Politics of Power: Tesla Energy

It is a bit of a break from the norm for this column to talk about a car company, but on April 30 Tesla Motors unveiled a product that transforms the electric car manufacturer to an energy storage company that has the potential to transform the way energy is used fundamentally. Elon Musk, the CEO of Tesla Motors, revealed a hugely anticipated home battery system called the “Powerwall.” It is a rechargeable lithium-ion battery that can be mounted in a garage, basement or on the outside of a home. The home battery pack is about the size of a small refrigerator and will become available for purchase in 3-4 months with a base model price of $3,000. The battery can either be connected to home solar panels or to the grid itself. Essentially, this allows homeowners who connect it to the grid to store electricity when rates are low. The battery also allows homeowners who have solar systems to take full advantage of peak production throughout the day. The “Powerball” can serve as a backup generator in the event of a blackout. Musk wants to serve the business community as well by offering much larger “Powerpacks” to energy-hungry customers like utilities and tech giants.

These consumer and business-oriented batteries will be produced in Tesla Motors’ “gigafactory” in Nevada where Tesla’s car batteries will also be made once the factory is ready for use. This new product will be handled by a subsidiary of Tesla Motors called Tesla Energy. The goal of Musk is to revolutionize the utility industry by combining this battery technology with the home solar panel installation company called SolarCity, of which he is the chairman. The combination of these two technologies could transform individual homes into mini power plants — buying and selling electricity with the grid in real time. In addition, this battery and solar technology can serve as a substitute for traditional electrical grid infrastructure in parts of the developing world that have not yet been electrified. In his unveiling presentation, Musk compares this battery technology to smartphone technology. Just as cell phones permeated developing markets and there was no longer a need to build-out incredibly expensive land line networks, this battery technology could prevent the need for a build-out of expensive electrical grid infrastructure. However, there are a few minor problems with this potentially disruptive technology that could hinder the development of Tesla Energy.

It is unclear whether or not the price of the “Powerwall” system includes the subsidy given by many states (California, for example, gives rebates of up to 60 percent for home battery purchases). Additionally, in his presentation, Musk failed to mention that the battery packs would require a $2,500 DC-to-AC electricity converter. This allows for your house, which runs on AC current, to convert the DC current of the battery into usable electricity. There is also the cost of installation and maintenance which, when added to the cost of the converter and battery itself, brings the total cost of the “Powerwall” to $6,000 or more based on the model.

Musk’s goal is to radically transform the way the world uses energy on a massive scale. He wants to upend the traditional energy utility system. It would be a remarkable and incredibly lucrative feat to pull this off, but with the combination of SolarCity and Tesla Energy nobody is better positioned to succeed.