A Very Deep Dive into Tesla - Part 3 Tesla Energy
Is Tesla the next most valuable company in the making? Or is Tesla the biggest bubble ever?
DISCLOSURE: Not investment advice and only for your entertainment purposes! I do have a position in Tesla stocks.
Tesla Energy
Tesla is also in the energy business beside making EVs. Elon Musk has said that he thinks in the long-term Tesla Energy will be roughly the same size as Tesla automotive or even bigger. This may sound as a bold claim as people likely cannot resonate with Tesla providing energy. Currently, Tesla is a small player in the energy market, however, in the long run, it does have some serious potential to disrupt the energy market.
The US and many countries in the world have the electricity grid problem. The US electricity grid is an outdated system. Most of US’s electricity grid was built in the 1950s and 1960s. The current electricity grid system looks like the picture below on the left, and what Tesla (and many renewable energy players) aims to achieve is the picture on the right.
Source: Wikipedia Smart Grid
The downsides of the current electricity are the following. The grid system was designed to be run with fossil fuels rather than renewables, creating serious pollution to the world. According to the US energy Information administration, 60% of the electricity are produced by fossil fuels, 20% by nuclear, and 20% by renewables. However, fossil fuels contribute to 99% of CO2 emissions by the US electric power sector. Globally, around 28% of energy is generated by renewables. The world still needs many more renewable energies to reduce CO2 emissions significantly and prevent global warming.
Source: CNBC
The current electricity grid is not only not environmentally friendly but also economically inefficient. There are two types of power plant in the electricity grid, the base load power plants, and the Peaker plants. The base load power plants are used to provide a continuous supply of electricity. These plants are slow and energy providers cannot adjust significant amount of energy these plants are creating in real time. Energy providers use base load power plants only to supply a minimum level of electricity for the grid to avoid wasting money by generating unwanted electricity. However, when demand is high, these base load plants cannot meet the increased demand. This is when Peaker plants that can generate energy fast and more flexible will fire up to meet peak demand. However, these Peaker plants are some of the least efficient and dirtiest power plants. This base and Peaker plants idea is illustrated below.
During peak hours when the Peakers plants are used, both electricity rates and costs are much more expensive than partial peak or off-peak times for electricity customers and provider. Tesla seeks to solve this problem with renewable energy. Particularly, Elon has chosen to focus on Solar, because the sun is always there and produce an incredible amount of energy. To use solar energy effectively, adequate number of solar panels must be installed for sufficient energy production. Counter intuitively, not many surface areas is required for solar to power up the US (and the world). Below is an illustration. Additionally, most of these surface areas can just be roof tops. On top of solar panels, since the sun does not come out at night, adequate energy storage solutions using batteries must be deployed to supply energy at night.
Source: Tesla
Addressable Market Size
The global renewable energy market is set to grow between a CAGR of 6.5% to 8.53% to 1.5 trillion USD in 2025 and/or 2.9 trillion in 2027 (Statista and Global News Wire). Currently, wind and hydropower are the two largest components for renewable energy, accounting for around 79% of renewables. In 2019, Solar power only accounts for 2% of the total electricity generated in the US. Only 6% of homeowners have installed solar panels at home in the US. Another 46% of US households said they are having serious thoughts to installing solar panels to their home in the past year. According to Center for Climate and Energy Solutions, solar generation is projected to climb from 11 percent of total U.S. renewable generation in 2017 to 48% by 2050, making it the fastest-growing electricity source. Although that is still 3 decades away, and solar may ultimately not make up half of renewable energy, these numbers still demonstrate the massive potential solar energy have in the future as cost and efficiency continue to improve.
Source: infopulse
Tesla Energy Products
Tesla Energy consist of two categories of products, energy storage and solar energy production. Tesla offers their solar panels and solar roofs to generate solar energy. For energy storage solution, Tesla offers their Powerwall, Powerpack and Megapack.
Tesla Solar Panels and Powerpack for Households
Source: Tesla
Tesla Solar Panels and Megapack for Large Scale Projects
Source: Tesla
Tesla Solar Panels
Having solar panels have been a major way people can contribute towards renewable energy. The major benefits of having solar panels are savings on electricity bills and contributing to a greener environment. This bags the question, if solar can save both money and the environment, why does only 6% of US household owns solar panels? The single biggest reason is cost. Solar panels ‘were’ considered as too expensive. Fortunately, the cost of solar has dropped significantly in the past several years.
