Tesla enters residential battery market with the Powerwall

The big storage news of the week has been the unveiling of Tesla’s new stationary energy storage battery project – the Powerwall. This has inspired me to think a little out-loud about the economics of residential batteries…

Tesla battery

The Tesla powerwall: could it become the iphone of residential batteries?

The powerwalls units come in two sizes, 7 kWh and 10 kWh and cost $3000 and $3500 respectively.

Tesla gives the specs as follows:

  • Mounting: Wall Mounted Indoor/Outdoor
  • Inverter: Pairs with growing list of inverters
  • Energy: 7 kWh or 10 kWh
  • Continuous Power: 2 kW
  • Peak Power: 3.3 kW
  • Round Trip Efficiency: >92%
  • Operating Temperature Range: -20C (-4F) to 43C (110F)
  • Warranty: 10 years
  • Dimensions: H: 1300mm W: 860mm D:180mm

Firstly it should be noted that the costs are wholesale costs, and don’t include the price markup – ignore this for the moment. Secondly, and more importantly, you need an inverter, so let’s conservatively add $1500 on to the capital of the battery. So for a 7 kWh system let’s say $4500.

So what can you do with 7 kWh?

The average UK house used about 4200 kWh of electricity in 2013, giving an average demand of very roughly 500 kW (4200 kWh divided by 8760 hours in the year). This equates to around 14 hours of power at this average usage. Of course, sometimes you are asleep or out, so let’s assume that when you are in the average demand is double this at 1 kW (about the power of a medium kettle). Here is a page with estimates of the average power for household appliances in 2008 (they may have got marginally more efficient). So you can probably expect to run your dishwasher and washer in the evening and you’ll have enough juice for lights and TV watching, but you’ll struggle to tumble-dry your clothes too. The peak power is also slightly limiting – you may struggle to run your electric shower, dishwasher and washing machine at the same time.

You would have to be a very frugal user of electricity to consider going off-grid with this battery.

Economics (in UK context)

So how does it stack up economically? Well, obvious things first, you aren’t going to get a saving even if the battery is free unless the price of your electricity varies with time – for example with a time-of-use tariff or if you have your own solar installation that has a different cost associated with the electricity it generates.

Working with a solar PV installation

Let’s say the cost of a solar installation in the UK is roughly £4000 for a 2 kW system, and this produces roughly 2000 kWh per year (that’s about half the yearly average demand for a UK household and equates to roughly 40 kWh a week). Let’s also assume that you get a generation Feed in Tariff of 13.4 p/kWh and an export tariff of 4.8 p/kWh (you get paid 13.4 p/kWh of electricity that you use and 4.8p/kWh of electricity you export), and the price you pay for your grid electricity is 15 p/kWh. Again, if you are using all the solar electricity you generate rather than exporting it, then there isn’t going to be any economic case for a battery. But if you are exporting some to the grid then by storing it you’ll be able to earn the generation tariff and displace the cost of some grid electricity later, but you’ll forfeit any earnings from the export tariff. So, if the round-trip efficiency of the battery is 85% (Tesla say 92% but this will degrade over time so we assume 85% as an average and there will be small losses associated with the inverter), you’ll get an extra 13.4 p/kWh plus 0.85 X 15 p/kWh minus 4.8 p/kWh = 21.35 p/kWh for the electricity you would have exported. Using all of these estimates we conclude that if you exported 50% of the electricity generated by your solar unit, you could save 1000 kWh X 21.35 p/kWh = a princely sum of £214 per year.

Of course this assumes that the battery has sufficient capacity to store all the electricity that would have otherwise been exported to the grid. 1000 kWh per year is approx. 3 kWh per day and the battery holds 7 kWh, but there is also a huge variation in the daily electricity generated, accounting for seasonal and weather-related variations. But for simplicity let’s assume that out 7 kWh battery can hold all the electricity generated. Approximately then, over the course of 10 years you may be able to save about £2000 using the battery. This is approx. 2/3 the cost of the battery. The figure below shows the expected yearly saving against the percentage of electricity exported by the solar PV system. It also shows the saving associated with the standalone solar PV system.

Saving capability of battery (blue line) against percentage of solar electricity exported (assuming battery always has sufficient energy capacity) - the dotted line shows how I would expect this to vary accounting for the finite capacity of the battery. Estimated saving from 2 kW PV installation also shown (green line)

Saving capability of battery (blue line) against percentage of solar electricity exported (assuming battery always has sufficient energy capacity) – the dotted line shows how I would expect this to vary accounting for the finite capacity of the battery. Estimated saving from 2 kW PV installation also shown (green line)

At 50% electricity export our standalone solar PV system gives us a yearly saving 1000 kWh X (15 p/kWh + 13.4 p/kWh) + 1000 kWh X 4.8 p/kWh = £332. Very approximately that yields a payback of 12 years, which isn’t too far off other estimates (usually around 10 years). The battery-plus-solar system increases the yearly saving to a maximum of ~£500 (with 50% electricity export) and increases the whole system payback in excess of 14 years. Including the inability of the battery to store all the energy exported on summer days I’d expect this to realistically be significantly in excess of 16 years.

