Tesla Stationary Storage Investors Thread

[jhm]

Hawaii May Be Closer to Achieving a 100% Renewable Grid Than You Think : Greentech Media
Another useful article on Hawaii's path to 100% renewable energy. Note as of 2013 71% of power was generated from oil. It should be informative to see how Hawaii incorporates batteries. Each island has its own separate grid and distinct energy mix.

HECO has an RFP for a 200 MW storage instalation. Tesla could get that with 400 MWh for about $100M. We'll see.

 

[32no]

Here's what Peter Rive (CTO) had to say about Stationary storage during the Q1 SCTY conference call:

"As many of you know, we announced new versions of our solar battery systems in all of our business units: commercial and government, microgrids, and residential. We're seeing great growth in commercial and microgrid offerings and the new Tesla batteries are helping to widen the addressable markets where we can offer those systems. On the residential side, our fully installed solar battery system costs are about 1/3rd of what they were a year ago. We expect costs to decline further as manufacturing scales, and over the next 5 to 10 years, these cost reductions will make it feasible to deploy batteries by default with all of our solar power systems. Our solar back-up battery system will sell for $5000 as an add on to a lease or a PPA, which is comparable to other backup generator options. It is important to note that the Tesla price of $3500 doesn't include the inverter, permitting, installation, management software, and electrical equipment to wire the circuits that need to be backed up. All of those things are included in our turn-key service in our solar battery systems. Interestingly, the residential backup generator market is actually larger than solar, with over 3.5% of residential customers having back-up generators. The industry leader in this space had over a billion dollars in revenue last year, and had seen a 12% compound annual growth rate over the past 10 years. Now extending the appeal of SolarCity to the traditional market is interesting, but it's a small part of the strategic interest we have in batteries. Batteries spread throughout the distribution system can lower the costs of maintaining the grid and new market structures designed to take full advantage of this benefit appear likely in several states. Our products, and by that I mean the contracts (?) as well as the management software is grid services ready and as these markets develop, there's a 50/50 revenue share model embedded in the contracts that we have with our customers. Now, we're not in the position to estimate what these revenues could be, but it's interesting to note that in California, its currently estimated to cost $190 per kW per year to meet new peak loads. The other strategic options that batteries make available to us are hedges against bad policy outcomes, with examples being changes in net metering and solar penalties like high fixed (?) charges. As always, Hawaii is a postcard from the future, the high electric rates there make economic now what will be affordable in other markets with further cost reductions. As a result, we will be offering a 0 down lease in Hawaii next year that will give customers the ability to go completely off grid. With that said, I want to reinforce that customers removing themselves from the grid is a bad policy outcome. There's so much value in distributed energy resources, so we're hopeful that utility business models will adapt to embrace solar with batteries rather than penalize adoptions, which in turn will encourage good defections (???)."

The questions marks represent me second guessing myself on what word he actually said, which was hard to discern at times.

 

[Foghat]

Hawaii May Be Closer to Achieving a 100% Renewable Grid Than You Think : Greentech Media
Another useful article on Hawaii's path to 100% renewable energy. Note as of 2013 71% of power was generated from oil. It should be informative to see how Hawaii incorporates batteries. Each island has its own separate grid and distinct energy mix.

HECO has an RFP for a 200 MW storage instalation. Tesla could get that with 400 MWh for about $100M. We'll see.

it will be interesting to see how DERs play out in that 200MWs, meaning powerwall installs at houses and business.

 

[jhm]

Thinking through the HECO 200 MW storage project, while the battery may cost $100M, the total installed cost could easily be twice that, $1000/kW. Amortized over 10 years works out to $8.33/kW/month for depreciation alone. Financing and maintenance add to this.

As an alternative, suppose HECO offered $7.5/kW/month for aggregated behind-the-meter storage. HECO would avoid financing and instalation costs. It would also avoid various operational risks and difficulties in siting the plant. An owner of a Powerwall unit would qualify for 3 kW for $22.5/month in rebates on their power bill. Over 10 years, this stand by rebate would be worth $2700. Additionally, the PW owner would gain other benefits of ownership to help reduce their power bill and home back up. I think this could be attractive to all participants.

