May 29, 2015
Tesla CEO Elon Musk made a huge splash a couple of weeks ago when he announced his company’s new Powerwall: a big, beautiful battery that hangs on a wall, looks like modern art, and promises to help homeowners store extra power to have on-hand when they need it.
There are many reasons these home battery back-up systems can be useful. The major reason people are getting excited is the potential for storage of electricity generated by solar and wind power for use when the sun isn’t shining and the wind isn’t blowing.
It’s long been a goal of renewable energy lovers to become completely self-reliant by storing all the electricity their system generates for their own use, but it hasn’t been realistic from a practical or financial standpoint. Older off-grid systems use lead-acid batteries (kinda like the ones in your car) that have to be laid out on huge racks. They’re big, heavy, expensive, prone to failure, ugly, and worthy of just about any other pejorative you can think of.
Tesla’s goal with Powerwall is to remove the barriers to energy storage by providing practical, affordable batteries that meet a wide variety of needs. A secondary goal is to help homeowners save money by charging their Powerwall in the middle of the night, when electricity is cheapest, and using that electricity later in the day to avoid paying high on-peak rates.
So, does Tesla succeed, and would a Powerwall in your home to save you money? Well, if you know us, you know we’re going to answer that question with a bunch of charts and figures. The most fascinating possibilities here revolve around the “what-ifs.” It’s gonna get complicated, so here’s a table of contents:
- What if you want to go off grid with solar and Powerwalls?
- What if you just want to add one to your existing grid-tied solar system?
- What if SolarCity (Tesla’s Elon Musk is the president) starts leasing home solar with Powerwalls and becomes your new electric company?
- What about so-called “peak shaving”—charging your battery with cheap electricity and using it to avoid paying high peak rates?
- When will Powerwall be cheap enough to make sense for me?
Going Off-Grid with Solar and Powerwall(s)
There’s a certain romance to the idea of getting “off the grid” and being prepared for any number of major catastrophes that might arise. Sure it’d be nice to not have to wait for the utility company’s repair crews if the grid goes down after a natural disaster, but is keeping your lights on and your refrigerator running worth the expense? Let’s take a look at a best-case scenario for solar in sunny Southern California:
According to the U.S. Energy Information Administration, the average home in America uses about 30 kilowatt-hours (kWh) of electricity per day. To generate that much electricity in Southern California, you’d need about 7.4 kilowatts (kW) of solar panels on your roof. But you can only use that solar electricity while the sun is shining, unless you have a way to store that electricity. That’s where Powerwall comes in.
Tesla makes a 7-kWh Powerwall battery that’s “optimized for daily cycling”— a fancy way of saying it is meant to be charged during the day and used at night. In an absolutely ideal scenario, you’d need 4 of these batteries that you would charge during the day and use at night in order to meet around 30 kWh of need throughout the day. That assumes that you’d both charge and use some electricity when the sun is shining brightest.
However, the average usage of 30 kWh is just that—average—and the generation of 30 kWh per day from those panels is also that—an average. In order to be safe, you’d want at least one more Powerwall to store extra energy on really sunny days, so you can be ready for not-so sunny days. This is the first complication you run into with going off-grid. Maybe it’s cloudy for a half a week. Not likely in SoCal, but very likely in almost any other part of the country.
Another complication arises if something breaks. If one of your panels goes out, it can take a whole string of your system down, unless you use microinverters. If your inverters or batteries fail, you have to wait for warranty repair or replacement, which can take time. It isn’t likely to happen, but if it does, and you’re completely off-grid, you’re SOL.
But we did say this was going to be a best-case scenario, so let’s assume everything is easy and works really well for a long time. Here’s how the financials of an off-grid system pencil out:
- Tesla’s batteries cost $3,000 each, and you’ll need 5, for a total of $15,000, plus $1,000 installation (if we’re being really conservative).
- That 7.4-kW system is going to cost you $29,600 out of pocket, for a total of $45,600.
- But you’ll get a sweet federal tax credit at the end of year 1! You’ll save $8,800 off the cost of your system, bringing the grand total to a measly $36,720!
- You’ll also save $1,974 in annual utility bills from not being on the grid. That’s pretty huge. The total first-year cost of your system is $34,746.
Here’s the kicker: the Tesla Powerwall is warrantied for 10 years. Let’s be generous and assume you’ll have to replace them at the end of 13 years, with new batteries that cost half as much. That’s another $8,000 expense in year 13.
