Date: 2025-07-02 Page is: DBtxt003.php txt00009764
Energy
Electrical energy storage
The Powerwall's Implication On The Electric Utility Industry ... About: Tesla Motors (TSLA), Includes: EIX, PEG, SCTY
Burgess COMMENTARY
Peter Burgess
The Powerwall's Implication On The Electric Utility Industry
Disclosure: The author is long SCTY. (More...)
Summary
Tesla's new Powerwall energy storage product has far exceeded analysts' expectation.
The Powerwall is indicative of the huge progress being made in the energy storage industry, which is a terrible trend for centralized electric utilities.
Should the electric utilities continue to impede rooftop solar PV, they are only hastening their own downfall.
While the utilities could retain a workable business model by leveraging their grid assets to service rooftop solar companies, such a scenario looks increasingly unlikely in light of recent events.
Tesla (NASDAQ:TSLA) recently announced a revolutionary energy storage product called the Powerwall, which comes in a 10 kWh model for $3,500 and a 7 kWh model for $3,000. The Powerwall was significantly more cost-effective than most were expecting, with some even predicting prices north of $10,000 as a best-case scenario. The degree to which industry experts got their predictions wrong is indicative of the incredible progress being made in the energy storage industry. Clearly, Tesla's massive involvement in the energy storage industry has accelerated progress in a momentous way, which has huge ramifications for a number of industries.
The industry that should be most threatened by this progress is the centralized electric utilities industry. Most energy analysts have assumed the solar plus storage model as a faraway threat for the utilities, which was an assumption predicated on the belief that cost-effective battery technology is nowhere near mature. With Tesla's new Powerwall product, these assumptions have been shattered. While the Powerwall is still not cost-effective enough to cause mass defection from the grid, it highlights the huge and attainable potential of energy storage technology. This means that centralized utilities such as PG&E Corporation (NYSE:PCG), Edison International (NYSE:EIX), etc, are looking at a much bleaker future.
Technological Progress Much Faster Than Anticipated
While the solar plus storage model has always been a threat to the centralized utility industry, recent events have made it clear that this threat is closer than ever. Even with the ever-declining cost curve of solar PV, the energy storage technology needed for grid defection always seemed to be a step behind. While energy storage technology has not historically experienced the kind of progress as solar PV, this is all starting to change. In fact, lithium-ion batteries have already started to experience a sharp cost decline over the past decade with the proliferation of battery dependent mobile devices.
The increasing popularity of electric cars will only accelerate lithium-ion battery progress. As is evident in the Powerwall, the lithium-ion battery industry is already witnessing technological advancement on a scale unimaginable just a few years ago. The most threatening part about this for the electric utilities is that Tesla's Gigafactory is not even completed. The Gigafactory, as many already know, is where the vast majority of lithium-ion battery advancements is slated to take place in the near-term future. If Tesla has been able to reduce lithium-ion battery costs to such a degree already, the Gigafactory could truly have a devastating effect on the centralized utility industry.
The demand for Tesla's Powerwall has already exceeding all expectation, with Tesla CEO Elon Musk stating during Tesla's Q1 conference call that the Powerwall is sold out until mid-2016 with 38,000 reservations. As demand for lithium-ion batteries is no longer only coming from consumer electronic devices, but also from electric cars and home storage, the economic forcing function for lithium-ion battery technology is starting to become enormous. This means that despite all the progress made in lithium-ion battery technology over the past decade, technological advancement in this arena will only accelerate moving forward.
Tesla's energy storage product is considerably cheaper than most have imagined, which represents an enormous threat to the utility industry. Here is an image of Tesla's energy storage product, the Powerwall.
Source: Tesla
The Utilities Will Either Have To Adapt or Die Out
If solar PV and energy storage keeps progressing at anywhere near its current rate, which seems more than likely given current events, then the utility industry will almost certainly face an ultimatum from distributed solar companies like SolarCity (NASDAQ:SCTY). This ultimatum will entail that the utilities either work with distributed solar companies, or face complete collapse. Things don't look particularly dire for the electric utilities at present as utilities still generate over 99% of the electricity being consumed. This figure is very misleading though as solar PV will reach grid parity in exponentially more areas should it continue to improve as it has been for the past three decades.
If the electric utilities continue to impede distributed solar growth by implementing excessive surcharges on rooftop solar customers or actively trying to eliminate net metering policies, these utility companies may cause their own downfall. Raising such impediments for distributed solar companies will only further encourage the development of energy storage technologies, which would in turn shorten the lifespan of the centralized utility business model. Impeding distributed solar is an extremely shortsighted strategy for the utilities, as they will lose out even more in the long run. The reality is that the utilities still have an asset (electric grid infrastructure) that could benefit both the utilities and distributed solar companies. Despite such a valuable grid asset, it will likely go to waste if the utilities insist on fighting against distributed solar.
