Benefits of electric vehicles

The report, jointly commissioned by Contact Energy and Meridian Energy, and undertaken by Hyder Consulting (a consultancy in transport and energy issues), provides a cost-benefit assessment of electric vehicles in New Zealand.

Fuel cost savings for consumers, less reliance on imported fossil fuels and reduction in transport-related greenhouse gases are among the benefits of adopting electric vehicles and fuelling cars with New Zealand’s largely renewable electricity, the report finds.

“With so much of our electricity produced from renewable sources, and so much of our current greenhouse gas emissions coming from transport, electric vehicles offer New Zealand a real opportunity to reduce emissions without compromising on quality of life,” Meridian Energy Chief Executive Tim Lusk said.

The report suggests the adoption of electric vehicles will also enhance energy security, and benefit New Zealand’s balance of payments, with the demand for offshore oil diminishing over time.

"This technology can make a contribution to decreasing our reliance on imported fossil fuels and improve our energy security and self sufficiency,” Contact Managing Director David Baldwin said.

Meridian and Contact commissioned the independent report to inform future decision making and policy development.

Vehicles powered by electricity (electric vehicles, or EVs) have been around since the mid to late 1800s. Since the 1900s, however, the vast majority of vehicles worldwide have been powered by internal combustion engines, which are oil dependant. EVs have gained increasing prominence in the past 20 years due to growing environmental and energy security concerns associated with conventional internal combustion vehicles (ICVs). Mass production of EVs looks set to become a reality in the near future, with a number of vehicle manufacturers (such as Nissan and Mitsubishi) announcing plans to release EVs to the market.

As electricity providers in New Zealand, Meridian Energy Limited (Meridian) and Contact Energy Limited (Contact) are interested in understanding the implications of EV uptake in New Zealand. Meridian and Contact have commissioned Hyder Consulting (NZ) Limited (Hyder) to explore the implications through a method called cost-benefit assessment. Cost-benefit assessment is a tool that quantifies all costs and benefits, both to individuals and to society, of a proposal in monetary terms, and discounts them to a common point in time to determine the net benefits of the proposal2. If the net benefit is greater than zero then there may be a case for government intervention.

Cost-benefit assessment is often interpreted as justifying government intervention on the basis that something is good‘ or bad for society. Care should be taken, however, in interpreting cost-benefit results this baldly because analysis that attempts to place values on the behaviour of a large number of consumers, by its very nature, makes a number of simplifying assumptions.

To put this in a vehicle purchase context, many vehicles can, by empirical measures, be considered virtually the same. They may be similar in performance, reliability, fuel economy and comfort and they might all look good. In this situation, a consumer who did not buy the cheapest of a selection of similar vehicles might be considered economically irrational if one were to take a narrow view. Human beings are not, however, all the same. They have different preferences and value things differently and, as such, care should always be taken in considering the assumptions that underpin cost-benefit assessment.

That said, cost-benefit assessment is particularly useful to assist with comparing potential investment or regulatory choices for governments and businesses. It can provide an indication of whether there is merit in intervening and, if so, what avenues would best maximise benefits to society. The purpose of this study is to provide further information in an already interesting debate on the place of EVs in New Zealand and what encouragement, if any, should be given to encourage uptake.

The EV battery price is one of the most important assumptions in the model as it impacts on the purchase price of EVs, for both new and used vehicles. Battery technology is rapidly improving, and costs are likely to decrease over time as production increases. The assumptions on EV battery prices are drawn from industry expert predictions and are assumed to decline rapidly from US$1,200 per kWh in 2009 and level off to under US$200 per kWh in 2045.