Tesla Motors, which shook up the electric vehicle sector when it launched the Tesla Roadster in 2008, recently unveiled its lithium ion battery (the “Tesla Powerwall”) for residential and utility-scale customer usage, with a particular emphasis on storing solar power. Tesla is now marketing its battery through SolarCity Corp., which designs, finances and installs solar energy systems. Tesla has also announced it will begin producing larger batteries for businesses and utility companies, listing projects with Oncor and Southern California Edison as it markets to other utilities.
Make no mistake about it, this is huge news. The opportunities for the DERs market and impacts on the utility business model that will reverberate from companies like Tesla and the inroads they are making are truly of epic proportions. You say you want a revolution? For the DERs market, this just may be one as it illustrates the transformation that the electric industry is undergoing to create a more flexible grid that takes advantage of advanced technologies, meets the increasingly sophisticated demands of customers, and addresses national concerns around reliability and restricted power supplies.
With all revolutions, there are winners and losers once the dust settles. Some say Tesla’s announcement is a death knell for conventional utilities. In my opinion, although it may very well represent a blow to the traditional utility business model, this is no time for utilities to don mourning clothes. There are plenty of opportunities for utilities to benefit from these changing market dynamics, but in order to respond strategically the impacts must be first well understood.
So let’s break it down, and along with impacts identify some issues that remain as of yet unresolved:
- The expected proliferation of storage reflects systematic changes to the ways in which electricity is produced, stored and used. We need to consider the storage/solar integration against the backdrop of industry changes resulting from the proposed Clean Power Plan; the combination of solar and storage is now a viable alternative as load-generating entities attempt to rely less heavily on fossil fuels and more on renewable energy sources. In order for solar, storage and their related DERs technologies to have equal footing with more traditional resources, steps must be taken to create reliable formulas to determine the value of these new technologies and the power they produce, which will be decided ultimately by individual state regulatory commissions.
- Storage significantly expands the amount of renewables that can be incorporated into the grid, which can be considered among other options for long-term resource planning. What is transformational is the way in which storage can help alleviate intermittency, shave peak-demand prices and enable reliable off-grid electricity. Renewables have been an option for some time but have remained somewhat problematic due to their intermittent nature. Storage capability solves that concern, so that even during the nighttime energy produced by the sun can be utilized, which benefits utilities’ resource planning and helps system operators to better manage load. However, in the absence of a regulatory mandate, many utilities continue to overlook or minimize the impact that solar and other DERs technologies will have on meeting future demand, which seems increasingly misguided.
- Storage expands the marketability of solar. Up until recently, solar’s applicability was fairly limited to rooftop applications that provided power during the day, along with the added bonus of some net metering in which excess power was returned to the grid for payment and/or to lower a customer’s bill. Storage is without question an enabling technology for solar; with storage, use of solar is not limited to only when the sun is shining but can meet the power needs of end-use customers on a 24/7 basis.
- The cost/benefit analysis now justifies either stand-alone storage or solar, or a combination of both, but who will own storage technologies and the power it stores? Who will own the batteries, how will the cost for the batteries be recovered (i.e., who pays for them) and who will have the right to sell the power into the grid? I think of the regulated utility Oncor, which has proposed spending as much as $ 5.2 billion on storage investments in Texas. Oncor may have ownership aspirations but as of now is precluded from owning storage under the current market rules in Texas.
- Then there is the regulatory component. Either through mandates or incentives, some regulatory commissions are directing the development of storage by the utilities they regulate. California policymakers, who frequently seem to be ahead of the curve, enacted the state’s aggressive storage incentive plan via Assembly Bill 2514, which created a requirement implemented for the state’s utilities to procure 1.3 GW of storage by 2020. Not surprisingly, California now has one of the most robust energy-storage markets in the U.S. East Coast states have tended to go the route of creating incentives rather than mandates for storage. Still other states pre-empt regulated utilities from owning storage or other DER assets, like in Texas and Oncor as mentioned above. We need to keep in mind that any approach aimed at expanding solar requires dynamic pricing such as time-of-use rates that enable a customer to truly know the cost of their power usage and modify behavior accordingly, and again that will be heavily influenced by individual state policy.
The challenge for utilities will be to consider all these impacts and still find a way to generate revenue from storage and solar. As mentioned in the news item, Tesla has partnered with Southern California and its subsidiary SoCore Energy to implement energy storage projects that feature the Tesla Powerpacks. Instead of recoiling from the threat, SCE is working with Tesla on two demonstration projects that can help reduce the cost of battery storage systems for residential and business customers. These demand response demonstration projects will test communication capabilities and explore rebates to customers who allow SCE to manage their battery charging in order to increase the use of renewable energy while ensuring continued grid reliability. That is one utility’s approach among other options that can be considered to turn what on the surface is a “disruptive technology” into a strategic opportunity for growth.
It should be noted that Tesla is not the only technology firm that has moved into the solar/storage space. Sungevity and Sonnebatterie are also gaining market share and SunPower Corp., the second-largest U.S. solar manufacturer, recently began offering power storage systems to customers in new homes built in California by KB Home last June. These moves underscore the projections that the storage market is only going to grow. A study by GTM Research and the Energy Storage Association earlier this year found that while storage remains a niche market —sized at just $128 million in 2014 — it also grew 40 percent last year, and three times as many installations are expected by the end of 2015. By 2019, GTM Research forecasts, the overall market will have reached a size of $ 1.5 billion.
To ignore the impact of solar + storage could very well lead to a utility’s obsolescence. Yet for those who are entrepreneurial, the opportunities for revenue creation could be limitless.