Source: Sunrun.com
With such decrease in solar panels’ costs, the average time for installing solar panels to break even in the US is currently around 8 years. In some states where there are excellent financial incentives, it may even only take 5 years. These payback period make solar panels a great investment as solar panels can on average last 25-30 years. However, in some states where there are no state-level incentives, or you have a major shading on your home, or low electricity prices, the break-even time could be as long as 20+ years. This makes installing solar panels uneconomical.
Source: Tesla
Since it may not be economical for some people to install solar at the current price yet, Tesla is determined to tackle this problem. According to Elon, Tesla solar is now 30% cheaper than the U.S. average. After the federal tax credit, which is 22% of the cost, Tesla solar panels now costs $1.49 per watt. The average US cost is around $2.19/watt. Although Tesla did not advertise there before incentive price, with some calculations, Tesla solar panels should cost $2-$2.1before incentives. The average costs in the US before incentives is around $2.94 per watt as shown below. When installing a full solar system, 80-90 cents per watt savings is a huge difference. These means $4800+ savings on a 6-kw system or $8000+ for a 10-kw system. Tesla offers a lowest-cost guarantee and money back guarantee to give the customers to guarantee the lowest price. This is a major selling point and advantage for Tesla Solar.
Source: Energy Sage
You may wonder, how does Tesla achieve such low prices that is 30% lower than the average? Elon broke the numbers down; “solar panel cost is around 50 cents/watt. Mounting hardware, inverter and wiring is around 25 cents/watt. Installation is around 50 cents/watt, depending on the system size.” Below is a breakdown of different cost for the average solar panels. It may be shocking that the equipment cost is only 47% and other operation, installation and permits contributes to more than half of the costs. Tesla unlike other solar companies, do not spend heavily on salespeople, advertising and complex financing instruments. Furthermore, Tesla also integrates their installation process and worked hand in hand with governments to simplify the permit process by using generic permits instead of customizing permits. These efforts all lower the ‘soft cost’ for Tesla solar panels. Furthermore, Tesla also have some of the lowest hardware (equipment) costs thanks to their brilliance in engineering.
Source: Sunrun.com
Another side benefit of owning solar panels is that it will increase home value by around 3-4% (Lab’s Selling Into the Sun report). On average homebuyers are consistently willing to pay PV home premiums of approximately $4 per watt of installed solar capacity, which means that for a standard 6-kw solar system, solar can potentially add $24000 to a home’s resale value!
Tesla Solar Roof
Beside the costs factor, another major hurdle for people to make the leap to solar energy is because of the aesthetics of the solar panels. Some homeowners simply will not consider solar due to the ‘ugly’ look. Tesla came up with a solution, the Tesla Solar Roof, a solar panel that look just like a roof, to tackle this problem. Tesla has first announced their ‘solar roof’ in 2016, however it was not until 2018 that Tesla began the rollout of their first installed solar roofs. Then in October 2019, Tesla released the Solar Roof 3, and was ready to mass produce it.
Tesla Solar Roof
Source: Tesla
Again, the most important factor for this Solar Roof is, how much does it cost? In absolute terms, the average cost of Tesla solar roof is $2.1 per watt after incentives. However, there have been news that recently suggest customers have experience sudden price increase for Tesla Solar Roof, thus suggesting the price volatility. Nevertheless, if we assume the $2.1 per watt price as advertised, this made the Tesla Solar Roof a competitive product on paper, however, there are two scenarios that must be considered. Firstly, the owner does not need to replace their roof and only need solar panels, and secondly, the owner needs to replace their roof and install solar panels.
In the first scenario, most owners will be better of just installing solar panels, if they can find cheaper ones as the US average cost of solar panels is only $2.19 per watt. Homeowners can even just install the Tesla Solar Panels which only costs $1.49 per watt. Therefore, in this scenario, the Tesla Solar Roof is not competitive cost wise.
In the second scenario, both the price of the solar panels and a roof must be considered. The average roof costs by materials are listed in the graph below. Elon claims that the price of the Tesla Solar Roof will be less than the average new roof cost plus solar panels about 80% of the time. This statement holds true when comparing the Tesla Solar Roof to premium materials except asphalt. However, currently, the price of getting an asphalt roof plus regular solar panels can still be cheaper than Tesla Solar Roof. See an example below. Nevertheless, the Tesla Solar Roof will be the better option, economically, when compare to other materials plus regular solar panels.
Source: Ben Sullins
Source: Tesla
Tesla Solar Roof is made of tempered glass, which is 3x stronger than standard tiles. The glass covers category 3 hurricane and class 3 hailstone. Tesla also offers a 25-year warranty on their Solar Roof. According to Weddle and Sons Roofing, an installation specialist company, Tesla Solar Roof is also easy to repair and maintain. They also pointed out that it is harder to repair a normal roof. All these suggest that Tesla Solar Roof should be a durable product for the years to come.
Source: Tesla
In terms of direct competitors to the Tesla Solar Roof, Desol power tiles and the Luma system are two notable competitors. However, in terms of price, Tesla is still significantly cheaper as shown below. The goal of Elon has always been trying to make a Solar Roof as cheap as a roof plus solar panel, and make them beautiful, affordable, and integrated. Although Tesla is still away from such goals, the Tesla Solar Roof is a competitive product on today’s market. In the future, if Tesla can continue to lower the price on their Solar Roof, where it is close to the price of an asphalt roof plus solar panels, the sales on the Solar Roof should experience an exponential growth.
Source: Undecided with Matt Ferrell
Desol Power Tiles on the left and Luma System on the right
Source: Desol Power Tiles and Luma System
Tesla Powerwall
Tesla Powerwall is a battery that allows individual households to store energy (see below). Tesla currently offers Powerwall 2 for a price of $7500 and an additional $4500 gateway and installation fee, totaling to $12000 (as of March 2021 without incentives). The Tesla Powerwall 2 have a usable capacity of 13.5 kWh per Powerwall and 7kW peak and 5 kW continuous power rating. The capacity is enough to cover about half of the average U.S. home’s daily energy usage. The power rating is standard and can power things such as lights, electrical outlets and small 120-volt appliances. The Powerwall comes with an app enabling users to easily manage their energy, offer electricity protection during severe weather and monitor real time energy flow (shown below).
Tesla Powerwall 2
Source: Tesla
Source: gosunpro.com
Benefits – Savings
There are two main benefits for having a Tesla Powerwall. Firstly, it can reduce people’s electricity bills. In the US, there are two types of electricity plans, time of use vs average rate plan. For the average rate plan user, the utility provider charges an average flat rate for all electricity use by the consumer, whereas the time of use plan charges different rates depending on peak time, partial peak, and off-peak time (as illustrated below).
Source: Energy Sage
Unfortunately, the Tesla Powerwall cannot save much for an average rate plan user. However, the Powerwall can provide savings to a time of use plan user, because the Powerwall can store energy during off-peak time and provide energy during peak time. For example, the Powerwall can store energy at midnight till early morning and provide these energies during 2pm-8pm when electricity is the most expensive. This prevents the user from paying hefty peak time electricity price.
How much can the Tesla Powerwall 2 saves? A study named ‘the economics of the Tesla Powerwall 2’, conducted by a Stanford student, Charlie Furrer, investigated into this question. He used the numbers in the below table to calculate the typical electricity price per year for a household who does not own a Powerwall 2 (and solar panels). The total price for not having a Powerwall 2 is $2792.2 per year. With one Powerwall 2, he assumed the electricity cost will be reduced to an average of $0.188 per kWh, which is the average cost of off peak and partial peak prices, to prevent peak time prices. The result is $1919.98 per year. This result means that a Tesla Powerwall 2 can save a typical household of $872.22 per year.
With the current Powerwall 2 costing around 11k to 13k inclusive of installation cost without any incentives, this will imply a payback period of 12.6 years to 14.9 years. Reviewers have commented that a Powerwall 2 should last anywhere between 10-20 years. However, no confirmation can be made as the Powerwall 2 was first released in 2016. A Powerwall 2 is guaranteed by Tesla to work for at least 10 years. Using the 10-year period as the life span of the Powerwall will imply that having a Powerwall 2 will not be economically sensible if there are no incentives. However, if customers are able to obtain several thousand dollars’ worth of federal or state energy incentives, owning a Powerwall 2 may be economically sensible. Furthermore, if a Powerwall 2 can last 15-20 years, then it will be a worthwhile investment too.
