Tesla Powerwall. Image: Tesla.
Last week we reported on immediate reactions to Tesla’s launch from three analysis firms, including Bloomberg New Energy Finance, Lux Research and GTM. This time around, more analysts, experts and industry participants have offered PV Tech Storage their views.
To put it very, very simply, the broad consensus seems to be that Tesla has undoubtedly raised the profile of energy storage among the industry and wider public, which can only be a good thing, as Dan Brdar of power conversion company Ideal Power told PV Tech.
“We think it’s good that Tesla is entering the residential energy storage market because it will certainly raise visibility of storage as a solution,” said Brdar.
“With Tesla and other battery manufacturers adding such large amounts of production capacity it will rapidly drive down battery pricing in the market as battery suppliers look to utilise their capacity. The lower battery prices go, the bigger the addressable market becomes for everyone.”
Regardless of the cautious welcome, questions remain over Tesla’s business model.
Business model questions asked
Along with excitement around the launch, questions have also been raised. In particular Powerwall, Tesla’s residential storage battery, has been the subject of a familiar debate for anyone who has been following energy storage for some time – how to really make storage pay and how to calculate its true value.
Storage can obviously retain solar energy for night time use, enable greater self-consumption of electricity onsite and smooth the variable output of PV generation. Yet due in part to market and infrastructure design pre-dating the advent of widespread distributed generation, for example, in many electricity markets, including those in Tesla’s home state of California, the only real driver for home energy storage systems (ESS) is backup power.
Ash Sharma, analyst with IHS, said: “It remains to be seen how popular the product will be in the US however, given the widespread use of net-metering which negates much of the need to store solar energy.”
Some news outlets questioned whether SolarCity and Tesla will actually be installing much solar-plus-storage at all at the residential level.
However, one point that SolarCity made last week that does not seem to have been picked up by much of the mainstream media is that the PV installer and others are still working to come up with innovative new business cases to match the capabilities of this relatively new technology.
One such business model for the long term, is aggregation, in other words connecting large numbers of customer-sited systems together to effectively create a larger-scale storage device or ‘virtual power plant’, manageable either by a central operator, the individual system owner, or both.
Germany’s Energiewende-driven storage adoption
In Germany, on the other hand, with its national energy transition (‘Energiewende’) long underway, things are already moving in a new direction. Firstly, as feed-in tariffs (FiTs) for solar have dwindled away, self-consumption has become the biggest economic driver for PV adoption, which energy storage can obviously enable. Furthermore, work on aggregation has already begun.
One utility services company, Lichtblick, has signed up with Tesla to partner on its ‘swarm’ concept, directly akin to the virtual power plant. Lichtblick’s swarm of devices can draw electricity from the grid or feed back into it, effectively acting either as a power plant or as provider of various grid services.
Referring to aggregation programmes already being trialled in Germany by Lichtblick and others as a “legitimate business model,” Lux Research analyst Cosmin Laslau offered this insight:
“Critical mass will be key in making these aggregates large and more useful, so the more sales Tesla and SolarCity can generate for stationary energy storage, the better its chances to make a difference with this business model.”
Chris Edgette, director of the California Energy Storage Alliance (CESA) and an advocate of aggregated storage, said his organisation is among those working behind the scenes to enable market participation for ‘virtual power plants’.
“You can bet that Tesla has not overlooked this in their business model,” Edgette said.
Others, including BNEF analyst Logan Goldie-Scot were cooler on the idea, stressing that it is still in its infancy and “not a proven business case” despite the trials.
Another alternative business model would be electricity retail schemes such as the one currently being offered by another new Tesla partner, Reposit Power in Australia. The company’s ‘Grid Credits’ programme allows PV system owners to sell their excess electricity at the most attractive available prices, as well as allowing grid operators to reduce demand, while also offering the usual benefits of storage, such as backup power renewables integration.
