Saturday, May 2, 2015

On Tesla's PowerWall

When you're a hammer, everything around you is a nail.

Tesla's in the energy storage business. That much is clear. Until now, they're couched it in the form of electric vehicles, but let's face it - there's very little to the drivetrain of an electric car. That's partially because electric propulsion is very nearly ideal for transportation - maximal torque at 0 RPM, a wide torque curve (so no need for multiple gear ratios), the ability to turn both directions without gearing, regenerative braking... It's a far simpler thing than the internal combustion engine we've been using for over 100 years. But only recently has the energy storage problem for EVs been taken on, much less solved. Tesla has been a big factor perhaps not in coming up with the solution, but normalizing it, at the very least.

But let's look at the PowerWall - which lays bare the real business Tesla is in. The PowerWall has exactly two use cases that make any sense:

  1. Off-grid solar energy storage.
  2. Time-of-use energy billing arbitrage.
#1 is a tiny market. Most solar panel installations are grid-tied, which means that they use the grid as an energy storage reservoir. In actual fact, the grid can't store energy at all - at least not presently - but the tiny amount of solar production is easily dwarfed by peak usage demand. But if everyone put enough solar panels up to fully supply their energy needs, then the utility procurement curve would be vastly different, to say the least. But back to off-grid systems, the idea of battery backup for solar is not at all new. What is new is a company of Tesla's stature jumping in with a product useful in that space. And that's because, again, that market is virtually nonexistent.

#2 is the more interesting play. In fact, it's completely orthogonal to solar. It's also completely new. Only since the advent of smart meters has time-of-use electricity metering been possible. Like all arbitrage systems, it relies on the basic law of good economics - buy low, sell high. You charge the battery when your ToU rates are low, and then run that power back into the grid during the daytime when rates are high. With such a system in place, it's entirely feasible that your net electric bill might actually be zero, or even negative (in actual fact, I'm pretty sure it will take electric utilities a few milliseconds before they disallow that).

But putting one of these in every garage is a terrible idea. Far better would be to put the equivalent of 100 or 1000 of these in every substation. That done, the load leveling would make the utility's energy procurement costs plummet (since peak-fill energy is far, far more expensive both in cost and carbon than baseline). Tesla says they're working on that too. But if so, then this entire PowerWall exercise is merely a marketing stunt and Tesla may only expect to sell a handful of them (at least, the residential size version).

Still, for those with ToU billing, playing the arbitrage game may be a winning strategy in the short term. The cost for 10 kW-hr is slated to be $3500, but you still need an inverter. A SunnyBoy of appropriate size is around $2000 or so. With installation, I could see such a system being a total of $7500. If such a system could conservatively save $100 a month in ToU energy costs, the payback period would be just under 6 years. Not bad. And not a single solar panel installed.

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