Sensitivity analyses

To test the sensitivity of the output of the VFM, a sensitivity analysis using scenarios A2, B3, and C4 as a representative subset of the VFM scenarios was undertaken.

This analysis tested the sensitivity of the output of the VFM to changes in the assumptions used for determining:

 the future growth in the size of the LPV fleet

 the rate at which vehicles leave the LPV fleet

 the growth rate of the price of residential electricity

 the removal of EVs’ exemption from paying RUC

 the impact of different levels of top-up charging by PHEV owners (scenario C4)

 the impact of introducing a subsidy for EV purchases

 factors that affect the energy efficiency of EVs.

Growth in GDP and vehicle scrapping rates

This sensitivity analysis assessed the impact of changing the default GDP growth and scrapping rate assumptions.

The assumption used for the lower economic growth and scrapping rate sensitivity analysis was that GDP growth would (rather than the default assumption of 2.4%

per year to 2020 and then 2.2% per year: see section 5.4.3) be 0.9% per year to 2020, and then 0.7% per year to 2030. This growth projection was based on the low economic growth sensitivity case used by the Ministry for Economic Development

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in the 2010 Energy Outlook (Ministry of Economic Development, 2010b). This sensitivity analysis also assumed that future average scrapping rates would remain at the levels experienced in 2009 when there was a period of low GDP growth (0.1%

per year).

For the higher economic growth and scrapping rate sensitivity analysis, the assumption was that GDP growth would be 3.9% to 2020, and then 3.7% to 2030.

The basis of this growth projection was the high growth projection from the 2010 Energy Outlook. In this study, the high economic growth also resulted in a higher rate of vehicle scrapping similar to those that occurred in 2006, when annual real GDP growth was 3.3% per year. The GDP projections used for the default and low and high sensitivities are shown in Figure 5.19.

Figure 5.19: GDP 1995/96 prices ($ millions)

Residential price of electricity

To assess the sensitivity of the VFM to different growth in the price of electricity assumption of the analysis the model was run using low and high rate growth rates.

The basis of the high growth electricity price path was the assumption that residential price increases would continue at the historic rate of 2.9% per year (Ministry of Economic Development, 2010a). The basis of the low electricity price

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path, of 0.75% per year, was the assumption that, under low economic growth conditions, residential electricity prices would grow at the same rate as the low wholesale electricity price path in the Energy Outlook 2010 (Ministry of Economic Development, 2010b).

Table 5.18: Projected residential electric tariffs Year Default tariff sensitivity

case

At present, vehicles that are wholly or partially powered by electricity are exempt from RUC, but this exemption will be reassessed in 2013 (Ministry of Transport, 2010b).

The default assumption used in the VFM scenarios was that the RUC exemption would stay in force throughout the modelling period. The VFM could not directly take account of the effect of removing the RUC exemption on vehicle choice. To simulate the effect of its removal, the value of the exemption was capitalised into the purchase price of the EVs.

RUC for light vehicles varies depending on vehicle weight, but for LPVs under a maximum gross weight of 2000 kg, the charge is NZ$44.31/1000 km. To calculate the present value of all RUC payments, assumptions were made about the period of vehicle ownership, the personal discount rate, and the amount of annual travel.

The average life of LPVs in New Zealand is 20 years (Ministry of Transport, 2009b), but there is no data on the average period of car ownership. The New Zealand Transport Agency does provide data on the number of changes in ownership of cars in a year. Using data from 2010, and dividing the size of the LPV fleet by the number

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of changes in car ownership for that year gives an estimate of the average period of car ownership of 3.5 years (Chrun, 2010). This figure is not considered a reliable estimate due to the large number of transactions undertaken by registered and unregistered vehicle traders. Vehicle traders buy and sell a large number of vehicles, which they then hold for relatively short periods. On balance, it was assumed that a more realistic estimate of the average period of car ownership in New Zealand was 10 years.

In this study, a discount rate of 8% was used based on the New Zealand public sector discount rate (The Treasury, 2010). It was assumed that car buyer would estimate the annual cost of RUC using the contemporary level of travel demand.

The amount of RUC that would be paid by the owner of a PHEV, absent of the exemption, would depend on the type of fuel used in the ICE. If it is petrol, RUC need only cover the distance travelled on electric power as the levy for using petrol occurred at the pump. If the PHEV used diesel, then without the exemption RUC is charged on all the distance travelled. The assumption used in this study was that 90% of PHEVs used petrol.

Table 5.19: Present Value of road user charges exemption by vehicle type

Scenario A2, B3, C4 A2 B3 C4

To test the effect of the top-up charging event on petrol and electricity

consumption two sensitivity analyses were undertaken using scenario C4. One