Storage and variable grid electricity prices?

The other way electricity storage lets you save is by buying low cost electricity, storing it, and using it when you would otherwise have to buy high cost electricity. Most domestic customers in the UK aren’t on variable tariffs but as an academic exercise let’s consider an Economy 7 tariff, which gives 7 hours (12am – 7 am) at 8 p/kWh and 17 hours at 16 p/kWh (I think these numbers are reasonable estimates). Working at around 80% depth-of-discharge, the battery could displace 5.6 kWh of peak electricity, replacing it with 6.6 kWh of off-peak electricity. If this strategy was run 5 days a week for 52 weeks, then it could generate a saving of around £100 per year. This is a bit less than half of the saving associated with the battery-solar system.

It says quite a lot about the economics to note that at 16 p/kWh, the value of the electricity stored in the battery is ~£1.10. At 3000 cycles this equates to a value of £3300.

Using UK spot market prices from 2013 we find that the 7 kWh battery could have made a maximum of £65 from (wholesale) electricity arbitrage in the year 2013 (to calculate this I use MATLAB and an algorithm available here).

Do combined solar-battery systems reduce the net emissions of the electricity grid?

This is more tricky. Any energy storage device is a net consumer of electricity. From that perspective, unless the electricity would otherwise be wasted it’s better to use it rather than store it. So if you are exporting electricity to the grid and the transport process (to where that electrical energy is used) is more efficient than your round-trip storage efficiency, then storing this electricity instead will increase the global net electricity used. To understand the effect on emissions you’ll need to know what generation source the exported electricity would displace and what generation source the stored electricity would displace. Several other factors also contribute – the battery will contribute to grid reliability and thus reduce the operating reserve margin. If there isn’t much solar in the region then it’s likely that the reserve margins will remain unchanged, however with enough distributed renewable generation at some point another thermal plant will need to be brought online (to deal with the extra fluctuations in supply and demand associated with many distributed renewable generators). In this way, as more and more distributed generation (i.e. residential solar PV) is brought online then storage becomes more important for the grid and is likely to reduce emissions through a meaningful contribution to reliability.

What should be concluded from all of this?

Well firstly it should be pointed out that what Tesla is doing isn’t new – solar plus storage has been done for quite a long time. Traditionally Lead Acid batteries were used, and they still have lower capital costs but are bulkier, require maintenance to replenish the electrolyte and vent hydrogen gas during charge. There are also other residential Lithium ion battery systems out there. Having said that, what this move represents is a big, exciting & fashionable company throwing its weight into the residential storage market. Tesla has the potential to become the iphone of residential batteries.

In terms of the UK economics, the battery and solar option isn’t going to be more economical than using grid electricity. With the current subsidy levels, and given that our estimated system costs are probably on the low-side, I’d imagine that payback for a battery-plus-solar-PV system is in excess of 15 years at present. This is compared to a payback around 10 years for a standalone PV system. The economic case for based on variable prices is much weaker than the case for solar-plus-storage – we anticipate a max saving less than £100 per year.

In other countries I would expect a similar situation, however in regions where outages are more common, the batteries may add an Uninterruptible Power Supply (UPS) which could drastically increase its value. Though it should be noted that in these areas batteries are already used, and if these are lead-acid type batteries then they will be significantly cheaper. For UPS applications efficiency and cycling are much less important so it’s hard to see the Tesla batteries becoming a better option.

For people who want to use the battery to reduce global net carbon emissions then you’ll need to carefully construct your arguments on why you think this is the case. There are lots of inter-playing effects that, as discussed, can lead to an increase or decrease in global net CO2 emissions. In the UK at present, the grid’s CO2 emissions are fairly consistent at about 500 g CO2 per kWhel­ when the demand is above 25 GW, so it’s hard to imagine that battery use would do anything but lead to a net increase in emissions at the minute in the UK.

However, if you would like to be more independent of the grid, or take a big step towards what many experts believe is a likely possibility for a low-carbon future, and own what could be turn out to be a very fashionable product then this could be the battery for you.

One thought on “Tesla enters residential battery market with the Powerwall

  1. SPSS

    Many commercial customers already buy power this way, and Tesla is planning battery systems designed for them, along with bigger battery packs that utilities can use to manage their grids. Analysts say these utility and commercial markets will probably be more promising for Tesla during the next few years than residential customers.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *