Should I Buy a Hybrid or an Electric Vehicle? (Part VI): Fuel and Electricity Sensitivity Analysis

Yesterday I concluded that purchasing a Toyota Prius might make sense if gasoline prices remained at or above $4.00 per gallon, and if I used the vehicle for 20,000 or more miles annually.

A critical assumption underlying this analysis was that my marginal cost of electricity was $0.40 per kWh. Under these conditions, purchasing a Nissan Leaf only made sense at extreme and persistently high gas prices. Both the Tesla Roadster and the Chevy Volt (assuming no behavioral switch from gas to electricity at high gas prices) did not make sense at any realistic fuel price.

In this analysis, I relaxed the $0.40-per-kWh price constraint to determine under which conditions EVs and PHEVs might make economic sense. While $0.40 per kWh is the marginal cost for my electricity, it is much higher than in other areas of the country. For example, the utility rate in Massachusetts is in the $0.10 per kWh range.

Of course, the price of electricity has no bearing on the decision to purchase a Prius. The chart below shows the time to breakeven for a Prius under different gas and electricity prices. It also assumes that one drives the Prius for an average of 10,000 miles annually. Note that the range of payback periods are the same regardless of electricity price.

©2011 Reflections of a Rational Republican

The same exercise shows that the Chevy Volt (without any behavioral changes during a price shock) and the Tesla Roadster are still not attractive alternatives from a purely economic standpoint.

The Nissan Leaf, however, looks much more compelling at low electricity prices and a high number of annual miles. Below shows the payback period required on the Leaf’s price premium above a Toyota Corolla at 10,000 annual miles.

©2011 Reflections of a Rational Republican

The following chart shows the payback period required on the Leaf’s price premium above a Toyota Corolla at 20,000 annual miles.

©2011 Reflections of a Rational Republican

Just when it seems this analysis is over, there are some wildcards that one should consider.

The foremost of these wildcards is a carbon tax.

If the United States government began levying carbon taxes on fuel emissions, would it change the results of my analysis?

Tune in tomorrow for the results.

Click here for the next installment of this series.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, California, Clean Energy, Clean Tech, Climate Change, Energy Security, Finance and Economics, Investing, Predictions, Taxes and tagged , , , , , , , , , , , , , . Bookmark the permalink.

10 Responses to Should I Buy a Hybrid or an Electric Vehicle? (Part VI): Fuel and Electricity Sensitivity Analysis

  1. Pingback: Should I Buy a Hybrid or an Electric Vehicle? (Part VII): Carbon Analysis | Reflections of a Rational Republican

  2. Farah says:

    I really like your analysis, but I feel compelled to point out a couple things. 1.) Most utilities will probably end up providing special separate rates for EV charging. Southern California Edison already does so and your utility probably will soon, if they don’t already. Your night charging (assuming you’d choose rationally to charge when electricity is least expensive) might not be $0.40/kwh. Additionally, while the average residential rate in the US is probably somewhere around $0.10/kwh this is certainly NOT the case in Massachusetts. My bill ends up being an average of between $0.18-0.22/kwh on a flat rate basis (I don’t have TOU because the utility rep had no clue what I was talking about when I asked her about it), depending on the price of natural gas-generated electricity in any given month.

    It may be the case that none of this would change your actual outcome, but I’d still consider it while making your decision 🙂

  3. Farah,

    All great points.

    The MA rate was more specifically for the town of Bolton, MA. I hesitated to include it in my post, because I did not have a copy of the bill to compare apples to apples with CA. However, my wife threw a fit that I should include it (don’t ask), so I did. Turns out my instincts may have been right. 😉

    My analysis for utility rates admittedly includes the world “as is” rather than “as it might be.” It also applies specifically to my area. In addition to the programs you mention like dynamic pricing, one might be able to charge one’s EV at work and pass the price onto one’s company (Google may actually already be there). This of course would make EVs much more attractive. Of course, I also did not factor in behavioral changes for the Volt.

    Anyway, keep the feedback coming. 😉

  4. Pingback: Should I Buy a Hybrid or an Electric Vehicle? (Part V): Mileage and Fuel Sensitivity Analysis | Reflections of a Rational Republican

  5. barrager says:

    What do you use for the miles per Kwh on the Volt? I charge the battery,. The battery has a 75 percent efficiency. Then what mileage do I get for the Kwh going to the electric motor? Where do you get these numbers?

    Thanks

  6. Pingback: The Government Investigates Chevrolet Volts Over Safety Concerns - Ecocentric - TIME.com

  7. Pingback: The Government Investigates Chevrolet Volts Over Safety Concerns | Ecocentric Stage | TIME.com

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