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Cashing In On Vehicle Charging

By David Joey Oakley

"Electric car
On verdant green
Invent a turn
Invent a dream
Electric car
The new machine..."

So go the lyrics to a recent popular children’s song —aptly titled "Electric Car" —by 80s nerd rock band They Might be Giants. Proof that even at so young an age, we are being indoctrinated into the delights and benefits of electric vehicles. But is this "new machine" a genuine reality for our country and can convenience retailers carve out profitable space for the technology on their lots?

"It’s a safe bet that consumers will eventually swap their gas-powered cars and trucks for rechargeable models," top global consulting firm McKinsey predicted in June of 2009.

But there exists "justifiable skepticism" that convenience stores will trade gas pumps for electric vehicle (EV) charging stations anytime soon, believes NACS Vice President of Government Relations John Eichberger. But "don’t underestimate the pace of technology development," he explained. "I don’t think we’re that far off from having rapid recharging stations that will preserve our industry’s role in powering the transportation needs of the country."

Spreading Momentum
Without a doubt, large-scale vehicle electrification has begun. Federal windfalls mirror unprecedented multi-billion-dollar pushes by automakers. Recently, Car and Driver, Motor Trend, Automobile Magazine and the European Car of the Year Award decorated both the Nissan Leaf and Chevy Volt with a spate of accolades for their mainstream potential.

For the first time, nearly every major car manufacturer plans to roll out at least one plug-in model in the next year. And this past fall, oil giant BP and U.S. mainstay Murphy Oil committed to selling an EV fast-charging ability alongside gasoline and diesel.

The natural extension of electric vehicle charging into the retail sphere has certainly caught the attention of NACS. In addition, the world’s largest c-store chain, 7-Eleven, has been scouting ideal locations for charging, spokeswoman Margaret Chabris said.

Investment is pouring into electric cars and the infrastructure needed to fuel millions of them. And it’s next-generation retailers that may be those best positioned to capitalize on EV momentum by hosting charging stations and selling 21st century fuel.

Don’t EVs Charge at Home —Slowly?

The Nissan Leaf runs roughly 100 miles on a full charge. Even the 30- to 50-mile all-electric range of the Chevy Volt is more than the average American drives each day. As such, drivers often refuel via standard outlets at home or at work, which take hours using level 1 (110-120V) and level 2 (220-240V) chargers.

Since conversion of office parking garages into charging stations is likely to be slow and city dwellers must run an extension cord out their window or find a more practical option to charge their EVs, other options must emerge.

There’s also something called "range anxiety" —a driver’s fear that the car will run out of juice mid-journey —on long and unplanned trips. Additional consideration should be given to the potential of traffic jams —if battery life is not sufficient to accommodate a commute extended by several hours, the result could be lots of stranded cars on the roads.

That’s why pundits claim that familiarity and convenience will drive many EV owners to a more on-demand option: zapping the battery with a level 3 (440500V), direct current (DC), gas-station style fast-charge in 15 to 30 minutes. Because quick charging most closely resembles the current model of refueling, retail fuel stations are well positioned to claim the new and burgeoning market. In fact, some retailers have already started.

The Big Guns
BP says 45 of its locations along the West Coast and in Texas, Tennessee and Washington, D.C., will be topping off EVs as early as this month. BP’s charging partner, ECOtality, was given roughly $100 million in Recovery Act funding to blanket those areas —the targeted deployments of the Nissan Leaf and Chevy Volt —with more than 15,000 charging stations. According to BP, its goal is "to learn and inform future decisions."

Murphy USA, however, will "help make charging stations widely available" across its 22-state territory, according to a press release. "We are paving the way for development of the infrastructure, leading to adoption and expanded use of EVs," Retail Marketing President Hank Heithaus said.

Murphy will soon break ground on two new locations in Tennessee, sited and designed specifically for EV fast-charging stations. Murphy’s partner, Cleveland-based electrical distribution firm Eaton Corporation, birthed an electric transportation infrastructure division last July to capitalize on the "significant opportunity" of EVs, department head Tim Old said.

Eichberger at NACS recognizes the potential for early movers. "If the market is shifting from liquid to electric, forward-thinking retailers want to start considering where they might want to put charging stations," he said.

