This story is part of a series concerning California’s impending regulations on zero-emissions vehicles, which have the potential to upend the American trucking industry. You can follow along with the stories here.
Generous incentives California offers to offset the cost of transitioning to electric trucks are not forever: The spiffs begin to disappear as the regulations go into effect.
“You typically can’t take an incentive to perform a regulated action, something you would have to do under a mandate,” said Joe Annotti, senior vice president of programs at Gladstein, Neandross & Associates (GNA). It is a Santa Monica, California, consultancy that works with fleets to prepare them for electric trucks.
The phaseout of the spiffs for electric trucks, chargers and the infrastructure to support them is a lesser-known downside.
Something similar happened to once-incentivized energy-efficiency improvements in buildings. Now that prudent energy use is the rule, there’s no financial break for doing it.
“Once regulation takes effect, all of these perks and bennies start going away,” said Liana Rios, electric vehicle customer solutions manager at San Diego Gas & Electric (SDG&E).
No need for despair with many incentives still out there
Ample ways will remain to reduce the cost of transitioning to electric vehicles.
“This is not a coatrack with one prong that we need to hang our hat on,” Annotti said. “There’s plenty of opportunities out there to chase, and we’ll continue to see those persist.”
Between California and other state and federal programs, 600 to 650 incentive programs apply to clean transportation.
“The theory behind incentives is that it’s a bridge between now and then,” Annotti said, adding that electric trucks cost three to four times as much as a diesel-powered model. “How do we get a Class 8 electric truck that costs $450,000 down to a Class 8 diesel truck? The answer is incentives.”
Overcompliance can be a winning strategy
For at least the near future, fleets purchasing enough electric vehicles to stay ahead of the percentages required for their specific operations can redeem vouchers and claim other grants. California is seeking to remove diesel trucks from its roads by 2040.
“Where the opportunity exists right now is what we call overcompliance,” Annotti said. “If I’m a fleet today, I can get myself above what I will eventually be required to do. Once those regulations hit, I can keep myself above, or over-compliant.”
Some larger fleets like Penske Truck Leasing, Schneider, Sysco, U.S. Foods and NFI Industries are doing exactly that.
It’s the rest of the tens of thousands of fleets that might be in for a rude awakening. The recently passed California Clean Fleets Rule requires some fleets to purchase at least 9% of their vehicles operating in the state to be zero-tailpipe emission beginning in 2024. The rule ratchets up the percentages from there.
The California Air Resources Board voted in favor of the rule on April 27, the Friday before the GNA-sponsored Advanced Clean Transportation Expo opened in Anaheim. It caused quite a stir.
“Having 12,000 people talking about what happened a couple of days before was a really enlightening experience for a lot of folks,” Annotti said.
Sorting out what’s available
It is possible to get vouchers worth hundreds of thousands of dollars off an electric truck, tens of thousands more for charging equipment and essentially cost-free power-to-the-door infrastructure from California’s large publicly owned utilities. But fleets lack experience in writing grant applications and meeting filing deadlines.
Charger incentives of $25,000 to $50,000 each are available through the Carl Moyer Memorial Air Quality Standards Attainment Program that has allocated $1 billion to clean up engines and other sources of mobile pollution since 1998. It is named for a late scientist who helped shape California’s air quality policies.
“We have a team of 20 that day in, day out tracks these funding opportunities across the U.S. and Canada,” Annotti said. “California is very good at being both comprehensive and outright confusing. They do both very well. There’s a lot of hands in this particular cookie jar.”
HVIP attracts most of the attention
On the equipment side, the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) is best known and most publicized. Truck makers issue news releases when their products become eligible. Some, like startup electric truck maker Nikola, even announced how many units customers purchased with the vouchers.
OEMs offer grant-writing assistance and consultative services to fleets. They also talk up a $40,000 federal incentive included in the Inflation Reduction Act.
“When the market started, it was very much driven by an OEM perspective,” Annotti said. “Now the fleets are the ones applying for the funds.”
The HVIP doled out $1.7 billion in grants for 2022-23. Of that, trucks qualified for about $417 million. Vouchers range from $7,500 for Class 2b trucks to $288,000 for a Class 8 hydrogen fuel cell model. Most of the rest of the money is earmarked for school and transit buses, which face earlier zero-emission compliance deadlines.
According to a study by Calstart, a nonprofit network that administers HVIP funds, such voucher programs have spurred the purchase of more than 15,000 clean vehicles and equipment. More than 9,000 of those, or 60%, were zero-emission.
Low-carbon fuel standard a boon for some
In California, the state redirects money collected from pollution fines — much of it from oil companies — to fund the HVIP and myriad incentive programs. The program is called cap and trade. Its source of funds is the state’s Low Carbon Fuel Standard (LCFS).
The LCFS effectively monetizes the carbon intensity of fuels. The gap between the carbon intensity of electrons versus diesel is pretty big depending on the cleanliness of the grid producing the electricity. A credit is generated for each. The gap creates a market for credits that can be traded on an open market.
The typical LCFS credit generated by an electric truck is $15,000 to $20,000 based on current prices, which are expected to rise, according to Annotti. Whoever owns the credit when the electricity passes from a charger to a vehicle can sell it. But the revenue has to be used on future electrification purchases, not for general purposes.
This is what Tesla did for years before it made money from selling cars. Practically its entire income came from selling credits it earned for making electric cars.
“That’s why you see these charging-as-a-service providers want to own your charger because [they can] monetize the value of that credit,” Annotti said.
Public utility ratepayers footing the bill for infrastructure incentives
The California Public Utilities Commission (CPUC) got into the incentives space with the Power Your Drive for Fleets program. In 2020, it agreed to charge ratepayers for five years to create make-ready infrastructure — improvements needed from the power lines to where the charging conduit, called a stub out, emerges from the ground.
SDG&E, Southern California Edison and Pacific Gas and Electric received authorization to spend hundreds of millions of ratepayer money to create essentially free infrastructure for medium- and heavy-duty fleets.
“That can range anywhere from a couple hundred thousand dollars to over a million depending on the complexity of the installation and the extent of the juice that a fleet operator needs,” SDG&E’s Rios said.
SDG&E applied some of its allocated $107 million to open a public charging facility at a TruckNet site in Otay Mesa. It is near the U.S.-Mexico border crossing through which more than 1 million commercial trucks pass each year. The 250-kilowatt site has four chargers operating at 62.5kW each.
The public site took 15 months from start to finish. SDG&E quotes 12-24 months for typical installations.
The CPUC also approved $1 billion to advance electric charging last November, but that is not in the form of incentives. Ratepayers also are being assessed for that.
With or without incentives, can the electric grid handle the coming load?
The issue of the electric grid’s readiness for the additional demands of truck charging is no issue at all, Rios said.
“Fleet operators are not turning over entire fleets to zero emission right out of the gate,” she said. “They’re turning over a couple vehicles at a time and adapting and learning. If their needs over a 10-year period are substantial and require substation upgrades, we will absolutely serve them.”
It might take significant time, however.
“I can get you a Class 8 eCascadia in five months,” Rakesh Aneja, vice president of eMobility at Daimler Truck North America, told FreightWaves during a visit to a Velocity truck dealership in late April. “If you need a substation put in to get the power, it could take five years.”
Rios acknowledged infrastructure delays are part of the transition.
“If you’re even thinking about electrifying your fleet, contact your utility early and often, because we need to share this information with our grid planning team,” she said.
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