Alongside hyperloops, rockets, and luxury electric vehicles, the Tesla Powerwall battery isn’t exactly the most sensational technology for which Elon Musk, CEO of Tesla Motors and SpaceX, has made headline news recently. Nonetheless, Powerwall has the potential to become Musk’s most revolutionary endeavor in the long run. Certainly, there are many who herald this technology as the solution to global warming and one of the biggest breakthroughs of the 21st century. On the other side of the spectrum, there is no shortage of critics who discount Powerwall as an impractical and uneconomical novelty destined for failure. As usual, the truth probably lies somewhere in the middle, and only time will resolve these disputes. For now, the best we can do is play the odds and speculate on the likely implications distributed power storage might have on the energy landscape of tomorrow.
In last month’s article I looked at some of the financial considerations regarding the consumer side of this new technology; now I shift my focus to what could happen on the other side of the meter – what could become of utility companies if independent power storage solutions are popularized. In all likelihood, this would disrupt how power companies do business, though perhaps not in the ways one might expect. The crisis faced by utilities in this scenario is not merely less demand, but less predictable demand, which could be equally as great a challenge to sustaining profitability.
In the decades ahead, it seems unlikely that the world will transition totally and seamlessly to solar energy, despite what Elon Musk might contend. Instead, we will likely move into an increasingly decentralized model where conventional utility companies need to respond to shifting markets, embrace smart grid technologies, and increase their data management capacities. But before we examine some of the potential challenges, let us revisit two of the frequently overlooked technical features of the Powerwall battery and the source of its disruptive potential.
Technical Possibilities of Powerwall
The functional possibilities of Tesla batteries go well beyond being an accessory to solar panels. For residential users, Powerwall batteries not only store and discharge renewable energy and serve as power backups during outages, but they can also help reduce energy bills by charging during off-peak hours and providing power to homes during peak hours. Of course, there is a great deal of skepticism about how financially beneficial this might actually be, especially considering the approximate 5,000 USD cost of purchasing and installing a single 10 kW/h Powerwall unit. But the fact remains that Powerwall is a “smart” technology managed by external software that can give individual homes and businesses the ability to smooth out power rates on their own behalf. This feature alone has the potential to upset the predictive models of utility companies in a significant way.
As well, while the bulk of Tesla’s marketing efforts seem to be directed toward residential customers, perhaps the greatest potential for these batteries resides in their scalability for commercial and industrial applications. Individual Powerwall units can be combined into “Powerpacks,” which provide 100 kW/h of storage each. Because Powerpacks can scale infinitely, they are capable of providing megawatt- and even gigawatt-class energy storage. Businesses and industries could use Powerpacks for load shifting or even to participate in grid markets as a revenue stream. For large-scale enterprises that closely monitor their energy consumption and constantly seek out ways to improve operating efficiencies, Powerpack’s ability to smooth out load and energy costs over the course a day or even seasonally may become very appealing, especially when coupled with intermittent renewable generation technologies like solar and wind.
One nascent example of Tesla’s commercial and industrial application is EnerNOC’s recent announcement that it will be deploying Tesla batteries at select customer sites throughout California. EnerNOC, a large provider of energy software and demand response for businesses, industries, and utilities, will be deploying Tesla’s 100 kW/h Powerpacks to a yet undisclosed number of sites. While EnerNOC CEO Tim Healy stated that the company isn’t expecting a sizable savings from the Tesla implementation this year, he did say that “this could be a sizable channel to market” in the coming years.[i]
Indeed, independent storage could soon become a sweeping trend in the emerging energy landscape for residential, commercial, and industrial uses. How this will affect the energy industry itself is something that warrants serious consideration.
A Strange New World for the Energy Industry
Widespread popularization of independent storage could result in major disruption to the status quo of the energy industry. The next 5-10 years could see a chaotic scramble to figure out a new paradigm in how energy companies make money and distribute power.
In the event of widespread, decentralized energy production and storage, two trends could emerge: less demand and less predictable demand. Beginning with the former, a large-scale adoption of independent batteries (especially if coupled with renewable technologies) could result in a significant decrease in demand. If demand declines sharply, the grid would be underutilized but require the same amount of capital to maintain it. Energy utilities have a mandate to maintain the grid and to store adequate operating reserves at all times, regardless of how heavily they are utilized. But these expenses become difficult to support if revenues diminish in the shift toward greater decentralization. As well, less demand could lead to a surplus in power on the grid – power that may have to be discharged arbitrarily in order to stabilize the grid.
Less demand is a reality that areas of the energy industry have already begun to grapple with. The ZEMA graph below shows weather adjusted load for CAISO from May 2009 to May 2015. Here, we can see a red downward trending line showing how weather has impacted load from a solar standpoint. Over this timespan, the graph shows that total system load has decreased by roughly 12% after taking weather into account. The incremental decrease of load due to off-grid solar generation is also highlighted in green. One could interpret the decline in total system load as off-grid solar generation working to recoup a portion of that load. The influx of affordable storage technologies could act as a tipping point that accelerates this trend even more.
