VW to provide $2 billion for ZEV infrastructure, drawing criticism and praise from insiders

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By now, the main events in Volkswagen’s dirty diesel scandal are familiar to Charged readers. For years, the world’s second-largest automaker opted not to produce hybrids or EVs, instead relying on “clean diesel” to meet government-mandated emissions standards. In 2015, scientists at the International Council on Clean Transportation were puzzled to find that they couldn’t replicate VW’s emissions results in real-world testing, and alerted the EPA.

Soon, the truth came out: “clean diesel” was an out-and-out fraud. Volkswagen was forced to admit that it built “defeat device” software into many of its diesel cars, allowing the vehicles to pass emissions tests even though, during normal driving, they were emitting from 10 to 40 times the legal amounts of air pollutants.

A little more than a year after the crime first came to light, Volkswagen has reached a settlement with the US government under which the company will have to buy back or modify the diesel vehicles that contained the sneaky software.

VW will also be required to invest $2 billion over the next 10 years to promote zero-emission technology – $800 million in California and $1.2 billion in other states. Some of this will go to “brand-neutral” advertising and outreach programs, but the bulk will be spent to install and operate charging or fueling infrastructure. (There is also a separate $2.7-billion fund that’s targeted at nitrous oxide reductions and will be administered by individual states – part of that money could end up being spent on infrastructure as well.)

Things are moving quickly, as legal proceedings go – according to Green Car Reports, VW has been interviewing and hiring staff for the project for a few months. Prospects include personnel with EVSE experience from equipment providers, network operators and environmental organizations. One new hire is said to be an executive who spent several years heading up an automaker’s infrastructure efforts.

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Good news, bad news

While green groups and EV advocates are generally pleased with the agreement, one aspect of it is highly controversial. VW, not regulators, will choose how to invest the money – it has 120 days to submit a detailed proposal – and it will end up owning the charging infrastructure, with the right to operate it for profit. The settlement stipulates that the company will be “solely responsible for every aspect of selecting the National ZEV Investments, including…the timing and locations.”

So, what was originally conceived as a punishment for VW’s fraudulent activities actually turns out to be a huge business opportunity for the company (albeit one that it probably wouldn’t have chosen to pursue on its own).

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The agreement does include several provisions to safeguard the interests of the public. It requires that the infrastructure that gets built accommodate all current open standards, so the VW Group can’t give its own vehicles an advantage by offering only CCS fast charging. It also requires the investment to be divided into four 30-month periods, each with a separate action plan. This is designed to future-proof the project, so that the bulk of the money doesn’t get spent on technology that will be out of date in a few years.

VW’s performance will be overseen by regulators – CARB in California, and the EPA in the rest of the US – and the company will submit regular reports on its progress. Industry stakeholders will hopefully be able to participate in the review process.

There are a few questions that remain unanswered, such as what mix of DC fast charging and Level 2 charging will be provided, and whether part of the money could be squandered on hydrogen fueling stations.

It’s bad 

A number of companies in the EV charging market fear that having control over such a large pot of money could give VW an unfair advantage in the marketplace, allowing it to crowd out other players, none of whom have access to anything like two billion bucks (network operator ChargePoint estimates that the entire EV charging market will amount to “at best” about $800 million over the next couple of years).

ChargePoint, supported by 27 other firms and advocacy groups, submitted an amicus brief to the Justice Department protesting the plan. “The agreement shouldn’t pick winners and losers, especially given that this emerging market transition will in no small part define 21st-century transportation,” said ChargePoint CEO Pasquale Romano. “ChargePoint is concerned that VW will use the settlement dollars to promote its own interests and crush the emerging EV charging market.”

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Naturally, ChargePoint and its friends don’t object to the $2-billion investment – just to the fact that VW will get to decide how it is spent, and will end up owning much of the infrastructure that gets built. This is understandable, considering that these companies have been involved in EV charging since the beginning, while until the government forced its hand, VW not only more or less ignored EVs, but even went so far as to break the law in order to avoid seriously developing them. This is a bit like turning over the planning of a wedding to the mother-in-law who did everything she could to stop the marriage.

As EV pundit Tom Moloughney puts it, VW has “proven beyond any reasonable doubt that they cannot be trusted when it comes to clean air initiatives.” Moloughney believes that an independent council, with representatives from industry stakeholders and EV advocacy groups, should be appointed to oversee the implementation, and that competitive bidding should determine who gets to do the work.

In their letter to the court, ChargePoint et al say that “allowing [VW] to flood a competitive market with $2 billion in goods threatens the survival of the current participants in that market, and thus the market itself.” Existing companies need to make a profit from EV charging, whereas VW will theoretically be able to offer charging at a loss, or even free, in order to drive existing players out of the market. “If the Settling Defendants are allowed to enter into the market in this way,” says ChargePoint, “within ten years it is very likely that the Settling Defendants will be the only entities in the electric vehicle charging marketplace.”