Tesla and SolarCity are not alone in exploring the possibilities of aggregated customer-sited storage systems into 'virtual power plants'. Image: SolarCity.
Tesla’s seeming habit for disruption in each new industry it enters begs the question of what effect the sudden emergence of a low-cost competitor could have on the market’s existing players. As might be expected, not too many direct competitors to Tesla have commented on the record as yet.
However Andrew Bissell, chief of Scotland’s Sunamp, which makes heat batteries for household use, gave a bit of a clue as to what might be on the minds of other electrical storage makers.
“First of all, I’m really happy that Tesla has come into this sector,” Bissell said, praising Tesla’s marketing and technology as both being “exceptional”. As a maker of heat storage, Sunamp could be a complimentary technology to a Tesla Powerwall, as opposed to its competitor, Bissell said.
“I’m also really happy that I’m not running a battery electric storage company at this point, because I think that with the Gigafactory coming on stream, you have to assume that their cost per unit is going to be low per kilowatt hour relative to other players.”
Similarly, Dr Nina Skorupska, head of Britain’s Renewable Energy Association (REA), said she hoped Tesla’s planned entry into the UK market would not push out smaller, domestic manufacturers before the country even began adopting storage to integrate more renewable energy.
“The attention garnered by such a high profile company is welcome, but it’s important to note that the UK has several innovative home grown battery companies that also supply homes and businesses,” she said.
Views from Silicon Valley
Several of Tesla’s Silicon Valley tech-space co-habitants were also keen to comment on the news, again with the majority seemingly pleased to be sharing the literal and metaphorical space with the game-changing EV maker. However, some sought to highlight that the trend for battery costs to fall was already in full swing, even before Tesla’s announcement drew the focus of the media.
“For Tesla to enter on the high note and dramatically increase awareness is timely as it puts the last piece of the puzzle together for the true mainstream recognition of what we’ve all been work so hard for – energy storage is a real, cost-effective market,” Paul Detering, CEO of CODA Energy, which makes commercial and industrial-scale energy storage systems, said.
John Jung of Greensmith, which provides turnkey energy management systems but also makes and licenses software and control platforms, said that while Tesla’s appearance in the market is “further validation that the storage industry is growing and will continue to attract new entrants”, the challenges facing the industry, particularly on business model innovation, have not changed.
“The challenge, for both Tesla and the industry, is developing business models that ensure the continued growth of energy storage. Energy storage is complex, and right now there is no cookie cutter approach or silver bullet that addresses all of its complexities, particularly at grid-scale,” Jung said.
Bigger is perhaps better, or at least easier to monetise
Finally, at commercial and utility-scale the picture is much clearer, it seems. Firstly, as Dan Brdar of Ideal Power pointed out, commercial operations in the US are subject to demand charges in most states, which can be mitigated by installing storage.
At utility scale, the grid network in much of the US already needs a great deal of upgrade work and is considered to be in something of a vulnerable position. California, New York and Hawaii have all introduced legislation supporting energy storage for this reason, while the area serviced by utility PJM has a fast acting frequency regulation market already in place that large-scale storage can compete in.
Ironically, however, the fact that large-scale storage is already viable to some extent means that the space may be a more competitive one for Tesla to try and gain a foothold in, as Cosmin Laslau from Lux Research explains.
“Utility-scale energy storage has a lot of competition in terms of battery choices: Some are offering molten-salt batteries, others flow batteries, or compressed air energy storage. Tesla is not unique in pursuing the Li-ion angle for utility-scale storage, as we’re seeing this chemistry get increased traction for even the largest projects for the grid,” Laslau said.
“If they can hit a price point of US$250 per kWh, that will be impressive – but watch for additional costs like power electronics, permitting and installation, project management, and so forth.”
Israeli power optimiser firm SolarEdge is among Tesla's initial partners, working globally but in particular targeting the US backup power and German self-consumption markets initially. Image: SolarEdge.