Credit: Wright-Hennepin Cooperative Electric Association / Courtesy

Utility demand charges are hurting the business case for installing high-speed vehicle chargers, a report says.

Minnesota utilities are offering changes to prevent public electric vehicle charging stations from dramatically skewing business customers’ bills.

A recent report by the nonprofit Great Plains Institute warns that demand charges — fees based on a customer’s peak use during a billing cycle — could stunt deployment of fast-charging stations because of the surge of power the stations draw while recharging batteries in as little as 15 minutes.

Direct current fast-charging stations are seen as critical infrastructure for addressing range concerns among would-be electric vehicle drivers, but demand charges could make them uneconomical for gas stations and other businesses to operate in much of the Midwest, according to the report.

“Our analysis makes clear that demand charges are a barrier to the widespread availability” of direct current fast-charging stations, the report says. 

The problem does not affect at-home charging, which typically takes place over hours, not minutes, and is not usually subject to demand charges. Instead, it’s charging station developers and partners such as retailers that might be discouraged from trying to draw customers with fast charging.

Three of Minnesota’s biggest investor-owned utilities have rules or will soon propose changes to lessen demand charges on electric vehicle fast chargers:

  • Xcel Energy has a complex, decades-old pricing scheme that limits demand charges for customers with sporadic loads, including from DC fast chargers.
  • Minnesota Power recently received approval for a pilot program that will prohibit demand charges from exceeding 30% of a DC fast-charging company’s bill. 
  • Otter Tail Power will submit a new pilot rate plan to regulators in December that reduces demand charges and promotes third-party ownership of DC fast chargers.

Matthew Blackler is a fan of Xcel’s rule and said he could not have started his charging company, ZEF Energy, without it. ZEF has grown to become the largest independently owned charging network in Wisconsin and Minnesota, in part because Xcel’s program “allowed us to start four years ago,” Blackler said. “You could roll stuff out without having to worry about demand charges.”

The programs Minnesota Power and Otter Tail will offer sound promising, he said. Geographically, most of Minnesota is covered by smaller co-ops and municipal utilities, which must pay demand charges to their power providers.

Great River Energy, a generation and transmission cooperative that serves many of the state’s smaller municipal and distribution cooperatives, is developing a demand charge pilot program to reduce DC charging fees, according to a spokesperson, but details were not yet available.

The challenges are illustrated along the Interstate 94 corridor. From Moorhead, Minnesota, to Port Huron, Michigan, I-94 crosses 30 utility service areas offering 57 different electric rate schedules, according to the Great Plains Institute report. Many of those utilities will be hard-pressed to change their demand charges without ensuring it won’t endanger their bottom lines.

Brendan Jordan, vice president of transportation and fuels for Great Plains, said unless utilities change the way they calculate the fees, the spread of chargers will slow. “It’s a critical enabler for enhanced EV adoption because a lot of people will be reluctant to buy an EV if they can’t take it on a road trip or longer distances,” he said.

A National Renewable Energy Laboratory report found that the midcontinent region has around 425 DC fast-charging plugs at charging stations, roughly 10% of what will be needed by 2030 for greater electric vehicle adoption. Fast chargers cost $60,000 to $100,000, requiring an investment of between $215 million and $360 million over the next 11 years, the energy lab predicted.

A demand charge could wipe out any profits a fast-charger developer earns. Often the cost of a demand charge runs into the hundreds or thousands of dollars and exceeds what customers pay for electricity during billing periods. Since fast chargers require a burst of electricity for a short duration, high fees could be easily incurred.

Utilities are aware of the problem and may begin to make changes to limit demand charges for charging stations, Jordan said, because electric vehicles represent a huge opportunity to drive more electricity consumption. 

The spread of commercial charging stations will lead to faster electric vehicle adoption even though they will be mainly used by people driving long distances or by fleet and car-share drivers, Jordan said. Electric vehicle owners will charge most of the time in their garages or apartment parking structures, he said. 

Demand charges are already affecting the location of chargers, according to Blackler, of ZEF Energy. The Minnesota Pollution Control Agency and ZEF recently selected several cities for fast-charging sites during the first round of spending from VW emissions-cheating settlement funds. Some cities were not chosen because demand charges assessed by their local utilities made having charging stations cost-prohibitive, he said.

ZEF Energy has created workarounds to avoid demand fees. One ZEF Energy installation in a cooperative’s territory operates at half the charger’s transmission capacity to avoid high fees. “Drivers have a suboptimal experience, but we don’t have a choice,” he said. “Otherwise we’d lose money hand over fist on that charger.”

Frank is an independent journalist and consultant based in St. Paul and a longtime contributor to Midwest Energy News. His articles have appeared in more than 50 publications, including Minnesota Monthly, Wired, the Los Angeles Times, the Minneapolis Star Tribune, Minnesota Technology, Finance & Commerce and others. Frank has also been a Humphrey policy fellow at the University of Minnesota, a Fulbright journalism teacher in Pakistan and Albania, and a program director of the World Press Institute at Macalester College. Frank covers the state of Minnesota.