Axsen and Kurani. Axsen and Kurani focus on the energy impacts that can be anticipated with significant PHEV market penetration given three recharge scenarios based on data collected through a web-based survey of new vehicle buying households.

They collected data using a multi-part online survey, and elicited driving patterns and recharge potential using a plug-in potential diary of driving and parking for a vehicle purchased new (model year 2002 or later) that is driven several times per week by the respondent’s household. They also involved the respondent’s in the design—e.g., the electric range capability—of the PHEV.

To create scenarios of gasoline and electricity use among early PHEV buyers, we integrate the information from respondents in the plausible early market segment: driving behavior and recharge potential they recorded in their 24-h diary, and PHEV designs created in the purchase design game. Taken together, these scenarios represent plausible market conditions, that is, where the entire market adheres to a selected condition, i.e., no recharge regulation, enhanced workplace access, or off-peak charging. The early PHEV market may include elements of more than one of these scenarios, as well as other potential conditions we do not consider here. Further, these conditions are likely to change over time. Recognizing this, the purpose of this exercise is to present these conditions to frame discussions of the potential benefits and drawbacks of different recharge strategies and policies.

—Axsen and Kurani

Axsen and Kurani construct four scenarios using data from the plausible early market respondents:

• No PHEVs. In this scenario, gasoline use is estimated and aggregated based on the respondents’ anticipated next conventional vehicles and recorded diary days.

• Plug and play. Gasoline use is simulated for driving and the electricity use is simulated for recharging, allowing that the conventional vehicles are displaced by a vehicle with the PHEV designed in the purchase design game. Drivers are assumed to immediately plug-in and recharge whenever they are parked within 25 ft of an electrical outlet. In other words, there are no pricing mechanisms, e.g., time of use electricity tariffs, or technologies, e.g., smart charging mechanisms, to divert recharging to off-peak.

• Enhanced workplace access. This scenario starts with the conditions in ‘‘plug and play,” but further supposes that all respondents who parked at their workplace during their diary day can and do recharge at work—even if their recharge potential derived from their one-day diary did not include workplace recharging.

• Off-peak only. Using the same recharge potential and PHEV designs as “plug and play,” in this scenario no PHEV recharging is allowed during daytime peak hours (6 am to 8 pm). The timing of electricity use over the off-peak period is represented as constant (the actual distribution would likely vary according to the needs of a particular electric utility).

Among the findings of their study:

• The majority of gasoline reduction is due to increases in CS (charge-sustaining, i.e., conventional hybrid mode) fuel economy, not in the displacement of gasoline with electricity in CD (charge-depleting, i.e., electric-power) mode.

• In the unconstrained “plug and play” recharge scenario, recharging follows a far more dispersed pattern throughout the earlier part of the day than anticipated by previous studies, due to allowing heterogeneity in driving and parking behavior as well as PHEV designs.

• PHEV electricity use could be increased through policies increasing non-home recharge opportunities, but most of this increase occurs during daytime hours and could contribute to peak demand (depending on a given region’s definition of “peak”).

• Deferring all recharging to offpeak hours could eliminate all additions to daytime electricity demand from PHEVs, but less electricity is used and less gasoline is displaced due to the elimination of daytime recharge opportunities.

Axsen and Kurani conclude that the analysis shows both a potential threat and opportunity for utilities.

The threat is that without control, the majority of recharging may occur during peak hours (6 am–8 pm), with a peak at 7:00 pm during weekdays. This spike coincides with seasonal peak electricity demand periods in some California regions and with a large enough PHEV market, total electricity generation requirements may be increased.

However, the observed 12 am–6 am recharge potential presents an opportunity for strategies in which PHEV recharging (as well as any other electrical load) can be shifted to off-peak periods subject to varying levels of control by electricity users and suppliers.

This scenario analysis remains susceptible to threats endemic to such efforts. Radically changing travel behavior—in response to fuel prices, competition from other alternatives, or in response to PHEVs themselves—could invalidate the use of data on present-day real travel. Rapid technology development and cost reductions, or their delay, may render these PHEV design games under- or over-optimistic...none of them likely capture precisely what will happen with workplace recharging, efforts to control time of day of recharging, or efforts to provide home recharging to the over half of new car-buying households in California who do not now find access to electricity where they park their cars.

