The Stationary Battery Business

[Paracelsus]

California throws away something like 300GWh each year due to wind and solar variability. That energy is just sitting there ready to be absorbed and stored for use on a muggy Thursday afternoon.

This power is also flowing north now to the Pacific NW grid because it is less expensive than Columbia Basin hydroelectric power at peak demand rates. The irony as I understand it is that the capacity of the grid between the Pacific NW and California was increased by NW operators in hopes of expanding sales to California following the rolling blackouts/power shortages, however rapid implementation of cheaper solar and battery storage on a huge scale has resulted in California's power being delivered on that same grid to customers in the NW for less. This has significantly cut into NW produced power revenue and operators are concerned about the future. I personally see a tremendous opportunity for the NW to 'grow' its way back into profitability - lowering the bottom line by increasing sales with the implementation of a distributed grid that supports mass adoption of electrical transportation. That has been a very tough vision to sell because it rocks the existing paradigm. After following this board for almost 5 years now it is simply a matter of 'First Principles' to me at this point........

 

[EinSV]

Yes, you are right, SolarCity may include some storage numbers. But knowing SolarCity's past numbers and trends, I don't expect a lot of storage baked into it. I would say less than 5 to 10%.

Thanks -- I agree storage would likely be a small portion of Solar City revenues.

The only real market for SCTY that would make sense with storage was Hawaii.
For CA it is more of a hobbyist thing than anything else. Given the abundant net-metering.

The numbers suggest otherwise. For example, Powerwall clearly seems to be taking off in CA. For example, Electrek published figures in September showing 2,000 Powerwalls already sold in CA by then with Tesla dominating the home storage market. Tesla Powerwall 2 installations finally start to accelerate Based on anecdotal evidence including SGIP incentives rapidly getting swallowed up I believe demand continues to ramp quickly in CA. Demand also seems very strong from many other places in the U.S. as well as Australia. Overall numbers are still small but IMO that's just a matter of time as production ramps up and availability spreads to other markets.

 

[TheTalkingMule]

The only real market for SCTY that would make sense with storage was Hawaii.
For CA it is more of a hobbyist thing than anything else. Given the abundant net-metering.

I'm a little surprised to hear you say that. We're certainly going to need tons upon tons of storage to facilitate 100% renewables. Do you assume nearly all this storage will be grid scale?

Decentralizing everything makes so much more sense, and I think will be demanded by consumers once they wrap their heads around it. I have a hard time seeing anything other than battery ubiquity once pack costs for Tesla(or whomever) are $60/kWh. That's a $1,500k retail Powerwall that solves everyone's problems. Who doesn't buy that?

In the US I guess it will depend entirely on policy and how things shake out politically. In Germany most installs are now done with battery storage because their retail power is $.29/kWh and grid payback only $.13/kWh. I can certainly see plenty of scenarios here where the market is rigged to keep storage illogical, but in places like Nevada we've already seen ballot initiatives to break up the centralized system.

Net metering generally needs to go away once a market hits 4-10% solar(20-50% at peak), after that storage is quite compelling.

 

[SBenson]

@TheTalkingMule @EinSV

I was talking about past 3 or 4 quarters. Not the future. The topic was numbers from the financial reports.

More specifically we were talking about how much of SolarCity numbers contain Tesla storage.

 

[TheTalkingMule]

Thanks, I was getting worried there for a second.

 

[schonelucht]

I've gone back and forth in private with a few people here on these numbers. My understanding they are a fair representation of what Tesla Energy margins actually are. Tesla Storage is doing too little volume to pay for a battery assembly line with the sophistication that the Module 3 battery assembly line will have. It's labour intensive (see also why Powerwall 2 deliveries were delayed to free capacity to get Australia done)

 

[neroden]

View attachment 267912

Information straight from the 10Q's. @schonelucht helped me find the SolarCity numbers. Will post screenshots for reference.

I'll be blunt, I simply don't believe this calculation works for anything but revenue (and even there there are some batteries in the SolarCity numbers).

I think it's dead wrong when it comes to margins. Tesla is not selling below the true marginal cost. "Cost of Revenues" is clearly loaded with overhead.

Regarding revenue, *tripling every quarter* is actually quite impressive... it will have to slow down at some point.

 

[neroden]

This power is also flowing north now to the Pacific NW grid because it is less expensive than Columbia Basin hydroelectric power at peak demand rates. The irony as I understand it is that the capacity of the grid between the Pacific NW and California was increased by NW operators in hopes of expanding sales to California following the rolling blackouts/power shortages, however rapid implementation of cheaper solar and battery storage on a huge scale has resulted in California's power being delivered on that same grid to customers in the NW for less. This has significantly cut into NW produced power revenue and operators are concerned about the future.