The Opportunity
How best, then, can an enterprising convenience store profit from fast-charging technology? Many retailers see an opportunity to boost both in-store sales and fuel margins. At 15 to 30 minutes, charging times could dovetail with the growing profitability of foodservice. But to milk more casual purchases, "in the near future, I think you’ll get a 50 percent charge in five minutes," Eichberger said.

"I want retailers to remember that what right now may seem not feasible to their business model, in two to five years, may indeed be extremely feasible and in growing demand," he continued. Beyond drawing customers inside, electric fill-ups could command profit margins of more than 100 percent and still beckon drivers with half-price fuel.

Consider a quick example: To earn 5 percent profit, JoJo’s Convenience Store charges consumers $3/gallon for gas, which equates to $0.12/mile for a 25 mpg car. On one 15-gallon sale, JoJo shells out $42.75 for the gas and makes back $2.25, a return of $0.15/gallon or 5.26 percent. JoJo’s charges a flat rate of $5 for EV quick-charges per 30 minutes. That takes a 24 kilowatt-hour (kWh) Nissan Leaf battery from empty to 80 percent and equates to $0.0625/mile. At average utility rates ($0.125/kWh) JoJo pays only $2.40 for the electricity, making back $2.60 or 108 percent profit.

Pricing for the premium drivers who will pay for a fast charge requires some regulatory maneuvering. It’s illegal to tack on a per-kWh profit when reselling electricity, so ECOtality Vice President of Corporate Development Colin Read suggests charging an "access fee." The "timed session type of billing system" could toe the line while dialing in a profit margin, a model Eichberger acknowledges could help convenience stores avoid the pitfalls of becoming a regulated utility.

The Ante
Cost will depend on the seller, tax credits and installation. Nissan sells a fastcharger in Japan for under $18,000, while many stateside models cost $40,000 to $50,000. The latter is roughly the cost of a new gasoline pump, but in some areas the cocktail of tax incentives at the federal, state and local levels could effectively slash the cost to near zero. Many tax credits, grants, loans and other incentives are listed at eere.energy.gov. Interested retailers can also request to have a charger installed by ECOtality and the federally funded EV Project at theevproject.com.

When investing in a charging provider, "You’re going to be looking for experience, hardware durability, affordability and...after-purchase servicing," Eichberger said. Some companies also charge a fee to manage networked terminals, while others sell standalone units.

Installation costs can vary widely but Eichberger advises sewing cheap, easy seeds now to reap fast setup later. "If you are renovating or building, it does not hurt you at all to run a couple thousand dollars (or less) of the electric infrastructure out to potential recharging stations," he explained. "Be ready to pounce when the time is right."

Investments in charging by progressive convenience stores will likely keep pace with the rate of EV adoption. Amid recent predictions of $5 a gallon gasoline, Eichberger believes fuel prices are "critical" to the pace and scale of electrification.

Global banking giant HSBC’s bullish forecast is for 17.88 million annual plug-in sales by 2020, or just under 19 percent of global market share, HSBC reported in September. J.D. Power Automotive Forecasting calls for adoption at the low end —3.28 percent of global sales in 2020 —while bulls like HSBC argue ambitious government targets will drive penetration much higher much sooner.

That’s one of the reasons the International Energy Agency predicts more than half of global sales as electric by 2050. That said, Eichberger cautions against too rosy projections. Even if future sales convert to 19 percent electric vehicles by 2020, the fleet turnover rate is estimated to be around 20 years or more. Such a sluggish rate will likely prevent EV vehicles from becoming a majority on the roads for quite some time.

Further, in 2008 the U.S. Department of Transportation reported there were 256 million vehicles in the United States, of which 137 million were classified as passenger cars. That leaves 119 million on-road vehicles that are not in-line for electrification.

In short, while there may be some opportunities for convenience retailers to begin offering electric recharging facilities at their locations, the demand for liquid motor fuels is likely to remain strong for the next several decades. So the door is not closing anytime soon on traditional motor fuels and the future of electric vehicles seems hopeful at least. As They Might Be Giants put it: "Electric car; So good, so far..."

David Joey Oakley analyzes plug-in electric vehicles and charging infrastructure, renewable fuels, and energy products markets for Oil Price Information Service (OPIS).