Figure 1 – CAISO solar impact trend analysis
The second trend in this scenario, the unpredictability of demand, presents an even greater complication for utility companies. If independent storage catches on, every site with its own battery could be an unknown, unpredictable variable for the utility company that manages it. Presently, utility companies carefully manage the current load and projected demand of their markets. As independent batteries begin trickling into households and businesses, utility companies will have a much harder time budgeting power and ensuring adequate demand response. The conversion of households and businesses into two-way energy consumers/producers with their own storage capacities could undermine utility companies’ data and disrupt their forecasting models. A prevalence of independent batteries would produce a huge amount of important data that could be out of reach for utility companies. This data would be collected by private tech companies (like Tesla or EnerNOC); but, unless utilities broker a deal with these companies, they may be left in the dark, missing out on vital data concerning their clients’ energy needs and habits. This could present serious challenges to effectively managing power supply.
As if that weren’t enough, utilities could be forced to expand their existing infrastructure in the midst of this potential chaos. Even if their demand is diminished, residences and businesses with batteries and/or renewables still need to be tied into the grid. To effectively service these sites, utility companies would need to bypass traditional distribution infrastructure and connect directly to individual residences and businesses. This essentially means developing microgrid systems in which individual houses have bi-directional inverters and smart meters. At present, it is unclear where the capital would come from in order to expand this infrastructure. In other words, there is no regulatory basis in place to say if utilities, home owners, or battery/renewables companies would end up absorbing these costs. Ultimately, this expanded infrastructure would lead to more data being generated within the grid, much of it potentially out of reach of the utility companies.
Selling the Solution?
Intelligently, Tesla seems to be selling a solution for the crisis it is helping create, as it has designed the Powerpack product to serve utilities. Because Tesla batteries can scale infinitely, they are being marketed to utility companies to assist with load shifting, system firming, and maintaining operating reserves. This ostensibly means that the unpredictable imbalances caused by renewables could be offset by adding stored energy to the system during times of unexpectedly high demand and storing surplus energy when demand is unexpectedly low.
In a best-case scenario, this is a win-win solution – Tesla gets to sell large-scale battery systems to utilities, and utilities can take advantage of the same technology that is helping residences and businesses save money and manage loads. However, it is too soon to say if Tesla’s large-scale battery systems are an economical and satisfactory solution to utilities’ looming complications.
Figure 2 – Artist’s rendering of a utility-scale Tesla Powerpack system composed of multiple 100 kW/h battery blocks (Source: Tesla Motors)
Again, it is too early to say with any certainty what effect the introduction of independent batteries will have on power markets in general. However, it is possible that independent storage could end up inflating costs for power consumers who do not have a home battery. Due to the aforementioned infrastructure upgrades potentially needed to the grid, coupled with the possibility of less revenue, utility companies might need to increase rates to remain viable and maintain service. While this would mean higher rates all-around, it would hit hardest for people without independent storage and/or renewable generation. The increasing power rates would become a major boon for renewable manufacturers, more quickly closing the gap of grid parity. The more expensive conventional electricity would become, the more attractive independent storage would look to consumers.
If the scales tip, and if off-grid solutions become the most economical choice for consumers, it could result in a huge influx of independent storage and renewable technologies into the grid. If demand plummets, this could cause major upheaval for not only utility companies but for generation plants as well. As batteries and renewable technologies approach or even surpass grid parity, their owners and manufacturers might come under pressure from utilities and lawmakers. This could even mean the eventual discontinuation of tax incentives for such products.
Conclusion: Data as the Key to Surviving the Lithium-Ion Revolution
If we reexamine Musk’s perhaps hyperbolic claim during his product launch that Powerwall represents a “fundamental transformation of how the world works, how energy is delivered across the earth,” we see that there might end up being some truth in it. With the price of lithium-ion batteries falling dramatically every year, it is conceivable that their widespread dissemination within residential and commercial energy supplies could soon become a reality.
With battery technologies like Tesla’s being added to the energy mix in the near future, utility companies may need to become very flexible very quickly. This flexibility could take on many forms. For one, utility companies may need to collaborate with battery manufacturers and/or energy software companies so that utilities can access battery data. Knowing who has a battery, when it is likely to be used, and how much power it is storing/drawing/supplying is all vital information that would help utility companies maintain the stability of the entire grid. Thus, utilities will need to take advantage of emerging technologies and data management systems to better forecast energy demand for a grid that is increasingly unpredictable.
Furthermore, utility companies may need to consider vertically integrating with battery and renewable technology suppliers. In the years to come, there could be a great deal of money to be made in retailing and installing these technologies. Alternatively, this this could also become a contested site between tech and utility companies. Regardless, there will continue to be the potential for profit as long as utility companies remain adaptable, take advantage of new technologies and business practices, and not fall behind in the race for reliable data.
Ultimately, the trend of distributed power supply is likely to accelerate with the introduction of independent power storage technologies. Regardless of the success or failure of Tesla, data will be increasingly vital to maintaining successful business operations in the emerging energy landscape. All indicators suggest that the amount of data is going to explode in the years and decades ahead, making data both a critical challenge and crucial resource for economic success. For utility companies especially, predicting what is now unpredictable will become the key to survival.
[i] Qtd. by Jeff St. John. “How EnerNOC Is Building Tesla’s Batteries Into Its Demand Response Plans.” Greentech Media. May 11, 2015. Accessed June 25, 2015. http://www.greentechmedia.com/articles/read/how-enernoc-is-building-teslas-batteries-into-its-demand-response-plans.