The NW hydropower operators can ship power back to Montana, though, right? Colstrip, the nasty coal plant in Montana which ships power to the NW, is closing.... might as well use those lines to run the other way...

 

[neroden]

I've gone back and forth in private with a few people here on these numbers. My understanding they are a fair representation of what Tesla Energy margins actually are. Tesla Storage is doing too little volume to pay for a battery assembly line with the sophistication that the Module 3 battery assembly line will have. It's labour intensive (see also why Powerwall 2 deliveries were delayed to free capacity to get Australia done)

OK, so what you're saying doesn't make sense unless you believe that demand is low, which is obviously wrong.

So it doesn't really change my assessement that the stationary battery business is huge. They're currently not producing enough volume to get the necessary economies of scale to cover overhead; that I certainly believe, since it's normal for the startup phase of the production. It's currently labor-intensive -- sure, same as Model 3 was labor intensive while they had a problem with automated pack production.

There is certainly no question about demand; there is plenty of demand and anyone saying otherwise has not done their research. Tesla will have a fully automated battery pack assembly line for Powerpacks, though I couldn't tell you when.

I am leaning towards Powerpacks being the big business, not Powerwalls.

 

[schonelucht]

I think it's dead wrong when it comes to margins. Tesla is not selling below the true marginal cost. "Cost of Revenues" is clearly loaded with overhead.

Extraordinary claims require extraordinary proof. What 'overhead' do you think is included? For every single other product Tesla sells, it does everything to inflate gross margins (no surprise given there is still a large stock option grant for upper management depending on 30% GM). Yet this would be the single product where they cram overhead in cost of goods? Call me extremely skeptical. Scale is simply not there to hit the costs they need. Simple as that. Just as Model 3 numbers this and last quarters were simply too low to get anything but negative margins.

 

[schonelucht]

So it doesn't really change my assessement that the stationary battery business is huge. They're currently not producing enough volume to get the necessary economies of scale to cover overhead; that I certainly believe, since it's normal for the startup phase of the production. It's currently labor-intensive -- sure

Then we agree. Tesla has been selling storage product below cost because it was not able to ship enough volume. That's my understanding of the current nature of the business and it's what I have been saying all along.

Forward looking : could the market be huge? Possibly. But today the business case does not work well for large scale storage. It works for marginal uses cases like isolated grids. On mature grids batteries are usefull for frequency regulation only. But the required capacity is rather small. For example, for the Netherlands total required primary reserve is in the order of 100MW. Imbalance auctions are generally in the same order of size. The battery in South Australia proofs the point both in theory (majority will never be used for storage) and in practice : when 560MW of coal generation capacity tripped, it had to respond with just a few MW to do its part. And Australia's grid is one the less resilient ones.

When the market will be huge, then other operators will be ready. Energy storage is a commodity. It's simple as that. I don't want Tesla in commodities. I want Tesla in markets where it can work its emotional appeal and extraordinary vision to leverage exceptional returns. I want Tesla in automative. Not in energy storage (and even less in solar panels and roofing) Unfortunatly Elon had to rescue SolarCity. I can now see why that was the smart move. I can only hope he let's the business slowly die. It's on a good path to do so.

 

[ItsNotAboutTheMoney]

The NW hydropower operators can ship power back to Montana, though, right? Colstrip, the nasty coal plant in Montana which ships power to the NW, is closing.... might as well use those lines to run the other way...

I think the problem isn't that they don't have a market, it's that they thought they would have access to a particularly lucrative market serving Californian peak power and instead they're losing the domestic peak power market.

Not good for the generators, but great for intermittent renewables to have that hydro as a balancing resource.

 

[ValueAnalyst]

Have We Reached Peak Peaker? ‘I Can’t See Why We Should Build a Gas Peaker After 2025’

This article does a good job of explaining the magnitude of opportunity.

 

[Brando]

Depends on the location. Central Boston, 4 ft^2 is $2700. Metro $1072.



I can't believe that utilities would simply let Powerwall dominate. They make money by persuading PUCs to let them spend on infrastructure. If Powerwall gets to the point where it can have a large market then utilities would try to pull the rug using localized grid storage (or lobbying).

Never underestimate corruption. Corruption allowed about 125 Atomic Reactors to be built in US alone and about 500 world wide.

Japan doubles cost estimate for Fukushima cleanup

Chernobyl $235 billion? Fukushima alone will "double" the amount spent on Japan Nukes. Estimate $190 billion and 40-50 years for clean up attempts. Probably take hundreds of years.