Another thing to point out is that a Powerwall is less economically sensible if you already have solar panels at home. Below is a real-life example. The monthly electricity cost of a YouTuber, Ben Sullins, after using Tesla solar and Powerwall is shown below. The savings with Solar alone is significant, but with Powerwall on top of Solar, the Powerwall only saves him another $17 dollar per month, which translate to $204 per year. This means the payback period of the Powerwall 2 will be 53 to 63 years. This will likely be the case for most people with solar and net metering (selling excess electricity generated back to the grid system) within their respective state (41 states have net metering). Without net metering, the savings on solar panels will be lower, meaning that having a Powerwall will save more money. However, it is still unlikely to make economic sense. Last but not least, Tesla currently only offers their Powerwalls as a bundle with their solar systems. This means that economically, buying a Powerwall will likely not save you money.
Source: Ben Sullin
Benefit – Protection from Outages
The second benefit that a Powerwall can provide is that it can power a house when there is a power outage (illustrated below). The Powerwall is smart. It can be connected to the National Weather Service and it will automatically prioritize charging to full capacity when it anticipates severe weather to provide electricity if there is a power outage. A Powerwall can provide a peach of mind to people who may experience regular power outage.
Source: Tesla
Two kinds of situations, without solar panels and with solar panels, must be to determine how long can the Powerwall power a house. Per EIA’s estimate, the average US home consume around 28.9 kWh worth of electricity per day, which means that approximately two Tesla Powerwall will be needed to power a household for a day. For households without any solar panels, this means that a Powerwall can provide half a day’s worth of electricity and two Powerwalls for a full day’s worth of electricity. This bags the question; whether a household without solar panels, will want to have one or two Powerwall to have half or one day of electricity? With the expensive price tag on the Powerwall, most people will likely decide to just bear the outage without buying the expensive Powerwall.
The situation changes with Solar panels. Solar can generate energy everyday whenever there is sun. Depending on how many solar panels someone have, the solar panels can usually generate around a household’s average daily usage. For example, a household that uses 30 kWh a day, may install solar panels that generate electricity close to 30 kWh too. This means that with the two Tesla Powerwall 2, in theory, this household may be able to go indefinitely ‘off the grid’ without any electricity supply. Although in real life, indefinity may be hard to achieve, reviewers on YouTube have achieved 5 days or even 200 hours plus of living ‘off the grid’. Therefore, this proves that the Tesla Powerwall 2 can provide a strong ‘peace of mind’ during power outage.
The US energy administration reports that in 2016, the average utility customer had 1.3 power interruptions and their total blackout time average four hours. With these numbers, the peace of mind factor for blackout seems insignificant because of the expensive up-front cost of installing a Powerwall. However, for places such as California, which experienced 25281 blackout events in 2019, or any places with many blackouts that last days or even weeks, the ‘peace of mind’ factor will be significant and be the reason potential customers purchase the Powerwall.
Competitors
There are many solar batteries on the market. The two main competitors are the LG Chem and the Sonnen Core. The respective specifications of these batteries are listed below. In terms of usable energy capacity, the Powerwall ranked first, and it goes head-to-head in terms of power rating. Although the Powerwall is not significantly better than the other two industry leading products, it offers the best buck for your buck storage capacity at $629.63 per kWh compare to the LG Chem at 735.68 per kWh and Sonnen Core at $950 per kWh. Overall, the Powerwall is a competitive, if not leading albeit slightly, household energy storage product.
Source: Solarreviews.com (prices are sensitive to change)
What about using a Natural Gas Generator instead of the Powerwall?
A standby home natural gas generator keeps electricity on during a power outage. Below is an illustration of how a natural gas generator works. It provides a similar ‘peace of mind’ that comes with the Tesla Powerwall. The average up front cost to install a home generator is $3000-$6000, with semiannual maintenance cost of $200-$300, which totals to $7000-$12000 for the whole package over ten years. This price is cheaper than installing 2 Tesla Powerwall as an adequate backup power supply, which will cost upwards of $20k without incentives.
