The Economics of Electric Vehicles with Application to Electricity Grids

Governments around the world promote the purchase of electric vehicles (EVs) as part of their climate change strategy, with many committing to EV-only sales of new passenger vehicles by 2035 and complete use of EVs by 2045 (California) or 2050 (e.g., Canada, EU). Rebates (purchase subsidies) are offered to consumers to promote uptake of EVs, and growth in their uptake has been quite strong, although EVs remain a small proportion of registered vehicles. In this study, we first analyze the economics of EV subsidies and then use Canadian electrical generation capacity, EV efficiency data, and distances driven, along with Monte Carlo simulation, to project the increased demands that greater numbers of EVs will place on an electrical grid. We find that the current grid’s capacity will not be adequate to power the anticipated growth in EVs, and major new power plants or hydroelectric dams will need to be constructed. The analysis suggests that Canada might need to build 17 new hydroelectric facilities or 14 additional gas plants, as there is likely to be much resistance to new hydroelectric projects.