Towards the end of last month, entrepreneur Elon Musk, whose Tesla Motors is known for its electric vehicles, made a highly-anticipated foray into a new area: energy storage systems. He launched Powerwall, a lithium-ion energy storage system for the residential market. Here's an explainer on Powerwall and why it is deemed important by some:
What is Powerwall all about?
In the company’s own words, “Powerwall is a home battery that charges using electricity generated from solar panels, or when utility rates are low, and powers your home in the evening.”
It is a residential storage system with a lithium-ion battery. So, technically, a user can be off the electricity grid.
Powerwall comes in two sizes – a 10 kWh version for back-up power (costing $3,500) and a 7 kWh version (for $3,000). These are excluding inverter costs and installation charges.
It was launched in the US market. Even there, anyone looking to buy a system may have to wait till the middle of next year. That’s because Tesla had 38,000 pre-bookings for Powerwall, and it could struggle to meet this order book.
What is a lithium-ion battery?
Lithium-ion batteries are typically those used to power cell phones and laptops. They are more powerful and longer lasting than traditional batteries. They also have been in the news for cases of overheating.
What could be the USP for Powerwall?
According to Logan Goldie-Scot, an analyst at Bloomberg New Energy Finance, the product is significantly cheaper than alternatives currently available in the market. The average price for other lithium ion products is roughly double that of Powerwall, he says. Its cost structure could be based on relatively low margins and expectations of scale.
Can this cost be maintained?
In fact, Bloomberg New Energy Finance points out that cost of energy storage continues to fall across the market. It says Powerwall is further evidence of this, and that it expects costs to continue to decline over the next few years. The price point given by Mr. Musk for the Tesla batteries - from $500 to 700 per kWh installed - is less than half of what has been seen for residential power storage in Japan, Australia and Germany.
Can Powerwall work in India?
Tobias Engelmeier, Founder and Director of consultancy Bridge to India, does some math to help us out on this. He says the price of the traditional lead-acid batteries in India is around Rs 5,000 per kWh. Powerwall, according to a rough calculation, would work out to Rs 22,000 per kWh. That, however, isn’t an apples-to-apples comparison.
Why so? Because, the Powerwall battery will last at least twice as long as a lead-acid battery (10-12 years versus five years, in other words). Also, it has comparative benefits such as lower maintenance, lower weight, lower area requirement, lower self-discharge and the ability to charge and discharge faster. Still, on economics, a traditional battery could work cheaper than Powerwall on a lifecycle cost basis.
Economist Ajay Shah says in his blog that lithium-ion batteries have 2.3 times the storage per unit volume, and 3.1 times the storage per unit mass, when compared with the lead-acid batteries being used with inverters in India today. In short, lithium-ion batteries are better.
Bloomberg’s Logan Goldie-Scot reckons that it could be used for back-up power in India, although if grid interruptions are more frequent and are of longer duration fossil fuel back-up generators could make more sense.
Joseph Mariathasan, Partner at Pangea Finance Partners, however, believes Tesla’s price point to churn out just 2,000 watts won’t make it powerful enough even for a couple of devices. He feels this will be an unattractive proposition for the mass market.
Even in the US, there is scepticism in many quarters about Powerwall. A Forbes article, on those lines, has a title ‘Why Tesla’s Powerwall is just another toy for rich green people’!
What are seen as the tipping points?
A key metric would be how customers adopt to this product. Also, the cost is likely to come down when Tesla starts mass production.
Mariathasan says the importance of Powerwall may not be what it can do but rather its inspiring vision for the future. “Even if it takes another decade, the ability to have large-scale, low-cost rechargeable batteries may be far more significant than a flashy sports car.”
(This article first appeared in The Hindu dated May 11, 2015)