clock menu more-arrow no yes

Filed under:

When will Tesla's home battery make financial sense?

New, 37 comments

Tesla's home battery is a long-term bet, and it needs new regulations and markets

Last week, Elon Musk unveiled Tesla Energy, a line of batteries that can store power for utilities, businesses, and homes. It’s the home part people were most excited about, and coupled with solar panels, it’s also the part that has the most long-term potential to change the way we manage energy. But it’s also the part of Musk’s lineup that’s most mired in rapidly changing regulations, rate structures, and incentives, making it hard to tell when a battery in your home makes financial sense. In most markets, the answer seems to be not yet.

The latest analysis comes from Bloomberg’s Tom Randall, who learned that Solar City, the solar installer that’s run by Musk’s cousins, is offering only the 10kWh Powerwall to its customers, not the 7kWh. Unlike the 7kWh, which is designed for daily use, the 10kWh isn’t meant to go through more than 50 charging cycles a year, which means it’s useful primarily for back-up power. But at $5,000 for a nine-year lease, the larger Powerwall is far more expensive than a comparable gas generator.

The home battery is a long-term bet

So why isn’t Solar City offering the 7kWh Powerwall? Well, the economics aren’t there either, but for different reasons. Right now, people with rooftop solar can sell back excess power to utilities through a program called net metering. This has been a fantastic incentive for residential solar power, but it also weakens the case for residential batteries: why save solar power for after sunset if you can just sell it now and buy more when you need it?

Tesla and other companies in the residential battery market are betting that this is going to change. Utilities are fighting net metering; at the same time states are exploring ways to make use of distributed grid resources like residential solar and storage. The driving force here is the rise of intermittent renewable energy sources like solar and wind; as it continues, large reserves of energy storage are needed to even out supply and demand.

In the near term, Tesla will sell batteries to utilities and businesses, where it can already make financial sense. States like California with lots of solar have mandated that utilities deploy lots of storage in the coming years, and indeed, Southern California Electric and Texas’ OnCor are already partnering with Tesla on storage projects. California and other states also have large demand charges for businesses that use lots of power during peak times, and the combination of batteries and solar is an attractive way of avoiding them: store power when demand is low, then use it when it’s high. Tesla’s short-term battery play is to sell to these utilities and businesses.

In the meantime, Tesla will sell to utilities and businesses

The plan for the home battery is more long-term. If residential batteries are going to make sense for most people, a few things need to happen. First, utilities could start pricing power depending on what time you use it, charging more when it's in high demand, similar to the way some do for commercial buildings. If that happens, and the price is high enough, batteries could become an economically viable supplement to solar.

The more radical possibility is that a bunch of houses equipped with solar panels and batteries can be networked together into a distributed grid. When demand outstrips supply in one house, batteries in another could supply the power. Earlier this year, SolarCity launched a small-scale version of this with GridLogic, its program for remote communities, military bases, and other places with unique energy needs. It’s also built this capability into its ordinary residential units: the company’s Demand Logic software can automatically discharge stored energy into the grid, laying the foundation for a more distributed grid whenever new markets or programs make it economically viable.

SolarCity will split grid revenue with customers

Last Friday, SolarCity CTO (and Musk’s cousin) Peter Rive made clear that this is the plan. The contracts customers sign for Tesla batteries include a clause that "essentially splits revenues that grid services provide," Rive said. "This is something that we’ve contemplated for quite some time." SolarCity and customers who’ve leased Tesla batteries would get paid for helping balance the grid, using markets and programs that are still being hashed out. This would be a profound change in the way electricity has been managed for a century, with utilities overseeing an increasingly distributed grid instead of holding monopolies on generation.

Again, the programs that would make this viable on a large scale aren’t here yet. California, New York, and Hawaii are all working to create mechanisms that would make use of distributed grid resources. SolarCity said Monday that it plans to offer an off-grid package next year in Hawaii using Tesla batteries. Hawaii is an extreme case, where energy prices are triple the average of the rest of the United States, but as the price of batteries goes down and regulations change to accommodate solar, more states could reach a similar tipping point. Analyst GTM predicts that the market for behind-the-meter solar and battery systems will grow to $1 billion by 2018, up from $42 million last year.

"This is something that we’ve contemplated for quite some time."

But regulations have to change first, and the price of batteries has to come down. Tesla and SolarCity are actively working toward both those ends, consulting with regulators and trying to reach economies of scale. It’s worth noting that the batteries unveiled last week are significantly cheaper than similar ones being sold by other companies in the residential battery space; expect that price to fall further when the Gigafactory comes online next year. And unless you live in Hawaii or another unusual market, it’s probably worth waiting until then to buy a battery, too.