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Active Member
May 11, 2013
I am bullish regarding TSLA and SCTY especially in terms of their DemandLogic product.

Since utility "Demand Charges" generally represent 30 percent of commercial and industrial customer electric bills, Tesla Energy and SolarCity should be able to leverage their DemandLogic product into substantive revenue streams. In my view, this opportunity hinges on the ramp of the Gigafactory.

Electric bills are maddeningly complex. At any given moment, the energy use in a commercial building can be driven by weather, occupant behavior, and equipment issues. By design, electric utilities layer a web of charges that vary by time of day, day of week, and season. Determining the true cost of your electricity use can be daunting.
At a base level, utilities bill commercial and industrial customers for electrical power consumption, and demand. To use an analogy, think about consumption as the number on your car’s odometer, telling you how far you’ve driven, Think of demand as the instantaneous reading on your speedometer. Consumption is your overall electricity use, and demand is your peak intensity, or “maximum speed”.
Consider a large industrial facility with lighting, HVAC loads, process equipment and associated motors all being turned on at the same time as the business first opens. The momentary demand as lights come on, AC units start up, and motors, compressors, and pumps begin to spin can result in a tremendous spike in the load (in demand terms “maximum speed or peak demand”). The utility supplying this load, must have the generation, transmission, and distribution equipment online to service this peak demand, if only for a short duration. This is the basis of utility “demand charges”. Demand charges represent substantive revenues for all electric utilities. In contrast, they are the soft underbelly of electric utility business models, and present strong opportunities for disruptive solar companies and customer self-generation.
Utility infrastructures like the power poles that deliver electricity are literally rooted into the earth. The inability of their business models to move and adapt is vested in the maintenance of the status quo. The catch-phrase “corporate agility” is used to describe innovative firms employing disruptive technology, young lions seeking to overtake aging business paradigms. Solar power companies are combining different technologies like solar power generation and energy storage (battery) systems to provide customers with alternatives to both utility consumption and demand charging.
Battery energy density has averaged a 7 to 8 percent improvement each year for more than forty years. While battery developments have occurred in fits and starts, the long term trend has seen energy density double about every 10 years. This trend in battery performance is apparent in power tools, laptop computers, cellular telephones and a wide range of other consumer electronic products.
In the automotive industry, Tesla Motors is building sedans which travel more than 300 miles on a single charge, while their sports cars are capable of 400 miles.
These same Tesla battery systems are being repackaged into residential, commercial, industrial and utility storage systems. These powerful storage systems are being combined with solar systems and digital controllers. Working as a system they give businesses the capability to manage their internal power flows. Solar PV systems generate electricity which is stored in a battery system. The digital controllers utilize intelligent software to draw on this stored power at times of peak load, reducing or eliminating utility “demand charges”.
Demand charges can be as high as $20/kW/month. I know this is true for Georgia Power.

It is essentially a penaly for having a load vary throughout the day. And makes economic sense for the utility if constant baseload generation were the cheqpest generation. This of course is no longer true as solar and wind are cheaper when available than coal, nat gas and nuclear. So demand charges are losing their economic rational.

Enter batteries. Consider a 7 kWh Powerwall. This could be used to offset upto 3kW of demand charges. Saving thus upto $60 per month payes for the $3000 battery in as little as 50 months. Over a 10 year period the Powerwall owner could net as much as $4200 in power bill savings. For businesses facing around 30kW in excess demand charges, the Powerpack can deliver even better financial performance owing to the lower cost per kWh of the Powerpack to Powerwall.

The consequence here is that the utilities can get back exactly what they have built into their demand charge plans. If the demand charges are high enough, it will absolutely flatten out the daily load. Then the problem for the utilities will be that the cost of delivering constant power is itself variable. Specifically with substantial solar power, whether utility solar or customer owned solar, the cost of power can be quite cheap at midday and most expensive in the 3 hours after sunset. If too many ratepayers are using batteries to avoid demand charges, then they will not be consuming enough surplus power in the midday using their stored power to avoid demand chages and then recharging those batteries in the evening. Essentially the demand charges could reward customers for discharging when power is cheap and charging when it is dear. Utilities cannot afford to be arbbed like that. They will have to rework the basic metric behind demand charges so that there is no penalty for charging when power prices are low.

The utilities will have to scrap demand charges and move to timevarying rate plans that accurately map wholesale prices to retail prices for customers with batteries. Anything short of that exposes the utility to getting arbbed by increasingly cheap and available batteries. But it's going to take the utilities a long time to figure this out. In the meantime, Tesla is going to sell the heck out of batteries exploiting one bad rate plan after another.

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