Plug-in hybrid cars are “cool; they’re what’s next,” according to Laura Schewel, a consultant for the converting their cars to plug-in hybrids (PHEVs), a process that can increase their fuel efficiency from 46 mpg to 100 mpg. Auto manufacturers such as Chevrolet and Toyota have promised delivery of PHEVs in 2010. And the recently passed economic bailout legislation contained a $7,500 consumer incentive for purchase of plug-in hybrids.

If the cars, which have an approximate 40-mile range on battery power only, reach a large market share, many sectors of the economy would be affected.

Drivers might notice changes first. The expected sticker price of a PHEV will be $15,000 more than a traditional car, thanks to the batteries, which cost $10,000, and the addition of an electric motor, which adds $3,000 to $5,000, said Schewel. However, when economies of scale from mass production are achieved, developers hope the actual premium will be about $5,000.

But advocates say to get an accurate comparison, drivers must consider lifetime costs.

When gas is $4 a gallon, a plug-in hybrid can save its owner $15,000 to $18,000 over its life, assuming people drive 1,000 to 1,200 miles a month, said Mark Duvall, director of electric transportation for the Electric Power Research Institute (EPRI), an industry-sponsored non-profit.

That’s because driving on electricity costs roughly one-fifth the price of driving on gas, said Duvall. The national average cost of electricity is 8.5 cents per kilowatt-hour, according to an EPRI report. So a PHEV runs on an equivalent of roughly 75 cents a gallon of gasoline.

Going forward, oil prices will continue to be volatile, and dips will be the exception, not the rule. “The future will be sustained high prices, including price shock,” said Duvall, partly due to increasing worldwide demand, especially from China and India.

Amory Lovins, chairman and chief scientist of RMI, said PHEV economics could be even better if manufacturers used materials such as ultralight steel, aluminum, or advanced composites like carbon fiber reinforced plastics.

“By using very light strong materials, you can make the car big, which is protective and comfortable, without also making it heavy, which is hostile and inefficient,” said Lovins. “You can save lives, oil, and money all at the same time.”

A light vehicle would require only one-third the standard power to move it, said Lovins, enabling the use of a smaller, cheaper battery. With the battery prices predicted for 2010, Lovins said the car could have a two- to three-year payback. That’s because although these materials are pricier than those used today, their cost is offset by simpler manufacturing processes and a smaller propulsion system.

This isn’t just an attractive theory. In 2007, Toray, the world’s biggest maker of carbon fiber, announced that it will mass produce carbon fiber car parts for Toyota. In July of this year, Nissan and Honda announced a similar deal with Toray.

Millions of cars powered in part by electricity would require some changes to the grid. Utilities are moving to a “smart grid” that uses information technology and communications to better monitor and control energy delivery and use, said Steve Hauser, president of the GridWise Alliance, an advocacy group promoting smart grid.

More than 20 percent of utilities across the country are already building incremental pieces of the smart grid independently of what’s happening in transportation, said RMI's Schewel. The technology will help them to plan accurately for upgrades based on actual usage. Today many utilities overbuild power supplies to make sure they have enough capacity for excess demand.

Smart grid technology will also make better use of energy efficiency and renewable energy technologies. For example, one reason wind and solar power have been expensive is because they’re variable. If the wind is blowing when the utility has no market for that energy, it is wasted. “You finance these wind turbines with the expectation that you’ll generate x amount over their life, and you have to waste half of it. It’s terrible,” said Schewel.

A smart grid can balance supply and demand by anticipating increases in production and limiting consumption from non-essential appliances (known as demand response) during peak power. The cost to upgrade the grid upgrade varies from utility to utility, but will likely run $100 to $1,000 per household, said Hauser. While rate-payers will likely finance these upgrades, they will also benefit from the increased efficiency. Payback is about three to eight years, said Hauser.

Electric vehicles can help the grid by being flexible in when they consume power. Because most cars are only driven a few hours a day they could be programmed to charge at times useful to the utility and less expensive to drivers.

Like any technological sea change, there will be winners and losers.

Automakers’ investments in research and development means “a minimum of five years to make a positive business case for plug-in hybrids or electric vehicles,” said EPRI's Duvall.

Nevertheless, PHEVs are a smart move for automakers. “Reducing the industry’s reliance on petroleum as a single energy source is of paramount importance,” said Duvall, pointing out that automakers have remained committed to their current hybrid programs because they understood that while some demand was constant, it would rise with the price of oil.

Gas stations may lose out the most because electric vehicle owners may not need to refuel weekly or even monthly. Cars might recharge in the parking lots for work or stores while drivers are otherwise occupied. Businesses such as Wal-Mart could charge for the electricity or give it away and pad retail prices. They could also make money by selling advertising or data about traffic or car performance at charging stations.

While people may not want to spend three hours at a gas station, fast charging technology could enable a switch from refueling to recharging. Schewel believes some drivers will want to charge up in 10 minutes. Service stations could invest in super chargers, and levy a premium for speed, she said. The infrastructure is more expensive, say, $50,000 versus $5,000 for a normal charging station.

The installation and maintenance of these stations will create local jobs for electricians, said Schewel.

Oil companies seem like an obvious loser, but that is not necessarily true. “A lot of the gas companies say they’re reinventing themselves as energy companies,” said Schewel. “If they mean it, this is an opportunity for them. If they don’t mean it, this is a problem.”

If oil companies do ultimately become a smaller player in the transportation sector, governments may have to look elsewhere for reduced gas taxes that are used to for road infrastructure. However, “that debate is still several years away,” said Hauser.

Duvall said that regulations designed to combat climate change or to increase energy security would have a major affect the types of equipment and products sold. “I see PHEVs as an effect rather than cause," he said. “They are an effect of high fuel prices and societal and political pressures to reduce oil consumption and greenhouse gas emissions.”

(Image courtesy CalCars.org)

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