Source: generatoradvisor.com
Although the natural gas generator has cheaper up-front cost, it has two major disadvantages. Firstly, unlike the Powerwall, it cannot save customers money regularly by ‘peak shaving’, from using off-peak prices instead of peak prices. As aforementioned, the savings from peak shaving by a Powerwall for a typical household is around $800 per year, totaling to $8000 for ten years. After incorporating these savings, the price difference between two Tesla Powerwall and a natural gas generator is noticeably smaller, making the Tesla Powerwall a feasible option. Secondly, the natural gas generator runs on gas, and if the outage is caused by a natural disaster, there is also a chance that there will be no gas too, thus causing the generator to be ineffectively.
Conclusion – Tesla Powerwall
The hefty price of a Tesla Powerwall 2 cannot be economically justified without incentives if it can only last ten years and purchase as a bundle with solar panels. However, if a Powerwall 2 can last 15-20 years, and/or customers can obtain several thousand dollars’ worth of incentives, then it will be a worthwhile investment. Furthermore, for people who experiences regular blackouts and want a ‘peace of mind’, a Powerwall may be attractive too. It is also be appealing for people who wants to decrease their carbon footprint and use the most renewable energy they want. Nevertheless, for the Powerwall to enter the mass market, the price needs to be lower (quite dramatically). Although the Powerwall may not be very appealing now, in the long run, as the cost of batteries continue to decrease, the savings with a Powerwall will outweighs the initial investment cost. When such low cost is achieved, a Powerwall or equivalent may well be a standard equipment for every household. The only matter is when will this happen.
Tesla Powerpack and Megapack
Tesla powerpack and megapack are giant batteries designed to store energy at an enormous scale. Powerpacks and Megapack are like Powerwalls but have significantly larger capacity. Pictures of the Powerpack and Megapack are shown below. Tesla claims that they can deliver a giga-scale project that have an energy capacity of 1 GWh, which is enough to power every home in San Francisco for 6 hours. Tesla also claims that the Megapack requires 40% less space and 10x fewer parts than current systems on the market, resulting in 10x faster installation speed than current systems. The fast installation speed was proven when Elon Musk fulfilled his promised for building the first Megapack in Hornsdale, South Australia, under 100 days.
Source: Tesla
The major benefit of the Megapack is that it can act as a sustainable alternative to natural gas ‘Peaker’ power plants. As aforementioned, Peaker plants are some of the least efficient and dirtiest plants. With the Megapack as an alternative (like how peak shaving works with a Powerwall), the Megapack will save costs for the energy provider and consumers while also reducing carbon emissions. Additionally, by assisting the electricity grid at peak hours, it can also prevent blackouts for households due to electricity overlead.
Real Life Project – Hornsdale Power Reserve
In 2017, Tesla built their first megapack, the world’s largest lithium-ion battery at the time with capacity of 100MW/129MWh, in Hornsdale, South Australia (photo below). This amount of electricity can supply electricity to over 30k households for about an hour. Although the amount of electricity may seem insignificant, the facility has saved 150 million AUD for south Australia consumers over the first three years, while stabilizing and balancing the region’s unreliable grid. The initial investment cost for this megapack was 90 million AUD, which was fully payback within the first two years of operation!
Source: Electrek
In 2019 online, the Megapack reduced electricity costs by $116 million AUD through the provision of Frequency Control Ancillary Services (FCAS). FCAS is a process used by the energy market operator to maintain the frequency of the system within the normal operating band around 50 cycles per second. If such frequency is deviated, it may lead to blackouts. Thanks to the Tesla Megapack, the average regulation FCAS costs have been reduced by more than 90% (as illustrated below). This means lower cost for energy provider, thus lower costs for consumers too.
Source: hornsdalepowerreserve.com.au
Tesla’s Megapack in South Australia has paid off incredibly. The Megapack has shown that it can save energy providers millions and lower electricity costs through assisting the electricity grid during peak load. The South Australia government has already signed a deal with Tesla to further expand its battery plant to 150MW (as shown below). In the future, it even plans to expand its battery plant to 3000MWs, illustrating how huge of an opportunity the Tesla Megapack has in the future.
Evolution of Hornsdale Power Reserve, South Australia’s Big Battery
Source: hornsdalepowerreserve.com.au
After the success in South Australia, many more such deals for battery plants are being signed or planned within Australia. The New South Wales government has also signed a deal with Tesla for a 50MW Megapack battery for 62 million AUD. Western Australia, Victoria and Queensland have plans to install 100MW, 600MW and 1000MW battery storages. At the moment, Tesla has not been confirmed as the provider, but there is a large chance that these Australia states will continue to work with Tesla after the success in South Australia.
