Estimating the Impact of Electric Vehicle Charging on Electricity Costs Given Electricity-Sector Carbon Cap

A model estimates the short-run effect of plug-in hybrid electric vehicle (PHEV) charging on electricity costs, given a cap on carbon dioxide (CO2) emissions that covers only the electricity sector. In the short run, cap-and-trade systems that cover the electricity sector increase the marginal cost of electricity production. The magnitude of the increase in cost depends on several factors, including the stringency of the cap in relation to the demand for electricity. The use of PHEVs, which also has the potential to decrease net greenhouse gas emissions, would increase demand for electricity and thus would increase the upward pressure on marginal costs. The model described examines this effect for the New England electricity market, which as of January 2009 operates under the Regional Greenhouse Gas Initiative, a cap-and-trade system for CO2. The model uses linear optimization to dispatch power plants to minimize fuel costs given inelastic electric demand and constraints on nitrogen oxide and CO2 emissions. The model is used to estimate costs for three fleet penetration levels (1%, 5%, and 10%) and three charging scenarios (evening charging, nighttime charging, and twice-a-day charging). The results indicate that PHEV charging demand increases the marginal cost of CO2 emissions as well as the average and marginal fuel costs for electricity generation. At all penetration levels the cost increases were minimized in the nighttime-charging scenario.