For Tesla, this could mean the sale of 66,667 PW units, which would yield $200M to $233M in revenue. This is twice the revenue as the Powerpack route direct to the utility.SolarCity would score big on this as well. Moreover, such a program could continue to grow well past the 200 MW target.

 

[jhm]

Here's what Peter Rive (CTO) had to say about Stationary storage during the Q1 SCTY conference call:

"As many of you know, we announced new versions of our solar battery systems in all of our business units: commercial and government, microgrids, and residential. We're seeing great growth in commercial and microgrid offerings and the new Tesla batteries are helping to widen the addressable markets where we can offer those systems. On the residential side, our fully installed solar battery system costs are about 1/3rd of what they were a year ago. We expect costs to decline further as manufacturing scales, and over the next 5 to 10 years, these cost reductions will make it feasible to deploy batteries by default with all of our solar power systems. Our solar back-up battery system will sell for $5000 as an add on to a lease or a PPA, which is comparable to other backup generator options. It is important to note that the Tesla price of $3500 doesn't include the inverter, permitting, installation, management software, and electrical equipment to wire the circuits that need to be backed up. All of those things are included in our turn-key service in our solar battery systems. Interestingly, the residential backup generator market is actually larger than solar, with over 3.5% of residential customers having back-up generators. The industry leader in this space had over a billion dollars in revenue last year, and had seen a 12% compound annual growth rate over the past 10 years. Now extending the appeal of SolarCity to the traditional market is interesting, but it's a small part of the strategic interest we have in batteries. Batteries spread throughout the distribution system can lower the costs of maintaining the grid and new market structures designed to take full advantage of this benefit appear likely in several states. Our products, and by that I mean the contracts (?) as well as the management software is grid services ready and as these markets develop, there's a 50/50 revenue share model embedded in the contracts that we have with our customers. Now, we're not in the position to estimate what these revenues could be, but it's interesting to note that in California, its currently estimated to cost $190 per kW per year to meet new peak loads. The other strategic options that batteries make available to us are hedges against bad policy outcomes, with examples being changes in net metering and solar penalties like high fixed (?) charges. As always, Hawaii is a postcard from the future, the high electric rates there make economic now what will be affordable in other markets with further cost reductions. As a result, we will be offering a 0 down lease in Hawaii next year that will give customers the ability to go completely off grid. With that said, I want to reinforce that customers removing themselves from the grid is a bad policy outcome. There's so much value in distributed energy resources, so we're hopeful that utility business models will adapt to embrace solar with batteries rather than penalize adoptions, which in turn will encourage good defections (???)."

The questions marks represent me second guessing myself on what word he actually said, which was hard to discern at times.

Thanks, 32no. This transcript is very helpful.

One little note, $190/kW/year capacity is $15.83/kW/month. This is substantially more than the $10 I've seen tossed about or the $8.33 I just used in my post above. It is so important that DERs get a cut of that. Tesla PPs @ $250/kWh is so much cheaper than $16/kW/month. It's not even funny. Tesla deserves a big chunk of that market, even if they have to build, lease and operate it themselves. I'm expect that Tesla can roll out fully installed capacity for less than $1/W, which is pretty damn cheap.

The other thing that stands out for me is that back up generators is such a big market. 3.5% of households and industry leader has over $1B in revenue. If I were looking for something to short, I'd smell blood here. SolarCity and Tesla have a huge opportunity to take market share. Even for those who want to keep a generator, adding a PW can improve the level of performance. For example a 2 kW generator coupled with a PW can deliver upto 5kW peak as needed and supply 48 kWh per day for as long as fuel lasts. There is no need to make this an either/or proposition; both can work together. But I think that many will find the battery to be the better value, and the generator nonessential.

 

[Foghat]

Thanks, 32no. This transcript is very helpful.

