As vehicles continue to demand more energy, it will be increasingly important to ensure that more vehicles are powered by renewable resources. The automobile industry is undergoing a dramatic shift toward electrification with more widespread adoption of electric vehicles (EVs).
In 2021, EVs constituted approximately 9% of global vehicle sales and approximately 4% of US automobile sales—a roughly four-fold increase in the global market share for EVs over 2019 sales. EV sales from the first quarter of 2022 are up 75% from the same period in 2021. Estimates indicate that EVs will account for approximately 45% of new car sales by 2035.
Virtual power purchase agreements (VPPAs) may become a useful mechanism for charging companies, vehicle manufacturers, and fleet operators with large EV-related energy needs to source renewable generation, which, in turn, may also help drive new renewable resources.
Emission Reduction Goals
Electrification of the automobile industry is crucial for meeting global goals for the reduction of carbon dioxide.
In the United States, the Environmental Protection Agency (EPA) estimates that the transportation sector accounted for approximately 29% of greenhouse gas (GHG) emissions in 2020. 57% of those GHG emissions came from light-duty vehicles, such as passenger cars, and 26% were from medium- and heavy-duty trucks. The electricity sector (i.e., power generation) accounted for 25% of all US emissions.
The combined effect of vehicle electrification and adaptation of renewable power sources (renewables currently account for approximately 20% of US power generation) in place of carbon-emitting resources would have a profound impact on reducing emissions. A study by Carnegie Mellon University found that the combined impact of a close to emissions-free power grid and the widespread adoption of EVs (approximately 84% of vehicle travel) would result in a 90% decline in emissions from light-duty vehicles. The total potential benefit of EVs, therefore, depends on the source of power used to charge them.
The US federal government and individual states have recognized that the electrification industry is imperative to achieving GHG emission reduction goals.
The Biden-Harris administration has a stated goal of a 50% reduction in GHG emissions by 2030, combined with an ambitious 50% EV target by that same year. Many states have independently adopted similar GHG reduction and EV targets. Notably, 15 states and Washington, DC, have adopted zero-emission vehicle mandates, requiring that all in-state car sales be zero-emission vehicles by 2035. Ten states, Washington, DC, and Puerto Rico also have targets to source 100% of their energy from renewable sources, and 26 other states have other forms of renewables targets in place.
The need for the widespread adoption of EVs in order to achieve emissions goals is also driving federal and state governments to incentivize the purchase of EVs and the development of necessary charging infrastructure. On November 6, 2021, the Infrastructure Investment and Jobs Act (IIJA) was passed, authorizing $7.5 billion for programs designed to encourage the national development of 500,000 EV charging stations. California has a $1.5 billion annual clean vehicle incentive program that funds various programs to encourage the adoption of EVs and reduce transportation sector emissions. New Jersey has a goal of 330,000 EVs by 2035 and offers incentives for both the purchase of EVs and the installation of charging infrastructure.
Car manufacturers have responded, and many are committed to providing a variety of EV models—with some manufacturers vowing to go entirely electric by 2030 or 2035. General Motors announced it intends to phase out internal combustion engine vehicle sales by 2035; Jaguar, Bentley, Volvo, and Mercedes Benz all announced their intention to have only EV models by 2030; and Toyota intends to be all electric by 2040. The US Department of Transportation (DOT) forecasted that 25 million EVs will be on US roads by 2030, and 114 million by 2040, representing 40% of the total vehicles in the United States.
Energy Requirement to Fuel EVs
In order to fuel a completely electrified transportation sector, the United States will need to produce 25% more electricity than it does currently. The International Energy Agency (IEA) estimates that by 2040, global electricity demand will grow by more than one-third, mainly due to the widespread adoption of EVs, which will escalate the transportation sector’s electricity demand from essentially zero to more 4,000 terawatt hours (TWh) per year. The US Department of Energy (DOE) found that without increased renewable power generation to support the widespread adoption of EVs, more EVs could actually extend the life of fossil fuel–generated power sources.
Renewable Energy to Power EVs
EVs are only as clean as the electricity that fuels them.
A 2016 study by Tsinghua University found that the greater adoption of EVs in China, when approximately 64% of electricity was from coal-fired generation resources, was resulting in a release of two to five times more particulate matter and chemicals than gas engine cars. Approximately 60% of electricity in China is still sourced from coal-fired generation resources.
Car manufacturers and charging companies have recognized the importance of sourcing renewable energy sources for powering EVs, and consumers may also place greater importance on the source of electricity to charge their vehicles.
EVgo, the largest US public EV charging network, is also the first EV charging operator to be powered by 100% renewable electricity. EVgo purchases certified renewable energy credits (RECs) to qualify the electricity distributed through their charging stations as 100% renewable energy. General Motors, Subaru, and Toyota have all entered into relationships with EVgo for preferred charging for their EVs.
Ford participates in the California Air Resources Board’s Low Carbon Fuel Standard initiative, which allows for 100% of their California customers’ home charging energy to be matched with renewable electricity. To do so, Ford generates, or buys, an equivalent amount of California-sourced RECs to match the electricity consumption of California EV owners participating in the program.
Nuro, a US robotics autonomous delivery vehicle service company, announced that as of January 2022, it will use 100% renewable energy sourced from wind farms in Texas for all vehicle charging and facilities. Antelope Valley Transit Authority, the first all-electric transit agency in the nation, which operates 57 full-size battery electric buses along with 20 commuter coaches and 10 micro-transit vans, announced that it plans to charge its fleet with 100% renewable power. Antelope Valley is located in the Mojave Desert and is developing a solar-plus-storage project to charge its vehicles.
For large fleet operators like Antelope Valley, car manufacturers, and EV charging companies, VPPAs may be a useful tool to procure renewable energy.
Under a VPPA, a renewable project developer will enter into an agreement to sell the renewable energy credits (i.e., the “greenness”) of the energy being produced. These agreements are generally long-term agreements tied to wholesale electricity market prices, and the long-term contractual commitment under VPPAs can generally provide the necessary financial support to enable developers to finance and construct new energy projects.
Thus, VPPAs could be a solution to both increasing the development of renewable energy projects and ensuring that EVs have renewable charging resources.