How much money could be saved by driving electric in Canada?

Today's electric cars (EVs) tend to be still more expensive than their gasoline cousins because of the cost of batteries and the cost of charging infrastructure. However, battery parity—the point at which EVs have the same cost as equivalent gasoline-powered vehicles on a fully amortized basis—is expected for the mid-2020s as the cost for batteries is falling every year. EVs are already cheaper today by a wide margin on the basis of fuel costs only; it is the fixed cost of buying an EV that is holding back EVs from taking over already. Driving with electricity is cheaper than driving with gasoline, and of course it is hugely more environmentally friendly when the electricity is from clean sources as it is in British Columbia or Quebec.

Consider the following back-of-the-envelope calculation. A typical car consumes about 9 liters of gasoline per 100 kilometers, some less and some more, and more in city driving than in highway driving. Let us assume that the average car drives 15,000 kilometers per year. An electric vehicle consumes roughly 25 kilowatthours (kWh) per 100 kilometers, once you include air conditioning or other electricity use in the car. The average cost of gasoline last year was around \$1.30 per liter, and the average cost of electricity around \$0.13 per kWh. This implies that the annual cost of driving with gasoline is \$1,755 whereas the annual cost of driving with electricity is \$487.50. Driving with gasoline is about four times as expensive as driving with electricity.

The saved fuel cost translates into big numbers when you consider the total amount of fuel that is purchased every year. How much could Canadians save if they all switched to driving electric? The next table shows the answer to this question based on data from Statistics Canada and Natural Resources Canada for 2018.

The cost savings differ across provinces because of differences in gasoline prices (and taxes) and differences in the cost of electricity. The first columns in the table show the price differences. Gasoline is most expensive in British Columbia and Quebec. Electricity is cheapest in the hydro-riach provinces British Columbia, Manitoba, and Quebec. Thus it is not surprising that the largest savings to be had are found in British Columbia (77% reduction in cost); Manitoba (74% reduction in cost) and Quebec (82% reduction in cost).

Translated into dollar terms, the savings are enormous: about 7 billion dollars in B.C., 22 billion dollars in Ontario, and 11 billion dollars in Quebec..

There are a number of caveats that apply in this highly simplified analysis. First of all, vehicle fleets have different fuel efficiencies across provinces, and the composition of urban versus highway vehicle use differs across provinces as well. Savings thus would be smaller where vehicle fleets are already more frugal, while savings would be larger where vehicle fleets are thirstier. Still, the magnitude of the savings remains very large even with this caveat.

Another caveat is the assumption that electricity prices would remain unchanged when there is huge extra demand for electricity. Electricity prices could go up if the entire vehicle fleet changes to electricity. But how much? The levelized cost of new electricity capacity would not necessarily increase much; this is mostly determined by technology. The more likely source of cost increases would be the investments in local and long-distance transmission capacity expansion. Still, even if electricity prices rise by 50%, driving electric would remain a bargain.

Yet, the impact of more EV charging on electricity prices may be more benign if EV charging takes places during off-peak periods, when electricity's marginal cost is low. Rather than deploying huge amounts of new generation capacity, clever incentive programs can simply shift demand to when there is sufficient slack capacity. Time-of-use pricing can induce such shifts, as smart EV chargers can be programmed to charge cars during low-price periods.