Electric Car Will Increase Power Costs

Bloomberg has an article today that explains why California will likely face higher power costs as a result of a boom in plug-in electric cars. Although this is kind of obvious if you think about it for more than 15 seconds, it's still worth noting, because some people might find it initially counterintuitive. Even though electric cars will certainly lower gasoline costs, they will increase electric costs. The point extends well beyond just California as plug-ins become more broadly popular.

Here' the gist of Bloomberg's argument:

California's push to lead U.S. sales of electric cars may result in higher power rates for consumers in the state, as a growing number of rechargeable vehicles forces utilities to pay for grid upgrades.

And a Moringstar analyst, Travis Miller, chimes in:

"If you look at the kind of money that will be needed for a full smart grid and support for electric vehicles, then you are talking about a substantial amount," Miller said in a phone interview. The spending may total "multiple billions" of dollars over a decade or more, he said.

Plug-in cars will obviously continue to use energy. But instead of gasoline, they will rely mostly on electric batteries. As demand for electricity increases, so will its price. As more charging stations are needed, that will also increase electric bills when power companies need to build more of these facilities.

Of course, the kind of amusing twist is that California is actually requiring auto companies to sell more plug-in vehicles, so it's bringing this additional cost increase on itself. That's why Bloomberg's article is so focused on the state. But the reality is that plug-in vehicles are likely to gain widespread popularity across the U.S. as they become more affordable. As a result, across the country, as more people drive plug-in vehicles, electricity prices will increase.

The question, then, is whether overall energy costs will increase. It's certainly possible that they could at first, given the vast infrastructure that needs to be created to recharge these vehicles. Once you've got the charging stations built up, however, prices will decrease. At that point, it's just a matter of how efficient the electric cars are at using energy versus gasoline-powered vehicles, and the relative prices of the two forms of power.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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