One little note, $190/kW/year capacity is $15.83/kW/month. This is substantially more than the $10 I've seen tossed about or the $8.33 I just used in my post above. It is so important that DERs get a cut of that. Tesla PPs @ $250/kWh is so much cheaper than $16/kW/month. It's not even funny. Tesla deserves a big chunk of that market, even if they have to build, lease and operate it themselves. I'm expect that Tesla can roll out fully installed capacity for less than $1/W, which is pretty damn cheap.

The other thing that stands out for me is that back up generators is such a big market. 3.5% of households and industry leader has over $1B in revenue. If I were looking for something to short, I'd smell blood here. SolarCity and Tesla have a huge opportunity to take market share. Even for those who want to keep a generator, adding a PW can improve the level of performance. For example a 2 kW generator coupled with a PW can deliver upto 5kW peak as needed and supply 48 kWh per day for as long as fuel lasts. There is no need to make this an either/or proposition; both can work together. But I think that many will find the battery to be the better value, and the generator nonessential.

i think we have be clear with how the business works:

Tesla sells batteries. That's it. The rest is on the installer or utility to make it work within their system (CTO Peter Rive noted in32no. post). So tesla makes money on sales, utilties/installers make money on the energy the battery stores and discharges (as well as the t&d savings)

 

[vgrinshpun]

I've been doing research on the Oncor grid storage proposed project and found a lot of interesting information worth sharing here. Unfortunately I did not have as much time, so for now I’ll post few snippets, with more to follow.

Firstly I wanted to correct my mistake of assuming that Oncor plan to install 5GW of distributed battery storage would translate to the installed 10GWh battery capacity. This was based on Tesla’s battery technical data indicating that power rating of the battery is half of it’s capacity rating, i.e. a 100kWh pack can discharge at 50kW meaning that the battery pack full discharge at rated power takes two hours. After glancing through The Brattle Group Report that was commissioned by Oncor to justify the expense of installing the grid storage, the battery packs proposed for this project require lower power rating than the Tesla batteries – 1/3 of their kWh capacity.

So the Oncor project will require 15 GWh capacity (not 10GWh as I assumed earlier) and ability to discharge at only 5kW (3 hour discharge). 15GWh of Tesla batteries will have higher discharge capability of 7.5GW, but this capability would not be fully utilized because Oncor requires only 5kW.

It is also interesting to note that this huge project will be a bellwether not only as far as technical matters are concerned, but in terms of regulations as well. As I posted before, this project is subject to the legislative approval, because Oncor is a distribution company and is allowed to neither own the batteries, nor pay for them, nor sell stored power to the grid. So to proceed with this project Oncor needs lawmakers to pass a bill making changes to the regulations.

According to Dallas Business Journal article there was no corresponding bill filed during the latest legislative session. The Oncor project, however has influential backer, Sen Troy Fraser who chairs the Natural Resources and Economic Development committee. Senator indicated that the proposal lost traction this year because batteries are not cost effective yet… Obviously, this was before the Tesla Energy announcement, so the circumstances will be much different next time.

I believe that Oncor proposed 2018 schedule for deployment was established in close cooperation with Tesla, and Oncor most likely knew about the battery pricing ($250kWh) well in advance of the public announcement. In fact I believe that the whole Brattle Group Report was based on Tesla pricing information.

Another interesting point is why Oncor is proposing this project and why generation companies oppose it. Texas has very large wind generation capacity, about 15% of the total installed generation capacity. Variability of wind generation presents a significant problem for a distribution company like Oncor because it threatens stability of the grid, potentially leading to brownouts and blackouts. Installation of the storage, especially on such a massive scale (the proposed 5GW is approximately 7% of the total generation capacity of Texas) allows to address any grid stability issues. Such a project, however, is seen as a threat by the power generating companies, as it potentially cuts into their income from operating the peaking plants and renders these assets useless.

I also wanted to address some of the technical details that I mentioned in the passing before, namely that Tesla batteries not only could successfully compete with peaking plants on cost, but also have very important operational advantages. I am an electrical engineer by trade, and although I do not have direct experience working in transmission and distribution business, I do have a natural understanding of these advantages, but recognize that without some visual aids the significance of the operational advantages offered by the batteries might not be fully appreciated.

