Electric-charging-station firms plug into public money

Feb 26 - McClatchy-Tribune Regional News - Julie Wernau Chicago Tribune

When politicians tout the benefits of public subsidies for electric vehicles, the argument inevitably comes down to two words: Chicken. Egg.

It works like this: Consumers won't buy electric vehicles without somewhere to charge them. But no one will build charging stations without electric vehicles to use them.

To solve this quandary, local governments, including Illinois, and the federal government have pumped millions of dollars of public subsidies into building charging stations.

"These charging stations will encourage car manufacturers to sell electric vehicles in Chicago," Suzanne Malec-McKenna, commissioner of the city's Department of Environment, said two weeks ago in announcing a public-private partnership that will install 280 charging stations in the Chicago area.

350Green LLC, a San Diego-based company building the stations, was able to cut its costs in half for the $8.9 million project by cobbling together a package of $2 million in federal and state grants along with federal tax credits.

At the same time, 350Green expects to wean itself off such subsidies.

"You can't live on government subsidies," said Mariana Gerzanych, chief executive of 350Green, said in a recent interview. "And building a business model that depends on government subsidies will never work. And when government subsidies ago away, your business goes away. So you really have to think through the financial side and how this will work. If people will charge. If the business will actually survive long term."

350Green's business model relies on consumers, especially renters without garages, paying $50 to $60 per month to charge at its stations. Relying on data from Nissan, 350Green projects that 7 percent, or 334,188 vehicles, in the Chicago metro area will be plug-ins by 2020.

The company expects to share the revenue it collects from these customers with partners that allow the stations to be installed on their properties. Most likely these partners will be retailers or the owners of parking lots that serve large retailers.

In the interim, experts say, local governments have little choice but to help fund the charging infrastructure.

"These are not intended to be permanent incentives, but really to sort of bridge the gap during this period when this technology is nascent. The idea here is that someday this will be an economically viable industry," said John Gimigliano, principal-in-charge of KPMG LLP's energy-sustainability tax practice and former senior tax counsel for the House Ways and Means Committee.

So far, electric vehicles are rolling out at a trickle, though manufacturer ECOTality is preparing to install 15,000 charging stations by midyear in cities across the country. By next year, a nationwide electric car rollout is expected to be in full swing, led by Nissan's Leaf electric vehicle

Still, without significant contributions from taxpayers, there would be no rollout, contend tax experts. And whether the market becomes self-sustaining will be determined by consumer acceptance.

"I think probably some of the justification for (public subsidies) is on the grounds that these things are just starting out, and they're not produced to scale, and when they get produced to scale, they'll be more economical and, perhaps, become viable," said Eric Toder, co-director at the Urban-Brookings Tax Policy Center in Washington, D.C.

Initially, analysts expect consumers to prefer to charge at home, which could make it difficult for charging-station owners to recover their installation costs based on charging alone, according to a report published this month by Accenture. This may be especially true for city users, who probably won't drive far enough to require charging midcommute, Accenture's report said.

What's more, some consumers may prefer leasing batteries instead of paying for charges. With battery leasing, consumers pay for miles driven or swap low batteries for fully charged batteries.

"The consumer is the most important factor in determining which business models will succeed," said Melissa Stark, global lead for the Accenture energy industry group's clean-energy practice.

Chicago's high-price gasoline, paired with its lower-cost electricity, works in favor of acceptance of electric vehicles here, according to a fall 2010 study that analyzed the nation's 50 largest metro areas' "readiness" for electric vehicles. The study was prepared by Roland Berger Strategy Consultants, which has offices in Chicago, in addition to New York and overseas.

But even lower-cost charging may not be enough to win over American consumers, the report said, because the cost of purchasing an electric vehicle also figures into public acceptance. Plus, a host of unknowns could also enter into the equation, the report said.

"One media report about an electric vehicle battery explosion, even if false, could set back progress for several years," the Roland Berger report said.

Some companies, at least for now, plan to provide charging at no cost with the hope that they'll make money in other ways.

"Knowing that electric vehicles are coming, we see that there's going to be a place for electric vehicles in the urban markets," said Jim Doria, Chicago-area market officer for Chicago-based InterPark, which has installed 22 Coulomb Technologies Level 2 charging stations (which take between 3 and 8 hours to charge a vehicle) at its parking garages around the city.

"Our thought was to get them in now, so that people know that we have the chargers. Then, when we get the vehicles, we'll be their company of choice for parking."

InterPark pulls in $3,000 to $4,000 annually each time it gains a monthly parker, Doria said. Three new monthly parkers cover the cost of one charging unit installation, he said, and already he's gained a handful of customers from the units.

"InterPark doesn't care about the money from the electricity," said Brian Levin, vice president of Carbon Day Automotive, the exclusive distributor for Coulomb equipment for the Midwest. "It's their property. It should be up to the owner of the station if they want to give it away for free or they want to charge. We just give them a safe and secure way to deliver electricity."

jwernau@tribune.com