Tesla Motors’ Powerwall battery permits home energy arbitrage: democratization of energy
Tesla Motors (NASDAQ: TSLA) announced this week that it is starting to take reservations from interested customers for its new Powerwall home battery system, permitting home owners to become energy producers, reducing the burden on utilities infrastructure costs and offering investment opportunities to suppliers of raw materials for batteries.
Tesla’s Powerwall is a home battery that charges using electricity generated from solar modules, or when utility rates are low, and powers your home in the evening. It also fortifies your home against power outages by providing a backup electricity supply. Automated, compact and simple to install, Powerwall offers independence from the utility grid and the security of an emergency backup.
While the battery will likely slash power bills for consumers, some say it’s also a move toward democratizing energy systems. Tesla installed 300 home batteries California homes. Another 130 systems were being installed in early 2015, according to the company’s website.
While this announcement shows a new business line for Tesla with significant market potential, it ushers in the most significant changes to the electrical grid since its deployment in the early 1900s. Because it provides homeowners with their own little power grid or part of a small power grid in a condo building. Some call this new market approach the democratization of energy. At the same time it permits utilities to reduce their planned capital costs by relying on home-based distributed power systems.
It is also comforting that Tesla’s announcement provides credence to Barclays’ prophetic downgrade of the electrical sector of the U.S. high-grade corporate bond market to underweight, saying it saw long-term challenges to electric utilities from solar energy, and that the electric sector of the bond market isn’t pricing in these challenges right now. This was especially significant because electric utilities made up nearly 7.5% of Barclays’ U.S. Corporate Index by market value.
According to Barclays:
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Electric utilities… are seen by many investors as a sturdy and defensive subset of the investment grade universe. Over the next few years, however, we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo. Based on our analysis, the cost of solar + storage for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii. Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.
In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade. We see near-term risks to credit from regulators and utilities falling behind the solar + storage adoption curve and long-term risks from a comprehensive re-imagining of the role utilities play in providing electric power.
It’s fair to say that the current system should please early adopters but we are still ways away from mass adoption by homeowners as the current systems is still very expensive. The 300 home batteries installed in California cost upward of $20,000, which depending on local power costs would mean a 10-20 year (or even higher), pay back. Therefore Barclays was thinking in the long term.
However, shorter-term opportunities may be for the deployment of the Powerwall in energy islands where grid reliability and cost are both issues. For example in the island country of St Kitts, the cost of power was $US 0.36 kWhr in 2014. In this case, payback may be much sooner.
Further, year after year, solar panels become better and cheaper. Solar panels are getting close to their grid parity moment — when the cost of generating solar power is the same or cheaper than buying energy off the grid.
Most exciting for investors is that the deployment of these systems will create a significant demand for the primary materials that make up lithium batteries: lithium, graphene, graphite, and plastics.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>