So I found several slides from the Strategen Presentation during the 2014 Western Power Summit in Las Vegas which illustrate the advantages of using batteries as a grid storage.

 

[Gerardf]

Great post. I ran into the Brattle report as well and I agree that it seems written with Tesla PowerPack and Tesla pricing in mind, and remembered this post about the Oncor pilot. Tesla Batteries in DFW, Oncor Micro-Grid

I think there are many utilities worldwide who noticed the 250/kWh pricepoint that Elon stated and are putting this number in their speadsheets as we speak. My feeling is that as soon as a first Utility signs a deal, other will soon follow. I would not be surprised for Elon to announce in the ER that one or more letters of intent have been signed already. The first GigaFactory's production years might soon be fully booked and other utilities will be eager to secure production output levels that will require a second GigaFactory tot fullfill. I guess Germany with a big need to stabalize the grid because of their large deployment in windenergy wil be a good candidate.

Some analysts will very soon put the numbers in a spreadsheet to calculate the potential WW utilitiy revenues and GM for Tesla over the next 5 years.

Like the oportunity for utilities, I think an other opportunity is also underestimated, large UPS. Not only do we see references to Amazon, but just listening around the past days I have ran into several companies who mention that are very interested in 50 or 100 kWh UPS systems and first calculations show Tesla undercuts alternatives by a big margin. Even on the Benelux forum I read about people who compare quotes they have on the table at their companies now and might now look into a Tesla based solution. There must be very many such 'large-UPS' opportunities.

 

[Johan]

Thanks for that great transcript 32no, also very good posts vgrin, jhm and gerard.

With regards to the benefits of batteries compared with peak generation plants (most commonly both in the US and EU natural gas) it's very clear that kW and kWh rating is only one part of the puzzle, and that the chargeability, almost instanteneous ramp up and down and overall flexibility has tramendous value as well.

In fact, I would wager that even in the abscence of renewables such as wind or solar it could make a lot of sense to build a NG plant with a smaller output coupled with a large battery and run this plant near 100% operations continously instead of building a larger plant with a much higher maximum capacity (for peaks) but on average running such a plant at only say 30-50% of capacity.

Edit: I see that I just described a "hybrid fossil power plant". For arguments sake let's call it a "plug out hybrid"

 

[Gerardf]

Utilities as a partner in GigaFactories

I have been wondering about Elon's statements about the "GigaFactory as a product" during last weeks presentation.
After doing some very basic calculations it is very clear to me that the energy storage market at utilities is a very big one, the price breakthrough to $ 250,-- / kWh for large storage projects as announced last week will open the floodgates.

Here in Europe we have to import most of our energy, and specially in countries like Germany there is a big political incentive to get independent from natural gas providers like Russia. This already resulted in major installations of solar and windenergy, and also in one large utility divesting in "old energy generation" and even selling these plants, effectively splitting up the company. This however had a destabilizing effect on the grid and more often Germany has trouble offloading excess energy to other countries on sunny & windy days.

The demand might very well get so big the next years that the utilities will want to secure storage production capacity and secure costs levels for these multiyear projects. One way would be for them to become GigaFactory partners.

I can imagine GigaFactories to be funded by Joint Ventures around Tesla, a Li-ion partner (Panasonic, LG, Samsung, etc) and one or more large utilities. In this setup Tesla could claim / commit to a percentage of production output for the Model-3 and a significant percentage is committed for storage systems to be installed at the utility JV members, leaving a percentage for other customers where the JV can make some extra profit. Actually these other customers could well be other makers of EV's, who are about to get in trouble to find LiIon production resources once they have to compete with the Model-3. In such a setup the GigaFactory will indeed have become a Tesla Product.

 

[Robert.Boston]

Moderator's Note

In case you didn't notice, there is now a new subforum for Tesla Energy:
Tesla Motors Forum > Tesla Motors > Tesla Energy

Discussions re Tesla Energy as it relates to investors is still appropriate here. I'm going to be a little more assertive in moving analyses of Tesla Energy's offerings from a customer's perspective ​into an appropriate thread in the new subforum.

