Research

Charging ahead – what impact will Tesla’s Powerwall have in the UK?

Dr Jonathan Radcliffe - Bio

Dr Jonathan Radcliffe comments on Tesla’s new Powerwall and how it will impact the UK.

Elon Musk’s announcement[1] that Electric Vehicle (EV) manufacturer Tesla will be selling batteries for home energy storage follows the company’s plans to build the ‘Gigafactory’, producing batteries for 500,000 vehicles a year by 2020[2]. The EV market, which is small but growing[3], has been the driver for the scaling-up of battery production. Subsequently, as with solar PV, the technology performance has improved and the costs have come down, though both these factors still put EVs at the top-end of the market. Despite the constraints, cars are high-value goods, and their batteries need energy storage densities which meet the demands of consumers, so there is a market for state-of the-art, expensive, technology.

But do such batteries make sense in the wider energy system? Musk is certainly right to address the variability of renewable generation as being a barrier to the transition to a low carbon energy system, but his analysis is rather one-dimensional, and the economics don’t stack-up, at least in the UK market.

Calculating the value of energy storage is complex, when the term refers to a family of technologies and the need for flexibility that energy storage can provide generically covers timescales from seconds to months.

Considering Tesla’s main proposition first – it is for a household device which is charged-up and used on a daily basis, selling for $3,000 – about £2,000. Given that we pay about 15p/kWh, the 7kWh unit holds a pounds-worth of electricity. That’s an expensive wallet to carry loose change in, but the initial cost is just one element in understanding the economics – it also depends on how you operate the device to extract the value from storing electricity.

Musk focuses on charging the Powerwall from domestic PV during the day. But whilst the marginal cost of generating this electricity is effectively zero, that still needs an upfront investment in panels and connection. In the UK, Ikea sells PV units for £5,700, with 3.4kW peak power generation that should deliver about 3,000 kWh in a year (but four times as much in the summer compared to the winter). Looking at the investment case, this gives you an energy cost of 6.5 p/kWh.[4] The other option is to charge the battery from off-peak electricity, which costs 8 p/kWh under the Economy7 night-time tariff (and you then pay around 16 p/kWh at peak times).

So if a customer were to displace their demand from the grid by using the stored energy, the net benefit would be 7-8 p/kWh. The £2,000 battery is then storing electricity worth 50p, and it would take 16 years to pay back the investment at those rates[5].

Of course, to connect the battery still requires installation and inverter costs, so the business case deteriorates further. And in any case, with current Feed-in-Tariff rates of 18 p/kWh for exported electricity from small scale PV, it would make no financial sense to store it.

Having demolished any sensible business case for putting a Powerwall in a house in the UK this summer, we need to be careful not to throw the battery out with the distilled water. In principle, this sort of massively distributed energy storage system can help integrate renewables more effectively, and the energy system is going through an extremely dynamic period which could see established business models overturned. The main factors that lie behind the calculation are :

  1. The battery costs.
  2. The costs of electricity used to charge the battery, from either
    1. local generation (PV panels in this case), or
    2. off-peak grid electricity.
  3. The value of the discharged electricity, to either
    1. avoid peak electricity prices, or
    2. meet demand when no other source is available, as back-up or in off-grid locations.

We can expect that the costs of batteries and PV panels will decline over time. We should also recognise that the costs and value of grid electricity are both very system dependent, and very time-dependent within any system. Take two examples:

  • In Musk’s presentation, he refers to the potential application of batteries in off-grid communities, not served by national transmission networks but may have their own local renewable generation. The value of energy storage which can provide increased access to electricity could certainly be much higher in these cases. Much of the early demonstration of energy storage technologies has been on islands where reducing reliance on expensive and polluting diesel generation has been the motive.
  • In countries or regions where the penetration of renewables is increasing steeply, wholesale electricity prices are becoming more variable. If the price paid by consumers more closely followed the cost, exposure to variable prices over short timescales could provide a market arbitrage opportunity for energy storage to ‘buy low, sell high’. The introduction of smart meters which can access time-of-use tariffs gives a technical solution, but a number of barriers act against such behaviour, not least that Government policy has been to make tariffs simpler.

Whilst batteries may have a role to play, they are by no means the only option, though Musk declares PV with batteries as being the only path that he knows to having no incremental CO2 emissions in the future.

At the domestic scale, a similar amount of energy to the Powerwall is stored in a hot water tank, for a tenth of the price. This might not power the tv or impress the neighbours, but it will give you a few showers which is more significant when space/water heating accounts for about half the UK’s energy demand. With 14 million in use, the scale is already there (equivalent to more than three times our pumped-hydro storage), though the rise of combi-boilers is seeing this number steadily reduce. Smart controls could use this resource, and other demand-side technologies, more effectively in the future.

At the grid-scale, when Musk considers the possibility of powering small cities from batteries, other technologies may again be more appropriate and cost-effective. Scaling-up the energy stored with Tesla, means scaling-up the number of batteries, hence cost. At the Birmingham Centre for Cryogenic Energy Storage we are developing cryogenic energy storage which just needs larger containers to hold greater volumes of stored energy in the form of liquid air – a relatively cheap alternative. Other technologies, such as flow batteries, compressed air energy storage, pumped heat electricity storage and traditional pumped hydro storage follow the same principle.

In conclusion, Tesla has seen that the batteries they need to manufacture in large quantities for EVs have another application in the electricity system. On the face of it, the Powerwall can help integrate renewable electricity generation, but in the UK the economic case is weak and it is not clear that this is a technology that will bring wider benefits. The transition to low carbon should be as efficient as possible, with our limited resources being deployed to get the most impact. For now, our focus should be on technologies which reduce our demand for heating and cooling, and have better economies of scale. As prices come down, batteries could also have a role to play, whether they are in a car or home. At the same time, our energy (not just electricity) policy and regulation needs to be ready for players that may emerge as new technologies come on the market. If nothing else, the announcements from Tesla show that the energy sector of the future could well be dominated by an entirely new set of technologies, companies and business models.

[1] http://www.teslamotors.com/powerwall

[2] http://www.teslamotors.com/gigafactory

[3] SMMT New Car CO2 report 2015 http://www.smmt.co.uk/wp-content/uploads/sites/2/101924_SMMT-CO2-Report-FINAL-270415.pdf

[4] Levelised over 20 years using a discount rate of 5%

[5] The time it takes to reach a positive net present value, with a 5% discount rate.

2 thoughts on “Charging ahead – what impact will Tesla’s Powerwall have in the UK?

  1. Interesting article, I have a 3.6kw PV system with a smart water heater but I’d prefer a cost effective storage system. In the UK sunlight levels can be very intermittent with broken cloud cover etc. So a battery with a 3kw output could not only store energy but also buffer pv power into a more usable state and thus avoid unnecessary import during otherwise peak production periods. You have stated that storage is not cost effective when the uk has an 18p export rate but you need to split off the feed in tariff so the export rate is not 18p its under 5p. I get paid for the units generated no matter what I do with them but i have to pay around 3x the export rate to import so storage could work ifnthenpricwe came down. At the current prices I agree that smart water heating appears to be the better alternative but its not without its disadvantages:- the water is scalding hot – I have young kids and worry they could scald themselves. i could retrofit my cylinder or fit thermo taps but this will push up costs. Secondly Tesla powerwall reports 90% efficiency but heating hot water gives rise to overnight standing loss that all the insulation in the world cannot prevent. Thirdly heating water in low light levels I.e. sub 0.6kw is a bit of a waste of time but a store could use this.

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