Ugh. I've been wanting to flesh this concept out more before Tesla makes their battery swap announcement on the 20th. But I have been impacted with work for the past week and haven't been able to spend as much time as I wanted. National Policy Anyways, my preliminary (and somewhat cursory) analysis is that national policy is in flux. There have been repeated attempts to pass the "Storage Act of *insert current year here*" for the last few years, but it keeps getting tabled, and probably will be until the Democrats control both houses, or until we have a Republican president (at which time I expect the Republicans to switch back to their historical support for promoting energy independence by supporting renewable standards, EV's, etc.). If it were to be passed, it would provide a 30% tax credit on all investments in grid storage. California However, in California, AB 2514 was passed in 2010 - http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_2501-2550/ab_2514_bill_20100219_introduced.pdf This established a penalty of $5,000-$25,000 per day for any utility that fails to meet their requirements. The actual penalty would be set based on a variety of factors that boil down to how egregious the violation is (how hard the utility is trying). However, the bill left open the possibility that regulators were not required to set a baseline quota for CES. CPUC Sets Requirements CPUC finally started announcing the requirements in February, when they announced that Southern California Edison would be required to provide 50MW of "energy resource capacity" (aka CES) starting in 2015. Because this is in reference to storage capacity, I believe they mean MWh, but I haven't had time to nail that down yet. Because this penalty only establishes a floor, the market price is almost guaranteed to be higher, just to avoid reputational costs and litigation. For example, in the case of ZEV credits, which have a penalty of $5,000, they have recently been selling for ~$7,000. But using just the penalty, we can see that the CPUC has set up a subsidy for Tesla style CES that is worth up to $182,500/MW(h?)/year. The time based penalty is likely intended to ensure that utilities maintain this capability, instead of doing a one time investment and then not replacing it. http://www.esnaexpo.com/pr/r20130213 Why So High? Based on my research, CPUC thinks that storage costs need to be ~$250/kWh to be competitive. However, the current estimates for 2022 have been running in the $500/kWh range ($473/kWh for ZEBRA) - Grid storage costs to decrease: pv-magazine If you break down the penalty you get a cost/kWh of $182.50/kWh for any year that the utility fails to comply with the standard. If you subtract $182.50/kWh from the lowest cost identified in the Lux research document you get to $290/kWh which is within shouting distance of $250/kWh, and likely gets you there when you consider that the actual subsidy is higher because utilities don't ever want to incur the penalty. Tesla's Cost Advantage This is quite an attractive subsidy from Tesla's standpoint. They need to build CES eventually anyways, but a SuperSwapper with an initial capacity of 30 batteries would likely cost (based on Better Place) ~$500,000 + 30(~$17,000) (based on my estimates for the 85kWh battery costs in the cost/kWh thread). So the initial facility would cost ~$1,010,000, and contain 2.55MWh of storage, which generates a subsidy of ~$465,375, in addition to any revenues made by selling power, swapping batteries, etc. Some of the other battery options might be more durable (reducing their life costs in relation to Tesla), but Tesla unquestionably is the cost leader here, because yet again they are essentially the only player to be using low cost commodity Li-Ion cells, instead of large format Li-Ion or other fancy/speculative chemistries. (Lead Acid is much, much cheaper, but my understanding is that it is poorly suited to the charge/discharge cycles needed for CES or it would have been implemented long ago) At $182.50/kWh this subsidy essentially pays for a Tesla battery pack (which is almost certainly being built for less than $200/kWh), so they can stock their CES sites with as many batteries as they want (at least until the quota is reached) for the CES business. To the extent that Tesla also needs to stock batteries exclusively for SuperCharging/SuperSwapping, (ie, capacity contracts have uptime requirements that Tesla might not be able to meet during peak swapping season), these batteries are effectively subsidized as well. With the CES specific batteries being "free" from Tesla's standpoint, the revenues that they generate go directly to the bottom line, and help pay for the rest of the system. Why Now? Contracts