 

[jhm]

I have been wondering about Elon's statements about the "GigaFactory as a product" during last weeks presentation.
After doing some very basic calculations it is very clear to me that the energy storage market at utilities is a very big one, the price breakthrough to $ 250,-- / kWh for large storage projects as announced last week will open the floodgates.

Here in Europe we have to import most of our energy, and specially in countries like Germany there is a big political incentive to get independent from natural gas providers like Russia. This already resulted in major installations of solar and windenergy, and also in one large utility divesting in "old energy generation" and even selling these plants, effectively splitting up the company. This however had a destabilizing effect on the grid and more often Germany has trouble offloading excess energy to other countries on sunny & windy days.

The demand might very well get so big the next years that the utilities will want to secure storage production capacity and secure costs levels for these multiyear projects. One way would be for them to become GigaFactory partners.

I can imagine GigaFactories to be funded by Joint Ventures around Tesla, a Li-ion partner (Panasonic, LG, Samsung, etc) and one or more large utilities. In this setup Tesla could claim / commit to a percentage of production output for the Model-3 and a significant percentage is committed for storage systems to be installed at the utility JV members, leaving a percentage for other customers where the JV can make some extra profit. Actually these other customers could well be other makers of EV's, who are about to get in trouble to find LiIon production resources once they have to compete with the Model-3. In such a setup the GigaFactory will indeed have become a Tesla Product.

Yes, this is how big utilities need to approach this. Oncor will want to lock in good pricing on about 15 GWh of PowerPacks and install that over perhaps 5 year. So an off-take agreement may be the smartest way to do that.

Here's a hypothetical off take agreement. Customer pays $84M upfront for a contract to buy upto 1 GWh of Powerpacks per year for no more than $210/kWh for the next 5 years. Given that Tesla wants to grow at 50% per year, it has a very high targeted return on assets. So this off-take agreement fronts some of the capital needed in such a way that it is comparable to selling 1 GWh per year for five years at $250/kWh with no money upfront. So Tesla financially indifferent with or without the off take agreement. It is beneficial to both buyer and seller, however, to lock in terms and reduce future supply and demand concerns. Now the utility may be in a good position to finance the upfront payment. For example, an amortizing five-year loan at 6% works out to less than $20/kWh. Thus, the combined financed cost to the customer is a mere $230/kWh. The off take agreement enables the utility to save $20/kWh off $250/kWh through more efficient financing.

Essentially, the off take aggrement provides Tesla with upfront capital to build out more capacity, whether at Gigafactory 1 or beyond. This greatly aids Tesla to expand on a positive cash flow basis. Moreover, my model suggests that Tesla can still achieve a 26% GM on the batteries sold at $210/kWh under the terms of the OTA. Tesla is also protected from price competition down to $210/kWh. A price competitor would have to offer an equivalent battery below that price to convince the OTA buyer not to exercise its call option. On the other hand if the buyer backs out and the going price is say $230/kWh, then Tesla can sell $20 above the contract price of $210. Now if Tesla is able to drive the full price below $210 over this time period, this is not a risk to Tesla. Say Tesla drive the price from $250 to $200 over the next 5 years. So toward the end of the contract the OTA buyer is able to buy at $200 below $210. This is not a loss to Tesla because they have in fact driven the cost down to that they can offer such a fully loaded price. Both Tesla and the OTA buyer are benefiting more than expected under this scenario. So the only real risk is that some competitor can sharply undercut Tesla on a fully loaded basis, which looks highly unlikely at this point.

 

[Yonki]

Well I think this info applies to investors, since it seems like TSLA might be shooting themselves in the foot:

I signed up immediately Thursday night (to be able to buy energy cheap at night for use during the day), but on Monday I was contacted by SolarCity who said that they were responding to my Powerwall signup. I told them I can't go solar because my roof is 99% covered by trees, and they responded that "you can only get the battery if you get solar."

