Tesla and the Shift in Power: Part 1 – What Powerwall batteries could mean for energy consumers

Tesla and the Shift in Power: Part 1 – What Powerwall batteries could mean for energy consumers

June 1, 2015

On April 30, 2015, Elon Musk, CEO of Tesla Motors and SpaceX, took to the stage amidst cheering and rock music to announce, in his words, a “fundamental transformation of how the world works, how energy is delivered across the earth.” In a presentation strikingly reminiscent of an Apple Keynote product launch, Musk unveiled the Tesla Powerwall and Powerpack batteries for residential and commercial use, respectively. Musk, who is renowned for having revolutionized e-commerce with PayPal, the US auto industry with Tesla Motors, and US space transport with SpaceX, is hoping to do the same to the global energy market with a new line of batteries.

The declared ambition behind Musk’s Powerwall/Powerpack batteries is to provide the “missing link” for distributed generation that will offer a path toward a future free of fossil fuels. More to the point, the Tesla batteries are designed to give residential and commercial users an affordable power backup supply, an easier way to supplement their retail power with renewable energy, and even a potential method for going entirely off-grid.


Figure 1 - Tesla Powerwall battery; dimensions: H: 51” W: 34” D: 7” (Source: Tesla Motors)

Figure 1 – Tesla Powerwall battery; dimensions: H: 51” W: 34” D: 7” (Source: Tesla Motors)

While Musk strongly associates his product with the domain of renewable generation, independent batteries do not necessarily have to be tied to a renewable power source. To overlook this fact is to ignore an important component of their potential to revolutionize and/or destabilize the energy industry. For instance, Powerwall can participate in load shifting by drawing energy from the conventional grid during off-peak hours and supplying power during peak hours, effectively smoothing out load over the course of a day, thereby lowering a household’s overall rates and easing peak load for utilities.

The magnitude of consumer desire for this product was voiced right away. In less than a week after the announcement, Tesla sold out their inventory of batteries until mid-2016, reporting 38,000 reservations for the in-home system and 2,500 for commercial-scale systems. This sizable demand is perhaps an indication that a new chapter in energy markets is about to begin.

While the long-term success of this particular product is yet to be determined, the implications of distributed, independent energy storage could have massive implications for power providers and consumers alike. If these battery solutions are indeed popularized, they could bring about major opportunities and challenges for the entire energy market. Not only does this technology have the potential to reshape the energy landscape, but the data landscape along with it – changing the way energy need and use are monitored and predicted throughout the grid. In order to better anticipate the possible consequences of a large-scale adoption of Tesla batteries, we must come to a clearer understanding of the product itself.

The Particulars of Tesla’s Powerwall

It is well understood that the market for renewables has struggled due to power intermittency. When the sun isn’t shining, the wind isn’t blowing, and water flow abates, power supply subsides. Powerwall (Tesla’s residential-size battery) intends to remedy this by storing power rather than selling it back to utilities via net metering. In the example of solar, the battery charges during the day when the sun is brightest and discharges at night when lights and appliances are turned on.

Figure 2 - CAISO daily renewables supply and demand

Figure 2 – CAISO daily renewables supply and demand

Figure 2 shows the monthly average of CAISO hourly demand forecasts and renewable output. As evident in this graph, solar demand and generation output have increased over the last two years in California, whereas wind seems to have decreased. The demand for solar, nevertheless, is on a strong upward trend.

However, as previously noted, Tesla batteries don’t need to be connected to renewable generation of any kind. They can function on their own to help smooth out the load of a household over the course of a day, purchasing power during off-peak hours and supplying energy during peak hours. Powerwall is also a “smart” battery, meaning that it connects to the Internet and is managed by off-site software. This means that Powerwall is progressively adaptable to new data and technologies over time.

Powerwall comes in 7 kWh and 10 kWh models, costing a relatively inexpensive 3,000 USD and 3,500 USD, respectively (an estimated 5,000-7,000 USD after installation). Importantly, these batteries are also “infinitely scalable” for residences and, more significantly, for commercial and industrial applications. Musk emphasizes that these batteries have been designed to scale up to a gigawatt-class storage solution. These large-scale battery aggregates (Powerpacks) are being marketed to businesses as a way to shift loads and even participate in grid markets. For utilities, Powerpack applications include load shifting, capacity firming to maintain stability during voltage swings, and extending the lifespan of existing transmission and distribution infrastructure.
What’s New about Powerwall?
Technologically speaking, Tesla’s battery products are not particularly new. Rather, the ingenuity of Powerwall resides in its new application of existing technology. Tesla is certainly not the only company manufacturing independent energy storage products, yet it has the potential to reach more consumers than anyone else. This is largely due to its innovative business model, which relies heavily on brand appeal and competitive pricing.