It’s good

Others in the industry fail to see any such apocalyptic scenario. Terry O’Day, Vice President, Product Strategy and Market Development at EVgo, told Charged that his company takes a different view of the settlement agreement than ChargePoint and its colleagues.

Unlike ChargePoint, EVgo owns and operates all of the over 800 sites in its network. “This experience in owning and operating our infrastructure and controlling the customer experience tells us that it’s important that prospective buyers know that charging is ubiquitous, affordable, and convenient,” said Mr. O’Day. “The settlement with VW gives the opportunity to create a national infrastructure like the one we built, that tells drivers or prospective drivers just those things.”

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“Think about what the industry will need over the next few years,” O’Day continued. “Every major automaker has announced EVs that are coming to market with twice the range, which means twice the battery density or more, of existing vehicles. They’re going to need charging rates that are higher than what we have today, because the charge time is going to more than double. So the scale of investment required to build high-speed charging networks and control customer experience is really quite significant. While the VW settlement represents an important down-payment towards that national infrastructure, it’s by no means going to be all that’s required to get us to where we can electrify all transportation in the US.”

“So generally we think that this is an opportunity for the EV industry, because it essentially plants a stake. And by having a regulator on the other side of this agreement, you can count on the fact that VW is going to make this agreement, and that they’re going to operate it for 10 years. This is more than an intention, it’s an absolute requirement on one of the world’s biggest companies. And as a result, it will attract more investment into the EV industry and into EV charging infrastructure. And because it’s going to tell drivers that charging is ubiquitous, it’s a consistent customer experience, it’s convenient and affordable, you’re going to see more drivers buying EVs and that’s going to strengthen all the players in the EV industry.”

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Considering that not all of the 2 billion bucks will go to capital investments, O’Day doesn’t believe that the project will overshadow investment by existing players to the extent that ChargePoint fears. “[The amount] includes some marketing and outreach and education work, and it includes operating dollars. As we know from our experience, a national high-speed network is very expensive to operate.”

While VW is now required to invest a huge amount money, O’Day says it’s well short of what will be required before the electromobility revolution is complete. Far from allowing VW to monopolize the charging scene, O’Day believes that the agreement will force it to bring in other firms as partners. “It certainly gives them power to make decisions, but it holds them to a very aggressive timeline and capital spending. And that timeline is going to require them to rely on partners to a large extent. It’s definitely too early to tell, but I suppose they’re going to need to work with everybody in order to achieve this, because it’s an incredibly aggressive schedule and scale-up that’s required of them. So they’re going to have many many partners.”

Building a truly national high-speed charging network would not only make longer road trips practical, but would also address the thorny problem of charging for apartment and condo dwellers. “We talk a lot about multi-family dwellings,” said O’Day, “because EVgo has a lot of experience addressing multi-family. There are a lot of markets that could be great EV adopter markets except that many of them are renters. And it’s very difficult to get charging into your apartment building – you have to get your landlord to commit to it, and have it installed for [more than one resident]. And a lot of people don’t have dedicated overnight parking.”

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“When you think about the next generation of vehicles that have twice the range of current vehicles, you can imagine that a multi-family resident is now going to be able to buy a car as a primary vehicle and rely on public charging. And that charging will have to be high-speed so you can keep charging times at a half hour or less when you go to the grocery store. It’s really critical that a high-speed public charging network gets built. It’s the most democratic approach, and it requires the least behavior change on the part of drivers.”

O’Day also points out that demand charges from utilities represent an enormous cost that current players with their profit motive may find hard to absorb. “It’s somewhere around 80% of fixed costs. The first cars coming online that will accept higher charging speeds will have an interest in having that charging network already deployed. But there will be very few cars, and when that first car plugs in, it’s going to cost about $3,000 for that first charging session in just demand charges from the typical utility. So you need lots of cars to follow behind that one in order to catch up and spread the cost over multiple charging sessions. In the early stages of the industry, it’s very difficult to maintain those operating costs with very few vehicles. So having this committed operator with a required investment enables us to get past this chicken and egg problem. VW is going to build the egg, now bring us some chickens.”

Part of the reason for O’Day’s different perspective might be the fact that EVgo was once part of a settlement similar to the one VW just agreed to. In 2012, the state of California reached a settlement with electric utility NRG (previously EVgo’s parent company) concerning overcharges by one of NRG’s predecessor companies. Under that agreement, the EVgo charging network built a substantial number of charging stations in California, which it now owns. EVgo now claims to be the largest US operator of DC fast-charging sites.

 

This article originally appeared in Charged Issue 28 – November/December 2016. – Subscribe now.

  • TonyWilliamsSanDiego

    With Tesla’s Elon Musk tweeting about charge rates in excess of 350kW, he also points out that batteries must be part of the equation. There is no other logical way to mitigate electric utility demand fees.

    • http://nextgenfastchargenetworks.blogspot.com/ Brandon

      Exactly! And there will need to be batteries in the EVs that can charge at 3-4 C too.