Has anyone else had this experience? It's a great way to discourage an enthusiastic group of people. I can see why SolarCity might only be interested if there's a solar component, but I signed up (I thought) with Tesla,not SC...

[this was a paraphrasing of my post in the Short Term Price thread]

 

[aznt1217]

Well I think this info applies to investors, since it seems like TSLA might be shooting themselves in the foot:

I signed up immediately Thursday night (to be able to buy energy cheap at night for use during the day), but on Monday I was contacted by SolarCity who said that they were responding to my Powerwall signup. I told them I can't go solar because my roof is 99% covered by trees, and they responded that "you can only get the battery if you get solar."

Has anyone else had this experience? It's a great way to discourage an enthusiastic group of people. I can see why SolarCity might only be interested if there's a solar component, but I signed up (I thought) with Tesla,not SC...

[this was a paraphrasing of my post in the Short Term Price thread]

yes, but you don't only get the battery through solar city you can get it through the other partners.

 

[Yonki]

yes, but you don't only get the battery through solar city you can get it through the other partners.

Sure, but what is the mechanism for anyone to follow-up with me now? I enthusiastically signed up, Tesla forwarded my info to SolarCity, and I got a phone call from Solar City who told me "no". Is another partner going to call me now?

Instead of saying "You can't get a battery unless you have solar", SC should have referred me to one of Tesla's partners that will do exactly that.

 

[Newb]

Sure, but what is the mechanism for anyone to follow-up with me now? I enthusiastically signed up, Tesla forwarded my info to SolarCity, and I got a phone call from Solar City who told me "no". Is another partner going to call me now?

Instead of saying "You can't get a battery unless you have solar", SC should have referred me to one of Tesla's partners that will do exactly that.

hmmm, you're right. Not very well organised process there. On the reservation pop-up window there's a box like "I’m interested in having solar panels installed", did you untick it? It may well be that there's an automated backend filter/push-mail system, so that SolarCity gets all the reservations with this box ticked.

 

[yobigd20]

Well I think this info applies to investors, since it seems like TSLA might be shooting themselves in the foot:

I signed up immediately Thursday night (to be able to buy energy cheap at night for use during the day), but on Monday I was contacted by SolarCity who said that they were responding to my Powerwall signup. I told them I can't go solar because my roof is 99% covered by trees, and they responded that "you can only get the battery if you get solar."

Has anyone else had this experience? It's a great way to discourage an enthusiastic group of people. I can see why SolarCity might only be interested if there's a solar component, but I signed up (I thought) with Tesla,not SC...

[this was a paraphrasing of my post in the Short Term Price thread]

I also got a call from SolarCity with a message that solarcity is not available in my area so I guess if you can only buy the PowerWall with solar then I can't buy the PowerWall. That's great (not) but I don't want the PowerWall from solarcity at solarcity's $7k marked up price. I want the PowerWall directly from tesla at $3k. I don't want to be contacted by solarcity. I don't want even want solarcity's solar panels anyway as I am going to use a different vendor. So far their execution of this isn't very good.

 

[austinEV]

I also got a call from SolarCity with a message that solarcity is not available in my area so I guess if you can only buy the PowerWall with solar then I can't buy the PowerWall. That's great (not) but I don't want the PowerWall from solarcity at solarcity's $7k marked up price. I want the PowerWall directly from tesla at $3k. I don't want to be contacted by solarcity. I don't want even want solarcity's solar panels anyway as I am going to use a different vendor. So far their execution of this isn't very good.

Well they won't even be in production for a while, so they have time to clean up their act. You aren't actually being inconvenienced yet.

 

[yobigd20]

You aren't actually being inconvenienced yet.

right. I don't plan on purchasing until after I get my tax refund in 2016 anyway. enough time to plan and save.

 

[Yonki]

hmmm, you're right. Not very well organised process there. On the reservation pop-up window there's a box like "I’m interested in having solar panels installed", did you untick it?

I can't recall, it probably was ticked. I am potentially interested in solar (once I get some old dying trees removed), but I was expecting to talk Powerwall, not solar...