Tipping point edges closer for conventional utility companies

June 6, 2015

Headline grabbing news recently from Tesla, the high profile electric vehicle (EV) manufacturer backed by PayPal founder and Space X CEO Elon Musk. From its slick electrically-powered sports cars Tesla has now entered the domestic energy storage sector.

The new venture, Powerwall, is a home battery system that charges using electricity generated from solar panels, or from the grid when utility rates are low.

Comprising a rechargeable lithium-ion battery coupled with a thermal control system and software that receives dispatch commands from a solar system, the wall-mounted unit is integrated with the local grid.

As a result it can give customers the flexibility to shift loads to off peak times and increase self-consumption of solar power – the average home uses more power in the morning and evening than during the day, when solar energy is peaking.

Powerwall comes in 10 kWh weekly cycle and 7 kWh daily cycle models, both of which are guaranteed for 10 years and are sufficient to power most homes during peak evening hours. The 10 kWh retails for around $3,500 while the 7 kWh costs around $3,000.

At face value there is little to distinguish Powerwall from a host of other storage systems based on lithium ion technology. So why all the headlines?

Musk is, no doubt, an accomplished self-publicist but there are more fundamental developments at work too. As Dr Milan Rosina, Senior Analyst, Energy Conversion & Emerging Materials at research firm Yole Développement, observes: “This announcement is another big step forward for the large-scale deployment of stationary battery systems. Indeed energy storage is playing a major role in the energy transition currently underway.”

And this is the crux of the Tesla development. It is not particularly new technology, but then nor was the PC [personal computer] before every household had one. Nonetheless, the PC has had a profound effect on our lifestyle, both at work and at leisure. In a similar way, Musk is evidently anticipating an equivalent uptake and effect.

And though Tesla is not the first to market, it does have strong industrial support, with Panasonic supplying its lithium-ion cells and SolarCity – another Musk-backed venture – among the world’s biggest installers of residential solar PV systems.

The company also has a huge capacity for battery production at its Gigafactory 1 – located near Reno, Nevada, and due to begin operations in 2017.

Nonetheless, Dean Frankel of Lux Research argues that Musk must tick a few more boxes if the Powerwall is to truly disrupt the energy market place. He says: “Cheap cells made in the Gigafactory are only part of the puzzle. Unlike electric vehicles, in stationary batteries there is more of a relative cost contribution coming from power electronics, software, and installation. Without more vertical integration – and perhaps even some acquisitions and Gigafactory-like efforts dedicated to inverters – Tesla is limiting its growth potential here.”

He argues that to fully emerge as a sustainable business model Tesla will need to push its power electronics and installation partners to cut costs further. In addition, he suggests offering financing models for consumer to sustain growth long-term. Finally, Frankel argues that “for Tesla to truly impact the stationary [battery] market, it will need to work with utilities and grid operators to ensure its solar and storage solution can be a key grid management tool”.

Tesla has already begun trials with a number of US utility power suppliers, including Southern California Edison, but will need to bring hundreds more utilities on board, which, says Frankel, will take time and resources.

But there is another factor at play here. Catherine Mitchell, Professor of Energy Policy at the University of Exeter, argues that the Tesla development is “another nail in the coffin for conventional utilities”.

“Those countries, like Denmark and Germany, with a reasonable proportion of variable power such as wind or solar, have seen fossil fuels being displaced from the electricity market and have seen peak energy prices fall, leading to falling profits and share prices of conventional utilities like E.ON, RWE, Vattenfall and ENEL. Storage offers the ability to extend both the displacement of fossil fuels and reduction of prices beyond peaks – making it even worse for companies whose business models are based on fossil fuels and peak pricing profits.”

Professor Mitchell says: “The question is no longer whether decentralisation will happen within the energy system, but when the tipping point will be. Increasingly we are seeing a move away from big, centralised power infrastructure towards a decentralised system in which interconnectors and smarter, more flexible distribution grids play a bigger role.”

Mitchell is correct. Developments like the Powerwall suggest that the tipping point is edging closer. It it is up to the utility companies to march into a future of distributed generation if they expect to have a role to play in the supply of energy.

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