of electricity consumed over the coming years. The thing is, the electric grid has plenty of spare capacity for 99 percent of the year. By delivering more power through the existing grid, which has already been paid for, an electrification rate can be set extremely low for 99 percent of the year. The cost of the power poles, wires, line crews, CEO salaries, etc., do not change when you deliver more power through the same wires. Just as the cost of a water pipe does not change if you pump more water through it, the cost of a power line doesn’t increase as more power flows through it.
In Vermont, electric rates are about $0.17/kWh. Wholesale power costs less than $0.04/kWh for most of the year! Buy 100 percent renewable power and it still costs less than $0.07/kWh. In fact, the Vermont Department of Public Service, which looks out for the interests of Vermont electric ratepayers, estimates that electric utilities could profitably provide an electrification rate for electric vehicles at $0.08/kWh.
It is quite simple. Using the existing electric grid — which has already been paid for — to deliver additional renewable electricity, means that additional electricity will be much cheaper. Here is how an electrification rate works out in the life of everyday Vermonters. Consider a 2,000-square-foot home that uses 700 gallons of oil per year for heating. At $3 per gallon, it has a heating cost of $2,100. The oil boiler is 20 years old and nearing the end of its useful life, so the owner has two options. Option A is to install a new oil boiler for $6,500. Option B involves installing cold climate mini splits at a cost of $13,000. The heat pumps annual electric cost will be $1,450. Therefore, the heat pump savings vs oil will be about $650 per year. This represents a payback of 10 years, but with an electrification rate the savings would be cut to about five years.
A gas car driving 12,000 miles per year would use about 400 gallons of gas at a cost of $1,000 a year. A electric car traveling the same distance is more efficient so it would only cost about $550 a year with today’s electric rates. However, the electric car probably costs $5,000 more than the gas car up front, even after incentives. Therefore, the electric car takes about 11 years to pay off. That is much too long to encourage rapid adoption of electric vehicles.
Using the electrification rate proposed by the Vermont Department of Public Service, the annual cost of fuel drops to $275 per year. The utility sells more electricity, at a profit, to power the car. The car owner saves $725 and now sees a payback of less than seven years. The car owner wins, the utility wins, and the climate wins, with 400 gallons of gasoline saved every year. As these examples show, Vermont needs to address the cost of the “fuel,” meaning electricity, that will be needed to replace gas, diesel, heating oil, propane, and natural gas. By setting common-sense electrification rates, we can replace fossil fuels in a cost-effective way that lets everyone win. Utilities, Vermonters, and the climate will all benefit.
Not convinced? Consider this: electrifying cars, trucks, and heating, in Vermont could save about $800 million per year, every year, for decades.
In 2021 the legislature should pass an electrification rate that benefits all Vermonter. It will save money, cut carbon, and hasten the arrival of a better energy future.
Why $0.08/kWh? The Vermont Department of Public Service has conducted an analysis of the marginal cost of power for electric vehicles and this is the rate that they came up with. Another analysis may come up with slightly different number, but the facts are clear. Most of the hours of the year Vermont utilities can buy renewable power for less than seven cents per kWh. Add in some additional costs to deliver the power, balance the grid, administer the rate, etc., and it is about $0.08/kWh. Even if the cost is nine cents, the important point is that the grid is already paid for and is not currently being used to its full capacity. Using that same grid to deliver the power needed for heating and transportation means very low prices, saving money and carbon in the process.
Isn’t the Vermont electric grid already strained? Yes, there are a few hours of the year that the grid is stressed. But most of the hours in the year the grid has tremendous excess capacity. The average driver will only need to charge their car for a few hours per day, meaning that there are many hours in the day that it will not need to be charged. This flexibility in load means that we can use the existing grid — without major upgrades — to deliver much more power than we currently do and electrify heating and transportation very cost effectively.
For example, there are two substation transformers that supply power to the town of Manchester. One transformer is rated at 10,500 kW of capacity. Its maximum loading, across all hours of the year, is about 4,500 kW. Even at the peak times only about 45 percent of the transformer capacity is being used. There is still 6,000 kW of available capacity. The second transformer in Manchester has a peak capacity of 14,000 kW and at its peak only about 8,500 kW is being used. There is still 5,500 kW of available capacity at the peak. The minimum loads on these transformers are significantly lower. Recent minimum loads were 1,300 kW and 2,600 kW respectively. Clearly there is a huge amount of extra capacity left to be used at these transformers and on the electric grid, provided we control loads for the tiny number of hours per year when the grid is stressed.