Not only in Australia, Tesla has also signed an agreement with Pacific Gas and Electric to build the world largest battery storage system in Moss Landing in the US to replace gas peaker plant. This energy storage solution will be able to dispatch up to 730 MWh of energy at a maximum rate of 182.5 MW for up to 4 hours. An option has also been signed to upgrade the plant to 1.2 GWh, which could power every home in San Francisco for six hours. It is likely that this battery solution will provide a sizable savings and prevent blackouts like the South Australia Megapack. As other US states see the benefits that a Tesla Megapack can provide, more states are likely to follow. This will likely spark a growing trend of more large-scale energy storage systems as many electricity grids in many countries all experiences the same peak load electricity problem.
Tesla Energy – Software
Tesla like Apple strives to deliver an integrated system for all their products. Tesla Energy is no exception. Tesla’s goal is not only to provide energy hardware but provide both the hardware and software. Tesla aims to do this by their Autobidder Platform, Powerhub, Opticaster and Virtual Machine Mode.
The Autobidder Platform
The Autobidder platform is a software that acts as the middleman between all batteries’ owners allowing them to trade their energy with others. In other words, it connects all batteries, aggregates renewable power generators and form a new clean energy grid. The Autobidder platform adds value to both the electricity provider and batteries owner. For electricity provider, they have an alternative storage to tape into whenever there is high demand. For batteries owner, it means that their electricity can be sold at a higher price during peak times back to the energy provider. To maximize the revenue for batteries owner, the Autobidder provides real time price forecasting, load forecasting, generation forecasting, dispatch optimization and smart bidding to assist the batteries owner.
UI of the Tesla Autobidder Platform
Source: Tesla
Currently, Autobidder is successfully operating at Hornsdale Power Reserve (HPR), in Europe and expected to be deployed in the US soon. Through market bidding and adding new electricity supply (competition), energy prices have been successfully drove down. The Autobidder portfolio operates over 1.2 GWh of electricity in 2021. Autobidder appears to be compatible with any type of energy storage, not only Tesla’s, pointing to a potential of Tesla licensing the platform to other energy storage companies for a win-win situation. In the longer term, as more batteries are installed, the Autobidder platform should continue to grow and become a new dominant renewable energy electricity grid where everyone can buy and sell energy. The Autobidder have the potential to become a stream of consistent revenue for Tesla energy in the future if Tesla takes a platform fee of Autobidder.
A speculative side note: with the Autobidder platform, Tesla may enable vehicle to grid in the future. In other words, Tesla owners may be able to plug their Tesla vehicles into the grid, as a battery, to supply extra energy when the grid is in peak demand. Below is an illustration of vehicle to grid during daytime. This will make Tesla vehicles more valuable as they can earn revenue for car owners whenever the grid is experiencing high demand of energy. Again, this will also decrease the usage of destructive Peaker plants.
Source: Octopus Energy
Powerhub & Opticaster
Tesla offers Powerhub for utility companies and industrial users to easily monitor, control, and manage their distributed energy resources, renewable power plants and microgrids. Below is an example of Tesla Powerhub, allowing the customer to easily oversight and provide useful information in respect to their load, batteries, solar and the grid in one single interface. Powerhub also allows users to have real time control over their energy generation and storage assets. Opticaster is a Tesla intelligent software that forecast and optimizes energy for maximum economic benefits and sustainability objectives in real time. It generates automated utility bill savings by autonomously shifting energy usage to less expensive times and reducing peak demand charges.
Source: Tesla
Tesla Energy - Conclusion
Tesla aims to provide both the energy hardware and software as an integrated system for all its customers. Although there are not many details/reviews for Tesla Energy’s software, Tesla is heading towards the right direction. If Tesla can continue to execute well, Tesla is on its pave to create the first new distributed clean energy grid built for the future. Although this grid may still take quite a while to become the reality, Tesla has certainly position itself to ride this green waive and become one of (if not) the most dominant renewable energy player in the future.
I hope you have enjoyed the content on Tesla Energy! Please refer to the final part, Part 4 Tesla valuation and conclusion for discussions on Tesla’s valuation.