Are electric cars still worth it if electricity prices keep rising?

Tristan Young

12 Jan 2022

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Electricity prices are rocketing. What does this mean for electric car running costs and will EVs still be cheaper to fill up than petrol and diesel vehicles?

Electricity costs in the UK are soaring. If you’ve taken even a passing glance at the news in recent weeks, energy costs warnings have rarely been off the front pages. Pressure is being put on the government to protect consumers as household rates rise and a host of utility firms have gone to the wall.


What does this mean for electric cars?



We’re all being encourage to go electric and by 2030, the only new cars available will be plug-in cars.


One of the key selling points for EVs has been the low fuel costs.


Electricity pricing


Until last year, the average home electricity rate was around 15p a kW. With electric cars capable of around three miles per kWh, that means a per mile cost of 5p. Impressively low when you consider a diesel car doing 50mpg would cost around 14p mile in fuel only and a petrol doing 40mpg would cost around 16.6p a mile.


However, electricity’s now 20.7 per kW under the government’s price cap which means that home charging makes that per mile cost 6.9p a mile. Still a bargain next to petrol and diesel.



The energy price cap will be revised in April and is expected to increase. Martin Lewis from Money Saving Expert has warned consumers to expect a 50% hike in costs.


This would take the cap for electricity to around 30p a kW, which translates to 10p a mile for our 3.0 miles per kWh EV. Still better than petrol or diesel, but a doubling in costs in the space of 18 months.



The question is, will electricity prices keep rising? And if so, by how much?


In the near-term, nobody expects electricity prices to come down.


However, the current rise caused by a “spike in gas prices” used to generate electricity should come back down, according to Energy UK the organisation that represents energy suppliers.


Charles Wood, Energy UK’s deputy policy director, explained: “Electricity prices do go up and down. As more of our power is generated from renewables, this should mean less reliance on gas and costs should reduce.”


For public charging and in the longer term, Wood added: “We’re still in the early stages of EV charging infrastructure, but in future, competition between charge providers will help drive down costs.”


Rising costs


Until prices come down, electricity costs are already an issue if you don’t have a home charger or you’re on a longer journey and need to charge up as you go.


Rates for public charging vary, but rapid 50kW charging is almost always much higher than household prices with rates running from 30p to 69p per kW.



Several factors cause this higher pricing. Partly it’s due to higher taxation on public charging electricity (VAT is charged at 20%) compared to home electricity where VAT is charged at 5%. Infrastructure costs for faster charging and the need for these businesses to make a profit also play a big part.


Consumers are also, currently, willing to pay the higher prices for the convenience of either faster charging or convenience – such as at motorway services. There are parallels with petrol and diesel here.


The tipping point (for our 3.0m/kWh example car) is around 45p a kW. At that point, an EV would cost 15p a mile in fuel and a diesel would be more cost effective.



Solutions


Aside from government intervention to keep electricity prices low and waiting for the longer term price drop, there are a few solutions to the cost of rising electricity prices without needing to switch back to diesel or petrol for costs reasons.


The first is to increase efficiency. Achieving 4.0m/kWh rather than 3.0 immediately improves the breakeven point to around 60p per kW. This can be done by driving more efficiently, perhaps by doing 60mph, rather than 70mph, on the motorway, making sure tyres are correctly inflated and planning further ahead to reduce sudden braking and accelerating.


However, you can also buy a more efficient EV or pick one with a bigger battery so that you can go further on lower-cost home electricity.


Technology will help too. Mercedes has recently unveiled the EQXX concept car which has a claimed range of more than 600 miles thanks to a 100kWh battery and an efficiency of 6.2m/kWh. It’s not on sale yet, but the technology is on the way.



When it does arrive, it means that electricity would have to cost north of 90p a kW to be more expensive that diesel. And all this is fuel-only costs. With EVs it’s best to look at all costs, including servicing and maintenance, which experts predict will be far cheaper because there are fewer moving parts than in a combustion engine car.


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Tristan Young

12 Jan 2022