First and foremost, Tesla is leveraging its existing brand recognition to sell its batteries. While most people would be hard-pressed to name a single renewable energy company (including the largest solar panel provider in the United States, SolarCity, on whose board Elon Musk sits), Tesla Motors has a highly visible brand with an established name in green tech. As well, Tesla seems to be marketing its batteries like it markets its cars, by emphasizing their sleek design and even offering them in a range of shiny colors.

The other crucial factor of Tesla’s business model is the affordability of its batteries. Tesla Powerwalls are selling at about half the price of some of their competitors.[1] Tesla is able to undercut most other battery providers by leveraging an economy of scale – Tesla battery technology is already mass produced for Tesla vehicles. With the future completion of Gigafactory 1, Tesla’s massive battery factory in the desert of Nevada, existing production capacity will be amplified considerably. This facility, slated for completion in 2017, will be 20 times larger than any other battery manufacturer in the world, which will drive the cost of batteries down by an estimated 30%.[2] Historically, economies of scale have been the reason traditional, centralized power plants could supply cheap electricity. Now, Tesla is using a similar tactic to popularize distributed electricity generation and storage.
What’s Old about Powerwall?
While Tesla’s batteries look like they are from a utopian future, they are in fact new manifestations of an existing and somewhat controversial technology. Powerwalls and Powerpacks are essentially reengineered Tesla vehicle batteries. These batteries are lithium-ion technology, the same found in almost all laptops and mobile phones. As well, lithium-ion batteries are currently used in most existing wind and solar storage systems. Lithium-ion technology has become popular of late because of its high energy density and slow loss of charge when not in use. But despite their ubiquity, lithium-ion batteries have something of dark side.

The production of lithium-ion batteries requires a massive amount of energy. Even in the case of electric vehicle (EV) batteries, so much energy goes into their production that one study found that the global warming potential of EVs was only 10%-24% less than a gasoline-powered car over the course of a 150,000 km lifespan.[3] This is because the carbon footprint of the initial production of an EV is nearly double that of an equivalent gasoline-powered vehicle, primarily due to its large batteries. The construction of Gigafactory 1, which will be covered in a massive array of solar panels, will hopefully offset this carbon footprint and neutralize the power required to make these batteries. Still, any efficiency evaluations of the Tesla Powerwall should take into account the energy used in its production.

Additionally, it is important to keep in mind that lithium-ion batteries themselves are nonrenewable. Fortunately, lithium-ion batteries contain less toxic materials than other types of batteries and are considered safe for landfills and incinerators. But while lithium-ion batteries can indeed be recycled, it is generally cheaper and more popular to mine these metals than to recycle them.[4] And, of course, minable lithium is a nonrenewable resource. The largest minable lithium deposits are found in China, parts of South America, and Afghanistan. In fact, an internal Pentagon memo once called Afghanistan the “Saudi Arabia of lithium.”[5] This goes to show that a future of clean energy would not be immune to geopolitical tensions over nonrenewable resources.

The Financial Upside to Home Batteries
Since Musk’s announcement, there has been a great deal of number crunching and speculating about whether or not Powerwalls will make financial sense for their owners. Such financial assessments are indeed hard to make as the influential factors vary from case to case. These factors include: the regional cost of power, the annual electricity load of the household, whether the Powerwall unit is tied into a renewable generation source, the cost of that renewable equipment/installation, the yield of that renewable supply, and any corresponding weather factors that may promote or impede generation.

