Focus on Utilization Rate, not on Peak-time Use

In my blog post last week I discussed the profitability of the EV charging business. This is a well-known challenge and one of the key reasons why public charging infrastructure deployment has not proceeded as anticipated. The impact of the challenge has been limited so far, but as the number of available EV models and subsequently customers increases the lack of adequate infrastructure slows down the adoption of EVs .

There are solutions available for optimizing the size of the investment for the initial deployment, but as the number of vehicles and customers increases, so does the need for expansions and additions. This investment seems hard to justify, since the typical usage pattern of the charging poles is heavily concentrated on peak times therefore leaving nights, weekends and mid-days poorly utilized.

However, from the investment payback point of view the key is making sure that these times are utilized as well. The key argument for this is that the off-peak and low usage time charging can add to the topline revenue without any increase in the investment (obviously the variable costs like electricity will increase). Therefore it will very effectively either decrease the loss or increase the profits on the EV charging service. Peak time usage can be increased only by adding capacity therefore further increasing the mismatch between the investment and the revenues.

The utilization rate (as defined by the time the pole is actually used to charge EVs divided by the number of minutes in a day/week/month) will be different for the various locations, therefore there is no single number that should be reached for all charging stations. For example, charging poles at commercial locations will be busy during the day, but not at night and the opposite is going to be true for poles in residential neighborhoods. However, the overall utilization rate should go up all the time and each pole should be targeted to see an increased utilization rate as the number of customers increase.

To provide some idea of what should be aimed for at a pole level I would say that, at the low end, utilization rate for any pole should be above 5% in a mature network (i.e. just over an hour per day) which typically translates to 1 or 2 charges per day. At the other end, reaching 50% utilization rate is a pretty sure sign that additional capacity is needed at that particular location. In practice there will be chargins stations that do not fit within these, but in my opinion those stations are going to be the exceptions.

On the other hand one might ask whether it is possible to reach even 25%, let alone 50%, utilization any time soon. My answer to that is simply that this is a target that needs to be reached, if profitability is targeted overall. Reaching this level means two very simple things:

  1. The price of the charging transaction needs to vary over the course of the day or the week. This is simply a question of the demand patterns varying, therefore requiring that the supply side varies as well to incentivize the customers to use the service at off-peak times
  2. Completion of the charging transaction means that the customer should move the EV to give others access to the charging station. This is something that the service agreement or pricing should take into account to encourage the right “etiquette” and avoid the potential loss of revenue.

The old saying of “you get what you measure” is true here as well, you need look at the utilization rate of the network as a key metric and look for ways to increase it. This will eventually lead to breakeven and profitability. Simply adding charging stations to address peak-time usage is not going to do the trick.

2 responses to “Focus on Utilization Rate, not on Peak-time Use

  1. Pingback: Revenue issues, Part 3: A kWh is not a measure of service | AC2SG Software - IT Solutions for Smart Grids·

  2. Pingback: Revenue issues, Part 4: It is not worth replicating the “pumping gas” service | AC2SG Software - IT Solutions for Smart Grids·

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