Tesla’s Powerwall: an expensive option

tesla test drive | Ross Baldick PhD | electricity industry

Test-driving the Tesla Model S.

Tesla’s new Powerwall, a home battery, has been widely reported in the media, and once again Elon Musk has spearheaded a very attractive product. In its press kit, Tesla touts the Powerwall for residential load shifting, backup, and storage of locally generated solar power.

But is the Powerwall an economical option for a typical household? In general, new products are not necessarily successful on basic economics alone, and we should expect Tesla to drive down the price of storage as the Gigafactory scales up. However, there is a long way to go in price reductions for such storage to generally make economic sense compared to “using the grid” to store excess solar production, or compared to owning a small back-up generator.

Tesla sees Powerwall as an attractive option for storing energy from rooftop solar. That may make sense for the future, when California reaches a very high penetration of residential rooftop solar and the cost of the using the Western grid to store energy has become prohibitive.

Otherwise, the basic costs of the Powerwall are currently not attractive for most residential applications.

So, how does the Powerwall stack up to its existing residential alternatives?

In terms of backup applications, the 10kWh energy capacity Powerwall model will apparently cost around $3,500. It’s tough to make direct comparisons, because backup generators are typically rated by their maximum power, not their energy, since the energy is only limited by the amount of gasoline on hand, or the size of the LP gas cylinder, or is effectively unlimited in the case of piped natural gas. It’s also hard to compare, because gasoline-powered back-up generators have their own problems, including the use of fossil fuels.

To make a stab at a fair backup generator comparison, I checked Home Depot.  Home Depot has a 7kW natural gas unit available for under $2,000, which would easily have enough capacity to power my house, including my AC in a Texas summer.  This is rather cheaper than the $3,500 pricetag for the Powerwall, and the Powerwall also needs a standalone inverter (not included in the $3,500) to actually function as a backup for a residence. Because the backup generator consumes fossil fuel, it won’t kick-on instantaneously like the Powerwall, but most of my critical loads have batteries anyway — and I can wait 30 seconds for the AC and fridge to come back on if an outage occurs.

How about operating costs for the backup generator? Using piped natural gas in Austin would cost on the order of a dollar to generate 10kWh. It might cost a little more with a gasoline-fueled generator, but that depends on the price of gasoline at the time. Overall, the fuel costs are a trivial fraction of the overall costs for a residential backup generator, because it will only be used rarely.

All in all, the Powerwall is an expensive option for backup power.

The fundamental reason is that the batteries are expensive, and they will only be used occasionally in a backup mode in the US and in most developed countries, where electricity is quite reliable. A better backup option may be to do double-duty with batteries that have been purchased for another purpose.

For example, my graduate students David Tuttle and Hunyoung Shin have been investigating the use of the batteries in a plug-in hybrid electric vehicle (PHEV) or a battery electric vehicle (BEV) to provide a backup source combined with rooftop solar.  (Nissan implemented such a package for the Leaf that was used in the aftermath of the Japanese tsunami; it’s not yet commercially available.) Instead of dedicating batteries for backup, the idea here is to use the batteries in the car when needed as a backup storage. Tuttle presented some of this work at the IEEE Transportation Electrification Conference and Expo in 2013. Click here to read his paper.

Using residential power consumption data from Pecan Street, an energy think tank, Tuttle investigated how long a residence could provide its own backup using rooftop solar and either a PHEV or a BEV.  With 5 or 10 gallons of gasoline and a PHEV, such a system can sustain residential loads for several days to several weeks. Even with a BEV, there are typically at least two days of backup available.

How much would such a vehicle-to-home system cost? Less than the cost of the Home Deport backup generator.

In terms of load shifting and storage of solar power, the 7kWh model costs $3,000. What is the retail price of the electricity that would fill that Powerwall? For me in Austin, 7kWh of electricity costs under a dollar. Admittedly, some residential customers in California are paying closer to $5 on the margin, which improves the cost-benefit there and in similarly high-priced areas, including Hawaii.

Three thousand dollars to store a dollar’s worth of electricity does not seem to make sense on its face, but it is important to realize that the $3,000 is paying for a device that will repeatedly store and discharge that 7kWh multiple times. But even supposing it lasts for around 3000 cycles (nearly ten years of almost daily cycling) and even ignoring interest payments, the cost of storage is as much as the retail cost of electricity. For a truly off-grid application, you’d have no choice but to store energy to use later, but for most of us, we already have a grid connection that allows for both buying and, increasingly, selling electricity. Adding a Powerwall is currently just an expensive way to avoid the buying and selling.

Does the Powerwall make sense for anyone? Yes, there are some places such as California and Hawaii, and in other countries with expensive electricity, where it might make economic sense. And it makes sense for those commercial and industrial customers who are exposed to charges for their peak demand. Shaving their AC-driven peak with storage can be attractive (although it will typically make sense for them to spend money on improved insulation and weatherization first).

Commercial and industrial customers with demand charges and high-priced residential customers are going to be the beachhead applications for the Powerwall. I am confident that Tesla and others will eventually bring the price of storage down. Then the rest of us can start installing them.

About Ross Baldick

Electricity is an increasingly complex industry in the midst of transition to renewables and decarbonization. Using my 25 years’ experience as an engineer, policy analyst, and academic, I help my consulting clients think through their toughest technical challenges and formulate their best business strategies.
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2 Responses to Tesla’s Powerwall: an expensive option

  1. David says:

    “not attractive for most residential applications” – Tesla is not expecting to sell these to everyone in first years, they couldn’t make enough, is obviously a niche, just like Tesla car.

    Matter of looking at the right markets… recreational vehicle – much better than any alternative, it creates new market, where solar panel+powerwall+cheap emergency gas/diesel generator can replace more expensive and noisy expensive diesel/propane generator (counting all costs over 10 years) and allow more freedom. Private yacht is another version of RV. Remote cabin/house where hookup to grid is expensive is similar market.

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