In any case, UBS estimates that the 7 kWh model of Powerwall could pay for itself within six years.[6] Another estimate by Deutsche Bank indicates that, when combined with the expense of a solar array, the energy costs of a household using a Powerwall unit would be equivalent to an energy bill in the high teens or low 20s in c/kWh.[7] This is already superior to or competitive with the average retail price of residential customers in a handful of US states, including: Hawaii (30.85 c/kWh), Connecticut (21.82 c/kWh), Massachusetts (21.67 c/kWh), Alaska (19.31 c/kWh), and even California (17.18 c/kWh).[8]

But this could be just the beginning. In late February 2015, even prior to Tesla’s announcement, Deutsche Bank released a report predicting that the cost of lithium-ion technology will soon plummet even further. Speaking about the commercial sector, the report states, “Using conservative assumptions and no incentives, our model indicates that the incremental cost of storage will decrease from ~14 c/kWh today to ~2 c/kWh within the next five years.” The report continues, “We believe 20-30 per cent yearly cost reduction is likely [for lithium-ion batteries], which could bring [them] at commercial/utility scale to the point of mass adoption potential before 2020.”[9] Clearly, in the race for cheaper energy storage, the big winners will be adopters of the technology.

To Be Continued
Of course, there is a lot more to this puzzle than whether Tesla batteries will benefit consumers. In part two, I will explore the potential ramifications of a widespread adoption of batteries on the electricity grid and on utility companies. If independent storage technologies become highly popularized, it could result in a major disruption of the status quo for how energy is sold, managed, and delivered. While there will be plenty of money to be made during such a transition, survival for energy companies would likely hinge on their ability to access vital data. But more on that next month . . .


Works Cited

[1] Randall, Tom. “Tesla’s New Battery Doesn’t Work That Well With Solar.” Bloomberg Business. May 6, 2015. Accessed May 27, 2015. http://www.bloomberg.com/news/articles/2015-05-06/tesla-s-new-battery-doesn-t-work-that-well-with-solar.

[2] Wald, Matthew L. “Nevada a Winner in Tesla’s Battery Contest.” The New York Times. September 4, 2014. Accessed May 27, 2015. http://www.nytimes.com/2014/09/05/business/energy-environment/nevada-a-winner-in-teslas-battery-contest.html?_r=1.

[3] Hawkins, T. R., Singh, B., Majeau-Bettez, G., and Strømman, A. H. “Comparative Environmental Life Cycle Assessment of Conventional and Electric Vehicles.” Journal of Industrial Ecology, 17: 53–64. October 4, 2012. Accessed May 27, 2015. http://onlinelibrary.wiley.com/doi/10.1111/j.1530-9290.2012.00532.x/full.

[4] Kamyamkhane, Vaishnovi. “Are Lithium Ion batteries sustainable to the environment?” Alternative Energy Resources. Accessed May 27, 2015. http://web.archive.org/web/20120905095017/http:/www.alternative-energy-resources.net/are-lithium-ion-batteries-sustainable-to-the-environment-i.html?.

[5] Risen, James. “U.S. Identifies Vast Mineral Riches in Afghanistan.” The New York Times. June 13, 2010. Accessed May 27, 2015. http://www.nytimes.com/2010/06/14/world/asia/14minerals.html?_r=0.

[6] Parkinson, Giles. “7kWh Tesla Powerwall Could Deliver 6-Year Payback In Australia, Says UBS.” Clean Technica. May 20, 2015. Accessed May 27, 2015. https://cleantechnica.com/2015/05/20/7kwh-tesla-powerwall-could-deliver-6-year-payback-in-australia-says-ubs/.

[7] Parkinson, Giles. “Tesla Battery Storage Will Accelerate Exit of Coal Generators.” Renew Economy. May 3, 2015. Accessed May 27, 2015. http://reneweconomy.com.au/2015/tesla-battery-storage-will-accelerate-exit-of-coal-generators-88203.

[8] “Table 5.6.A. Average Retail Price of Electricity to Ultimate Customers by End-Use Sector.” Electric Power Monthly. US Energy Information Administration. May 19, 2015. Accessed May 27, 2015. http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a.

[9] Vorrath, Sophie. “Energy Storage to Reach Cost ‘Holy Grail’, Mass Adoption in 5 Years.” Renew Economy. March 3, 2015. Accessed May 27, 2015. http://reneweconomy.com.au/2015/energy-storage-to-reach-cost-holy-grail-mass-adoption-in-5-years-18383.

 Effective Date: June 01, 2015

Reader's Discussion

  1. Avatar

    Very interesting article touching on latest storage technologies. looking forward for next part

  2. Avatar

    Amazing post

  3. Avatar
    Jelle Zwart

    Great post, lot’s of information I didn’t know before

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