Over 25 years, you’ll save $32,168 by not being connected to the grid (if you never have to pay for repairs to your system). That’s a huge amount of money, but over the term, it represents a rate of return of only 5.2% That’s less than the return on a modest index fund (if you trust the stock market). Here’s what that looks like on a chart:
All-in-all, it doesn’t look too bad—unless you consider that a 7.4-kW grid-tied system without batteries will save you $16,000 more in the same time period, with a rate of return of 11.9%. You’ll spend $16,000 more for the privilege of figuring it out yourself if (when) something goes wrong.
That’s right: You save more money connected to the grid.
Put another way: Powerwall batteries cost you money over the long-term.
Adding a Powerwall to Your Existing Solar Installation
Read the line just above the headline there. Powerwall batteries cost you money over the long term. The only way (and we mean only) that Powerwall makes great sense in the USA right now is in Hawaii. Folks there pay about 5 times what mainlanders do for their electricity. That’s because the electric companies burn a lot of expensive imported fuel, and kinda also because they’re the only game in town.
Hawaiian Electric Company (HECO) has also been notoriously nasty with homeowners who want to go solar; imposing expensive and time-consuming interconnection requirements and even flat-out refusing to let people connect their systems to the grid. In fact, in early 2015, the Hawaii Public utilities commission ordered HECO to approve permits for home solar systems, something it hadn’t been doing.
Going off-grid solar with Powerwall batteries in Hawaii is STILL going to cost you more than being on-grid, but it takes you out of the proverbial blast radius of any of HECO’s future shenanigans, and that might be worth it. Plus, avoiding that hyper-expensive electric bill makes payback just 6 years even with Powerwalls, so go for it, Hawaiians! It’s still going to cost you almost $30,000 after year 1, but you’ll save an estimated $186,000 over 25 years of not buying stupid-expensive fossil-fuel electricity.
If you don’t live in Hawaii, don’t do Powerwall just for solar storage. Unless, maybe…
Lease a Solar+Powerwall installation from SolarCity
Here’s an interesting one. Elon Musk, Tesla’s CEO, is also the chairman of SolarCity. So it’s not surprising that they’re already talking about how Tesla’s Powerwall batteries will help them bring you the energy grid of the future.
So far, that means battery backup charged by your solar panel system, which would be available whenever a power outage occurs. That sounds nice, but how often do outages occur? Since our example above is in Southern California we looked for data about outages from Southern California Edison (SCE). Here’s what we found: SCE reports that, on average, each of their customers experiences one outage per year, for an average of under 2 hours.
So Powerwall will protect you for two hours per year. At the full price of $3,500, given a ten-year life (based on the warranty), Tesla’s battery back-up will only cost you $175 an hour for the right keep the lights on during a power outage. That might sound worth it if you need to keep power going to the keyless-entry on the door to the garage where you keep your Bugatti, but for us plebeians, it’s a really high cost for something that’s a minor inconvenience less than once a year. So far, we haven’t heard anything from SolarCity about what Powerwall will costs to add to its leased systems.
Keep in mind, Powerwall won’t always be just a battery back-up. When Tesla’s “Gigafactory” battery manufacturing plant is pumping out Powerwalls and car batteries at full capacity in 2020, there is no doubt that the economics will make more sense, and Tesla’s partnership with SolarCity could be an absolute game-changer in the energy industry.
Recently, SolarCity has been fighting legal battles in states like Arizona, where the utility companies have gotten permission to add fees to the bills of homeowners who sell solar power back onto the grid. The utilities claim that the homeowners (and the companies who install the systems) aren’t paying their fair share of costs to maintain grid infrastructure. The problem is, these monthly fees reverse the financial benefits of going solar.
Because SolarCity will soon be fighting battles like this in more states as traditional utility companies try to keep market share, combining their leased solar panel systems with the Tesla Powerwall is starting to look like an end-around, taking their customers completely off-grid for cheaper monthly payments than retail energy rates.
It’s easy to imagine that the SolarCity of the future will become a new kind of electric company, selling you the power produced by panels on your roof, and taking care of all the infrastructure maintenance, too. Tesla’s batteries might just be the beginning of solar delivered as a 100% energy solution, if the costs can get cheap enough.
Peak-Shaving with Powerwall to Save Money on your Electric Bill
Alright, people—we’re down the rabbit hole here. Peak-shaving, for those of you who don’t know (which is probably almost everybody), is the practice of charging a battery (in this case, Tesla Powerwall) with cheap (off-peak) electricity and using that electricity when the price is higher (on-peak).
