Building on his empire in electric cars and solar energy, Elon Musk now aims to transform how homes and businesses use electricity.
Musk introduced a new line of residential and commercial batteries late Thursday in a dramatic announcement at the automaker's design studio in Hawthorne. He outlined a vision of off-the-grid homes and businesses and remote villages powered by sunshine.
“We are talking about trying to change the fundamental energy infrastructure of the world,” Musk told a crowd of about 1,000 Tesla faithful. “What we will see is something similar to cellphones and land lines where cellphones actually leapfrogged land lines.”
Providing efficient cost-effective energy storage will unlock the potential of renewable energy sources such as wind and water, allowing society to slash carbon emissions and fight climate change, Musk said.
But in the near term Musk's vision may run up against the realities of the marketplace, analysts said.
Most U.S. residential customers don't have a need for backup power except during a blackout, said Dean Frankel, an analyst at Lux Research. Batteries make sense only for homes served by a utility that allows customers to pay lower rates for energy at certain times of the day and the year, when power demand wanes, he said.
That's how many businesses already buy power. Buying storage batteries allows them to buy less expensive power at night and use it during the day when demand and rates are highest.
Tesla is already lining up big businesses as customers. It is conducting test programs with retailing giants Wal-Mart Stores Inc., Target Corp. and Amazon.com Inc. Amazon is rolling out a 4.8-megawatt-hour pilot at a data center in Northern California.
“Batteries are important for both data center reliability and as enablers for the efficient application of renewable power,” said James Hamilton, an Amazon engineer. “They help bridge the gap between intermittent production, from sources like wind, and the data center's constant power demands.”
The batteries make the most sense for homeowners with solar power. Excess energy can be used to charge the batteries for use at night or on cloudy days. But solar users remain connected to the grid, and many already get credited by their utility for any surplus power they produce.
The automaker's first product will be a $3,500 Tesla Powerwall, which will store 10 kilowatt-hours of power. The typical home uses about 30 kWh a day. It is a rechargeable lithium-ion battery based on the same technology that powers Tesla's Model S sport sedan.
A less powerful version will sell for $3,000, not including installation. Both will be slim panels, about 6 inches thick, that can attach to the wall of a garage or home.
But consumers will have to pay considerably more to operate the devices. SolarCity, the solar energy company where Elon Musk serves as chairman, will charge $5,000 for a prepaid nine-year battery backup service agreement that includes the device, controls and installation. A customer can purchase the system — including the controls and installation — for $7,140, according to Jonathan Bass, SolarCity's spokesman.
Deliveries are set to begin this summer with battery packs manufactured at Tesla's auto factory in Fremont. Later, manufacturing will move to a battery factory Tesla is building in Nevada.
Tesla also plans a commercial version that will sell for $250 per kilowatt-hour of storage capacity.
By branching into the battery business Tesla is leveraging the lithium-ion battery technology it has developed for cars into a growth market, said Peter Asmus, a research analyst at Navigant Research. Utilities are comfortable with the technology because it has been road tested in cars without mishap.
Tesla's entry into this market demonstrates how the power industry is evolving from its dependence on giant plants to a more distributed format, Asmus said. This new system would integrate many sources of electricity, he said, including home-based “nanogrids” that store energy from rooftop solar panels as well as larger microgrids that act as energy reservoirs for neighborhoods, military bases and commercial establishments.
U.S. spending on microgrid projects— which encompass a variety of energy generation and storage technologies — is poised to grow on an annual basis from $4.3 billion in 2013 to $19.9 billion in 2020, according to Navigant Research.
As they become more commonplace, these systems eat into the revenue of electric utilities.
“This is very disruptive to their business,” Asmus said. “It would contribute to the so-called ‘utility death spiral,' whereby fewer and fewer customers stick with standard utility offering, thereby raising the rates of those that remain captive to the larger system.”
This is compounded by the falling price homeowners and businesses are paying for self-generated solar energy. It's now less than 20 cents a kilowatt-hour, Asmus said, making it “cheaper to generate clean power on site than to buy from large centralized coal or nuclear plants located so far away.”
Energy storage solves the key problem with wind and solar power. Unlike oil or gas, power from electricity must be consumed immediately. The electric grid has to match power generation with the amount people are using at any given time. But wind and solar systems make power only when the sun shines or the wind blows.
“If Tesla and other companies can dramatically scale up energy-storage production and lower costs, it could be a game changer for renewables,” said Laura Wisland, a senior energy analyst at the Union of Concerned Scientists. “Imagine supplies of clean energy that could be stored in the way we store natural gas in tanks, or water behind dams.”
Energy storage could emerge as a leading source of revenue for companies such as Tesla after 2020, Asmus said. Frankel estimates the energy storage business could provide Tesla with about $3.7 billion in revenue in 2020. The company had $3.2 billion in revenue this year, almost exclusively from its auto business.
But to be successful, Tesla is going to have to win the cooperation of utilities, Frankel said.
Musk will have to work with utilities to ensure its solar and energy storage systems can also be used to manage the power variations of the electric grid. Tesla is starting to build those relationships and has projects planned with Southern California Edison and Oncor that “are excellent demonstration trials, but just a start,” Frankel said. “Tesla will need to bring hundreds more utilities on board, which will take time and resources.”
Tesla will get a boost from the California Public Utilities commission, which has ordered Edison, San Diego Gas & Electric and Pacific Gas and Electric to install or contract for more than 1,325 megawatts of electricity storage throughout the state by 2020. This will create a huge market for batteries.
Edison has already built a small battery farm in Tehachapi. It can provide eight megawatts of power for four continuous hours. That's enough to power between 1,600 and 2,400 homes, but is still just a tiny fraction of what the PUC is asking the utilities to have available.
As with his electric car and solar panel businesses, Musk's energy storage projects are eligible for substantial government incentives. Energy-storage projects using Tesla batteries have already secured almost $126 million in state advanced-technology incentives, according to Terrie Prosper, a spokeswoman for the California Public Utilities Commission.
While that's helpful for now, Tesla is going to have to figure out how to make the business work without government support, Frankel said.
But the incentives provide a needed jump-start. And the Tesla batteries will force changes in the way electricity is generated that will be positive, Asmus said.
“Consumers will have more leverage, more tools and more flexibility,” he said, “which will force utilities to change, or suffer the consequences.”