Likely Outcome
It is clear that it is in the best interest of the utilities to work with distributed solar companies given the rapidly declining cost curve of energy storage. As energy storage will likely make the utilities' grid infrastructures unnecessary in the long run anyway, it is unwise for the utilities to accelerate this process by refusing to work with distributed solar companies. Just because the grid will not become necessary for distributed solar companies does not mean that the grid will be useless. Given that distributed solar companies would still be better off using the electric grid, utilities could still leverage their grid assets for profit.
While this is a better outcome for both industries, it is highly unlikely that the utilities will decide to go this optimal route. Utilities are not the most forward-thinking companies, which means that they may not even realize that fighting against distributed solar will only accelerate their decline. While distributed solar companies have been optimistic a few years back about the eventually cooperation of the utilities, this thought has proven to be too naive. As was largely expected by most, the utilities have only ramped up their attempts to squash rooftop solar in recent years.
With utilities like Arizona Public Service, Salt River Project, and many others increasingly abusing their monopolistic powers to impede solar, there is little reason to hope that the utilities will eventually work with the distributed solar companies. Even if these companies eventually do decide to work with distributed solar companies down the road, the value of their cooperation would be significantly diminished given the rapid progress of energy storage technology. The situation for utilities looks increasingly gloomy by the day, and there is little they can do to stop their downward spiral. Even if these utilities decide to work with distributed solar companies, they would still be extremely overvalued at current market valuations.
Leading utilities like PG&E Corporation and Edison International have P/E ratios oftentimes in excess of 20. Such figures seem way too high given the enormous headwinds facing the utility industry. Even if such companies are perfectly able to leverage their grid assets in the changing energy landscape, they will still never again obtain previous levels of profitability. In the best-case scenario, the utilities transform into grid service companies, and in the worst-case scenario, they become obsolete altogether. Given how things are currently progressing, the latter seems to be more likely for the vast majority of utilities.
Conclusion
Tesla's involvement in the energy storage industry has ramifications for a multitude of enormous industries, with the utility industry standing the most to lose. Industry developments are looking increasingly unfavorable for centralized electric utilities and more favorable for distributed solar companies. Tesla, of course, stands to gain immensely as it is at the forefront of a potentially trillion-dollar industry. My previous prediction of Tesla becoming an energy storage powerhouse looks truer everyday, which is great news for distributed solar companies and terrible news for the utilities. With Tesla spending billions upon billions of dollars on lithium-ion battery technology, the centralized utility industry's prospects are starting to look markedly dimmer.
Gmail Peter Burgess
Hello All,
Great news for divestment and the planet! Grim news for utility managements who don't want to accept that they have already lost dominance. :-)
The PowerWall's Implication On The Electric Utility Industry by Simple Investment Ideas This article was published on Sun, May 10, 1:43 PM ET
http://seekingalpha.com/article/3166316-the-powerwalls-implication-on-the-electric-utility-industry?auth_param=u104j:1akv68m:6d6ae9dfeebcc4ae41f063d9a97dfeb0&uprof=82&dr=1
We can use a lot of the ideas and language in this story to help regulators and the market push utility managements either into fully embracing energy efficiency, renewable energy and battery storage, or over a fiscal cliff (eventually -- say, by 2025).
It goes farther than the story's focus, too. Tesla has confirmed that its commercial and utility scale batteries will sell at $250 per kWh capacity initially. That is without the massive economies of scale that they will enjoy when the Gigafactory goes online in 2016, and probably reaches full capacity in 2017 (given that the residential Powerwall, at $350 per kWh for weekly charge cycling, or at $429 per kWh for daily cycling, and made in the Tesla auto plant in Fremont, has 38,000 reservations already and is sold out until mid-2016!)
The point is that Tesla's automotive batteries have to cost well under $200 per kWh capacity, and they have said that they will open their battery patent pool to competitors. That will enable competitors to cut their costs significantly faster than they would have otherwise. That means that a very rapid ramp to mass (instead of token) distribution of electric vehicles of all sizes and types is coming by 2017 or 2018. We are going to see the disruptive side of capitalism, exactly as Elon Musk intends.
This can only be enhanced (or multiplied) by the emergence of disruptive new battery technologies, some of which will cost even less than Tesla's, and exceed its performance.
Resistance to efficiency and renewable energy replacing fossil and nuclear fuels is futile. Given human psychology (going with the winner), the more we spread this idea, the faster it will fully manifest, and the more lives we can save from the impacts of climate disruption, of wars fought to control oil and gas supplies, and of channeling wealth from people's needs to the military-industrial complex, to drive those wars.
Regards,
Mark Roest