Peak time is when a lot of homes and businesses are using electricity. It occurs during the afternoon, when the lights are on, computers and manufacturing equipment are running, and air conditioning is kicking out the BTUs. All that electric use can put a strain on the grid, so some electric utilities offer Time-of Use (ToU) pricing, under which they charge more for electricity during peak time as a way to encourage energy conservation during peak times. Conversely, electricity in the middle of the night, when there is very low power use, is super cheap under a ToU plan.
So peak-shaving is the idea that if the market you’re in sells electricity at super-high rates when you need to use it, you should instead charge a battery at night (the red section in the image above) and reap the financial benefits of using that cheap energy instead of buying it from the utility (the dark blue section). Problem is, again, batteries are expensive. ENTER THE POWERWALL.
Let’s see how the number shake out. We’ll assume, for the purposes of this argument, the you use the American average of 30 kilowatt-hours (kWh) per day, that you choose ToU pricing, and you just have to have the 7-kWh of electricity that a Powerwall can provide during peak time. Our example Powerwall comes in at the MSRP of $3,000, and we’ll add on $500 for installation, which is actually really cheap, but hey, best-case scenario.
We’ll again choose Southern California Edison as our power provider, because they have aggressive ToU pricing called “TOU-D-B”, which breaks down as follows*:
|Tier Name||Time of Day||Cost per kWh||% of Total Energy Used|
|Super Off-Peak||10 p.m. – 8 a.m. every day||$0.11000||17%|
|Off-peak||8 a.m. – 2 p.m. and 8 p.m. – 10 p.m.||$0.15333||33%|
|On-peak||2 p.m. – 8 p.m. M-F||$0.24619||50%|
*We had to do our own calculations to average the changes in SCE TOU-D-B pricing based on season and weekday/weekend. Essentially, our calculations average the summer/winter costs and weight the weekday/weekend usages based on a simple arithmetic formula.
Basically, what this all means is that you’ll shift 7 kWh of usage per day from the “on-peak” tier to the “super off-peak” tier. That means you’ll save about $29 per month in electricity costs. $348 per year. Your $3,500 Tesla battery will pay itself off in year 9, and save you about $690 during its 10-year-warrantied life. With an internal rate of return of just 3.4%, you’d almost certainly be better off investing that $3,500 in a mutual fund.
Before you get worried that we’re gaming the numbers by choosing SCE, you should know that the numbers in San Fransisco are even worse. A 10-year peak shaving investment with Powerwall there would actually cost you more money than just paying the electric company, resulting in a loss of $875, with an IRR of -5.6%.
But wait, what if…?
What if your Powerwall lasts longer than the warrantied life? Good question. In order to beat the stock market’s historical performance of about 8%, you’d have to get it to 13 years in Southern Cali.
What if you install more than one Powerwall? You could, and you might save some installation money doing it. Even if you use just the average 30 kWh per day, our example shows you could have 2 Powerwalls kicking out the kilowatt-hours, and you’d get a 10-year return of 4.6%. Still not good. With double the average usage and 4 Powerwalls, the 10-year return is 5.5%.
In order to beat the stock market with a 10-year investment in peak-shaving by Powerwall, you’d need HUNDREDS of them. At least at the current price…
So When Will Powerwall be a Good Investment?
Sooner than you probably think after reading all that we’ve written above.
At just a 15% reduction in the price of a Powerwall, solar+battery installations would be financially viable. By 2020, Tesla envisions a 35% reduction in the price of its batteries, due to the ramping-up of production in the Gigafactory. That brings the price to $1,950 per battery, and using current ToU electric rates, a peak-shaving Powerwall installation would bring a 15% 10-year rate of return, paying itself off in year 6 and saving more than $3,600.
That’s where this is headed. If battery prices come down that much, it’s going to be a game-changer not just for cars, but for the electrical grid as we know it. The potential for flattening peaks would be a huge boon, and not just to cost-conscious Californians.
Battery storage of renewable energy on a large scale would flatten peaks for everyone, making the electrical grid more reliable by having power ready whenever demand gets high. That could mean huge financial benefits to traditional utility companies and consumers, and it would probably be the beginning of the end for fossil fuels, too.
Even without all this heady talk about the future of the electrical grid, the Tesla Powerwall is just a really cool invention. And even if it doesn’t seem like the best idea financially right now, it’s going to be the new must-have home accessory for the well-to-do this year. Thing is, within 5 years, the decision to get a Powerwall or something like it will probably be a no-brainer.
Rock on, Mr. Musk. May your battery prices get cheaper quickly.
Last modified: May 23, 2019