How does Florida and Georgia continue to spend on over budget behind schedule Nukes?
How much solar/wind could you install for $25 billion
Tab swells to $25 billion for nuclear-power plant in Georgia

Economic damage of the Chernobyl accident is estimated at $235 billion for 30 years on after the explosion, making up 32 national budgets as of 1985. Chernobyl disaster vastly damaged the agricultural sector of the Belarusian economy, which is worth over $700 million annually.
http://chernobyl.undp.org/russian/docs/belarus_23_anniversary.pdf
A new cover for the Chernobyl sarcophagus | Science | DW | 29.11.2016

And how often do you read how "safe" these reactors are? When billions are at stake why would they lie??
In a word - CORRUPTION.

 

[Brando]

note: South Australia Tesla battery responds to coal plant failure in just 140 milliseconds automatically.

How long would it take a natural gas 100MW power plant to spin up??
No one will build another natural gas peaker power plant without taxpayer/government subsidies.

Large scale flow batteries may well prove cheaper still than Li-Ion batteries. Response time? don't know.

Have We Reached Peak Peaker? ‘I Can’t See Why We Should Build a Gas Peaker After 2025’
Solar + batteries prepping to take over 10GW of US natural gas peaker power plant market

 

[Brando]

So far execution of their vision has been a weakness. They have had off the hook orders for years now. It’s so bad that the market has shortsightedly entirely written TE off, which is most of the reason for this thread.

Appear to be cheaper. Why didn’t they win the contract?

And remember that will they need to be cheaper than Tesla in about 2020 when Tesla’s costs will fall by about 25-35%.

As for the more distant future I believe that they are working with the Goodenaugh battery technology which will reduce their costs by at least an additional fifty percent.

No reason to think Tesla won't change technologies or

 

[ValueAnalyst]

Hyundai Electric and Energy Systems is on track to complete a 150-megawatt lithium ion battery that will “go live” by February in Ulsan, the country’s seventh largest metropolis. Hyundai worked with metal smelting company Korea Zinc to build the 50-billion-won system (that’s approximately $46 million).

Tesla completed the world’s largest battery, but South Korea may soon surpass it

Does anyone know the energy capacity of this battery?

 

[GoTslaGo]

Hyundai Electric and Energy Systems is on track to complete a 150-megawatt lithium ion battery that will “go live” by February in Ulsan, the country’s seventh largest metropolis. Hyundai worked with metal smelting company Korea Zinc to build the 50-billion-won system (that’s approximately $46 million).

Tesla completed the world’s largest battery, but South Korea may soon surpass it

Does anyone know the energy capacity of this battery?

quoting the article:

Although Tesla recently completed the world’s largest lithium ion battery in South Australia, a spinoff of South Korean company Hyundai Heavy Industries is hoping to surpass this designation by building its own battery storage system that is 50 percent larger.

end quote.

Tesla Completes World's Largest Li-ion Battery (129 MWh) In South Australia (#NotFree) | CleanTechnica

So 129 MWh storage x 1.5 = 193.5 MWh (presumably)

 

[Brando]

Extraordinary claims require extraordinary proof. What 'overhead' do you think is included? For every single other product Tesla sells, it does everything to inflate gross margins (no surprise given there is still a large stock option grant for upper management depending on 30% GM). Yet this would be the single product where they cram overhead in cost of goods? Call me extremely skeptical. Scale is simply not there to hit the costs they need. Simple as that. Just as Model 3 numbers this and last quarters were simply too low to get anything but negative margins.

Sadly you seem to not understand margin vs profits. P&L shows margins. Tesla spends most all (or more?) on investments so no profits are distributed. I guess your perspective is understandable when money is your only value. extraordinary

Best, safest, most sold, quickest, cheapest to operate sports sedan. BUT no profits!
Consumer Reports survey, Model S wins 3 years in a row. But no profits!
Car Brands Ranked by Owner Satisfaction

Pre-orders/deposits for a product (Model 3) not yet built exceeds all expectations. Where are the profits?
Why don't they have profits the month after all those deposits? Design, build production lines, I mean how long does it take? What a failure.

 

[RiverCard]

Since Kelty and Wagner have moved on, is Lankton now the top TE executive under JB? (He might have contacts in the electric utilities industry)

"Cal Lankton is the Director of Global EV Infrastructure for Tesla Motors, Inc., responsible for public EV infrastructure strategy, delivery, and operations, with a focus on Tesla’s growing Supercharger and Destination Charging networks. Prior to this role, Cal worked at ABB where he started and led the EV charging business unit for ABB North America, as well as leading corporate development activities for ABB Power Electronics in Switzerland. Prior to ABB, Cal worked as a consultant in the electric utilities industry and served as a Naval submarine officer and nuclear engineer. He holds a B.S. in physics from Appalachian State University, as well as a M.S. in Engineering Systems and a MBA from the Massachusetts Institute of Technology"