—Axsen and Kurani

Lemoine. Lemoine notes that deciding whether to purchase a PHEV involves, among many other factors, weighing a tradeoff between the cost of the additional battery capacity and the fuel savings it provides, given that electricity is much less expensive than gasoline.

Lemoine develops and applies new methods that value the fuel flexibility offered by a PHEV’s battery.

These methods represent the purchase of a PHEV as the purchase of a strip of call options based on the price of liquid fuels. Moving beyond discounted cash ow analyses, we show how properly accounting for the uncertain path of future fuel prices and for the PHEV driver’s ability to respond to these prices by choosing the day’s fuel can raise the battery price at which PHEVs may pay for themselves.

—Lemoine

Earlier assessments of PHEV fuel savings—including some of Lemoine’s own earlier work—typically treated them as a series of future cash flows which are discounted back to the present for valuation, he notes.

By using expected fuel prices to value PHEVs, all three previous analyses ignore the flexibility that PHEV owners have regarding whether to charge their vehicles from the grid. Gasoline prices are unpredictable, and their volatility may confer value on the ability to select which fuel to use. The previous assessments value a PHEV exactly like a nearly identical vehicle that requires its owner to use electricity for each day’s initial miles. A PHEV should be (weakly) more valuable than this fictional vehicle precisely because its owner can choose which fuel to use for its initial miles of operation.

—Lemoine

In short, using expected fuel prices to estimate fuel savings from PHEVs undervalues the battery capacity. In this study, Lemoine treats the purchase of a PHEV as the purchase of a strip (or bundle) of European call options on the price of transportation. The payoffs are the fuel savings in dollars per mile and each option corresponds to the decision on some day about whether to use grid electricity for some mile m of PHEV travel. This approach is similar to the use of the real options approach to valuing electricity generation.

(A European call option confers the right, but not the obligation, to buy a predefined asset at a particular price at a predefined time. An American call option differs in that it may be exercised at any time up to and including the time of expiration.)

Lemoine then applies the method to valuing a PHEV20 (20-mile all electric range) with a 6.7 kWh battery pack.

This real options approach increases the battery price at which a PHEV’s additional battery capacity may pay for itself, but our specific valuation application shows that for the battery to actually pay for itself, one may need to believe that particular price models describe the future much better than do other plausible ones or that battery prices will fall by more than some predict near-term mass production alone will achieve. Further work could apply this real options approach to other vehicle technologies, to other vehicle markets, and to other price models.

If vehicle purchasers fail to fully value the fuel flexibility offered by multi-fuel vehicles such as PHEVs, then new business models for monetizing fuel savings may be profitable to both the vehicle purchaser and the vehicle seller and could make multi-fuel vehicles more attractive to both parties.

Increasing the percentage of PHEVs in the vehicle fleet could provide direct reductions in urban air pollutants, petroleum use, and greenhouse gas emissions, and it should also lower the cost of obtaining future reductions in greenhouse gas emissions. Assessments of the cost-effectiveness of promoting PHEVs to achieve these benefits should consider how a real options approach would affect their conclusions. Future analyses could assess the influence of climate policies on the incentives to purchase PHEVs by representing these policies’ anticipated effects in the fuel price processes. Most importantly, they should consider PHEVs’ larger role in greenhouse gas abatement efforts by using a real options framework to value the abatement flexibility that society would gain from widespread adoption of PHEVs.

—Lemoine

Resources

• Jonn Axsen, Kenneth S. Kurani (2010) Anticipating plug-in hybrid vehicle energy impacts in California: Constructing consumer-informed recharge profiles. Transportation Research Part D 15 212–219 doi: 10.1016/j.trd.2010.02.004

• Derek M. Lemoine (2010) Valuing Plug-In Hybrid Electric Vehicles’ Battery Capacity Using a Real Options Framework. The Energy Journal, Vol. 31, No. 2 Working paper vailable at SSRN