Market Insight

Tesla confirms plans to release battery for behind-the-meter energy storage systems in 2015

February 25, 2015

Sam Wilkinson Sam Wilkinson Associate Director, Solar & Storage
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In its Q4 2014 earnings call, US electric vehicle manufacturer, Tesla Motors, restated its intentions to release an energy storage product for the residential and commercial markets in the United States in 2015.

Key Points

  • Tesla has recently confirmed that it will launch batteries for stationary residential and commercial energy storage systems in 2015.
  • Solarcity is likely to be the main vehicle for Tesla’s batteries to reach the market, enabling Tesla to leverage the well-established sales channels of Solarcity and streamline customer acquisition costs.
  • Tesla/Solarcity’s energy storage efforts likely to start by focusing on solar and storage systems for demand charge reduction for commercial buildings.
  • The market for residential energy storage in the United States is currently limited, as it is driven only by back-up systems.
  • Source: Tesla Motors, Inc. Fourth Quarter 2014 Financial Results Q&A Conference Call

 

IHS Insight

In its Q4 2014 earnings call on 11th February 2015, US electric vehicle manufacturer, Tesla Motors, restated its intentions to release an energy storage product for the residential and commercial markets in the United States in 2015. Tesla announced in 2014 that it would build a so-called ‘Gigafactory’ to produce high volumes of Li-ion batteries (and significantly reduce the cost of the technology), primarily to serve its quickly growing electric vehicle business. The company has also indicated on several occasions that its batteries would be used in stationary energy storage applications as well.

Tesla’s CEO, Elon Musk, is also the Chairman of the largest US solar installer, Solarcity, which is likely to provide Tesla’s batteries with their route to market. This would enable Tesla to leverage the extremely high profile brand of Solarcity, and also share its established sales network and the costs of customer acquisition, which are known to be a significant expense to US solar installers.

The majority of Tesla/Solarcity’s first moves in energy storage are likely to centre around the market for demand charge reduction in commercial buildings, which aligns nicely with Solarcity’s more recent focus on expanding its commercial business. The addition of a PV system with a battery (or often just a battery without a PV system) can achieve significant reductions to electricity bills by reducing the amount of electricity that is drawn from the grid at peak times. This market is the primary focus of companies like Stem and Green Charge Networks, which offer batteries for commercial buildings via lease or third party ownership business models, similar to that employed by Solarcity. Solarcity also possesses the scale and financial backing to make a highly meaningful impact on this market, and its commercial business (which is cited as a future growth driver for the company) is likely to benefit from such expanded offerings.

The market for residential energy storage systems in the United States has remained limited to date. Currently, there is no significant incentive to self-consume PV electricity, which has been the major driver of interest in residential energy storage in other regions. This could change in the future depending on the outcome of widely anticipated reforms to net-metering schemes for solar systems. However, whilst IHS currently assumes that any alterations are likely to make self-consumption more attractive, they are not likely to create enough of a financial incentive to self-consume to justify investment in a battery. Presently, the main driver for residential energy storage is to provide back up. This alone is rarely enough to convince customers to spend the required investment to add a battery to a system.

Given the volume of solar that it currently has installed and plans to add in the future, a potential avenue for Solarcity to explore would be to offer batteries to its customers, in order to provide back-up power and allow a PV system to operate in island mode, at an affordable nominal upfront fee. This alone would not cover the cost of the battery hardware, however once a significant amount of energy storage is installed behind the meter under its ownership, it could operate these batteries in an aggregated way in order to generate revenues by providing grid services. Stem (a leader in providing behind-the-meter energy storage for commercial buildings) has a contract to provide capacity to Southern California Edison from 85 MW of aggregated behind-the-meter systems.

More analysis from IHS: Grid-Connected Energy Storage Report - 2014

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