Today’s Headlines: Is Tesla's Powerwall Battery a Game-Changer?

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Today’s Headlines: Is Tesla's Powerwall Battery a Game-Changer?
May 5, 2015
Tesla Expands Into Power Storage Market

Elon Musk has never been one to shy away from a bold and disruptive strategy, from his startup of PayPal through SpaceX to Tesla Motors (NASDAQ:TSLA). With his recent announcement of Powerwall, Tesla's introduction into the commercial battery/power storage market, Musk is embarking on a strategy to make renewable energy a more mainstream technology.

Costs of solar panels have been coming down for some time to where they can begin to challenge coal and gas-fired plants on a cost per kilowatt-hour (kWh) basis and solar infrastructure costs are also trending down significantly. The "missing piece" of the renewable energy picture is a reliable way to store the energy and balance out the demand issue — solar energy is only available during daylight hours and peak demand never matches up with peak generation. That makes most consumers of solar energy still reliant on the power grid.

Residential solar power is installed and wired into the grid, allowing the power company to regulate the flow based on need (and set up a suitable metering and billing method, as well). A large enough storage system could make homes fully independent of the grid. Powerwall is a first step in that direction.

Cheaper, But Still Costly

is based on the lithium-ion battery technology that currently powers Tesla vehicles, and it represents a significant improvement in the field. It’s relatively light (220 pounds) and thin (seven inches thick) and made to hang on an outside wall or on the wall of your garage. It will be available in a 10 kWh model for $3,500 and a 7 kWh model for $3,000. Powerwalls are "stackable", meaning that multiple batteries can be combined in a system to make a larger cumulative system.

Unfortunately, the above costs may be less than half of the total cost. To convert the stored DC battery power into the AC current that your home outlets require, you need a suitable power inverter, which is around the same price as the Powerwall itself. Include professional installation and the initial costs approach $10,000. Powerwalls are definitely not a DIY project.

Does the Powerwall make a suitable backup power system? Department of Energy data shows the average American home consumes around a constant 1,200 watts on average. Assuming perfect efficiency, a 10 kWh system could provide the needs of the home for a little over nine hours. That's a decent emergency backup, potentially capable of running a refrigerator, a freezer, and a few lights for a day or two with some conservation efforts.

However, it's a costly backup system. Remember, the battery is meant to be teamed up with a solar panel installation, which is going to run into tens of thousands of dollars by itself and will be wired into the power grid in most residential applications. (In many states, like California, significant tax credits can offset much of this cost.) Thus, unless your solar installation is large enough to keep you completely off-grid, there is little economic motivation to buy the battery. The battery system needs to hit a much greater capacity at a much lower cost to take hold in the average residential market.

The larger version, known as the Powerpack, uses scalable 100 kWh blocks — and Powerpacks are where the technology is likely to take off in the short term.

An Excellent Integrated Strategy

In essence, Musk's strategy is to integrate Powerwall/Powerpack technology on all levels, planting the seeds in the residential market while making money off the commercial market. Larger commercial and industrial users can use banks of Powerpacks and benefit from the economy of scale. They can get a decent payback period on their investment by going primarily solar and running their facilities in the evening off of the stored energy, or using their stored energy during peak demand hours to save money on the rates. Wal-Mart already has eleven installations in California, and Amazon and Target are also early Powerpack customers.

Utility companies represent another large market. Musk has said that Tesla has been in discussions with a major utility about a 250 megawatt-hour facility (250,000 kWh).

The Powerwall/Powerpack technology is a logical extension of Musk's other ventures. Musk is the CEO of Solar City (NASDAQ:SCTY), which has announced a plan to sell the 10 kWh Powerwall with an inverter for $7,140 installed or $5,000 installed as part of a nine-year lease (perhaps tempting residential customers with a complete installation package). Meanwhile, production of the Powerwalls will eventually move to the Tesla Gigafactory being constructed in Nevada. By 2020, it should be at full capacity, pumping out thousands of batteries for Tesla vehicles and Powerwall/Powerpack batteries.

Musk has high hopes for the technology, and Tesla expects the battery unit to bring in billions in annual revenue in the near term, according to a Bloomberg report. Environmental experts are bullish also. Friends of the Earth spokesman Alasdair Cameron said batteries like the Powerwall could become as common as central heating in the future.

The Takeaway

While the battery technology is still beyond most residential applications, at least some who can afford the Powerwall will find it appealing enough to install it and give Tesla some data to work with for the next generation. Meanwhile, the Powerpack seems poised to take off. Given the regulatory pressures on utilities and successful installations with major retailers, Tesla seems well poised to be the first to take advantage of the economy of scale and squeeze potential competitors such as Sonnenbatterie.

The battery storage market is expected to top $5 billion per year by 2020. Expect Tesla to hold a major chunk of that market. It’s possible that a solid battery infrastructure will come to pass before the refueling infrastructure for the Tesla vehicles.

There's still a significant amount of risk with Tesla in both the battery and automobile markets, but Tesla seems like a decent long-term bet. Remember, it doesn't often pay to bet against Elon Musk.

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