for these facilities will start being bid in late 2013, so the confluence of the CPUC actions to set the requirements in February and the start of contracting in (presumably) Q4 seems likely to me to be the genesis of the current push by Tesla to roll out swapping. Whether Tesla builds SuperSwappers or SuperChargers, Tesla needs to eventually build out a substantial CES system. But the first year SuperCharging system we have now does not need CES, because there are few cars on the road, so we are not really stressing the grid. That makes CES optional in the near term. With the February decision setting the quota/subsidies for CES, Tesla now has an incentive to flood the market with capacity to capture as much of the quota/subsidy as possible before other players can move. Because they are already by far the lowest cost and highest volume manufacturer of large scale batteries (with almost 150mWh built per month), it is in their interest to leverage their capabilities and rapidly build out large CES systems. These advantages also potentially put Tesla into a prime position to underbid competitors. This situation provides a clear incentive to build SuperSwappers, because the main problem with SuperSwappers is the high initial costs and long wait until utilization rates make it a profitable business (from swap fees). If you have to rapidly roll out CES, and if your automotive packs are already being manufactured at scale, why not just leverage that capacity to roll out SuperSwapping and possibly gain a competitive advantage in your automotive business? Other Factors In addition, there are an additional 600MW that SCE is required to procure from "preferred" resources, of which CES is one of the options. However, because the penalty is the same, these resources get a diluted subsidy compared to CES (not least of which because CES is in competition with many other options like energy efficiency, demand response, etc.) As to potential requirements for the other utilities, I haven't had time to compile that yet (I'm not even clear the CPUC has announced them). The penalty is likely to be the same however, and I've found credible estimates that by 2021 there will need to be 4,000MW of these resources statewide, which implies a requirement of 307MW of high quality, CES style storage statewide that will be eligible for the full subsidy. ZEV Credits In addition, because SuperCharging does not qualify as "fast charging" in the ZEV credit program, swapping is required in order to qualify for the extra ZEV credit. After the demise of Better Place, California has recently started to consider dropping swaps from the regulations, so Tesla might also have an incentive to put up a working system before the regulation is changed. In my previous thread on credits I stated that California had apparently eliminated the ZEV program after 2017 (when they adopted the Federal standards), but the reality is that when I researched that, they had not yet published the 2018+ rules on the website yet. ZEV credits are here to stay. http://www.arb.ca.gov/msprog/zevprog/zevregs/1962.2_Clean.pdf As I stated before, each credit has been worth ~$7,000/car recently, and while the price for 2013 credits is falling, the relentless increase in the ZEV quota, and continued failure of automakers to design compelling EV's, likely means that every credit Tesla generates for the foreseeable future will be sold eventually. Multi-year design cycles dictate that the current poor offerings will leave automakers with a huge deficit through 2016, and starting in 2017 the quota becomes mega-huge, so the bigs will be forced to meet the ground running (with batteries that likely will be more expensive than Tesla's) if they hope to grab enough market share to stem the bleeding. What About Other States? For CES incentives, you can ask me when I have time.. For ZEV credits, starting in 2017, the carry provisions that limit the number of credits that automakers have to purchase expires. At that point the ZEV quota is exclusively determined by auto sales in the 15 states that have adopted the mandate (covering ~50% of the U.S. auto market). So that is a quota in 2018 of 2%/~160,000 credits for pure ZEV's, 4%/~320,000 in 2019, 6%/~500,000 in 2020 and keeps incrementing like that (adding 2% of the market) each year through 2025. That is for pure ZEV's only, and excludes the separate requirement for TZEV's like the Volt will be once they improve the battery warranty. Again, ZEV credits are here to stay, and have a base penalty of $5,000 each. As long as Battery Swapping is covered under the regulation, each car that Tesla builds will generate an additional ZEV credit that can be used to defray the costs of a SuperSwapper.