In the event that Elon Musk trots out a Tesla (TSLA) motorcycle on Thursday, a whole lot of us industry watchers are going to look really silly. Since Musk teased Thursday’s big announcement on Twitter (TWTR) , pretty much everyone arrived at the same conclusion: Musk was going to introduce a line of new battery products for storing energy at residential, commercial, and utility levels.
For the many people whose familiarity with Tesla was mainly as a car company that doesn’t make that many cars, it may be a little confusing as to why its CEO is making a huge announcement about…anything other than their new cars. So, for the uninitiated, here’s a look at why the pending Tesla announcement is such a big deal.
Reliability – the Last Hurdle Toward Solar Going Mainstream
There has been a push for renewable energy since the birth of environmentalism in the 1960s. Long before the technology was even close to viable, it was championed by those looking for alternatives to fossil fuels. However, for all the benefits of renewable energy sources like wind and solar (zero fuel costs and no pollution, for instance), the limitations have always outweighed them.
Over the years, though, the issues have started to erode. Most notably, the cost of solar power has positively crashed over the last decade, both due to improving efficiency and plunging costs. However, through it all, there remained a key issue that needed to be addressed: reliability.
At the end of the day…there’s an end of the day. Once the sun goes down, there’s no solar power to be had. Even when it’s up, at times, the weather might mean you draw significantly less energy than you had anticipated. Predictability is a key factor when it comes to electricity – people want to know the lights will come on when they hit that switch. Watching weather reports that tell you whether or not you’ll be able to continue using the television on which you’re watching those very weather reports is not a scenario that appeals to most consumers.
So, solar energy would never be able to rise past the level of occasional supplement. Unless, of course, you could store the surplus energy generated during the periods when renewable energy is working at peak capacity, sidestepping the issue of peak capacity and peak usage being out of sync.
And that, in a nutshell, is what has everyone so excited about the Tesla announcement. This could be the missing piece that tips the scales towards renewable sources for our entire energy economy.
The Power Plant on Your Roof
One of the key areas of change would be rooftop solar. Any home or business owner in America can potentially cut their power bill with a solar array that fits right on the unused space on their roof. Many do, in fact, as rooftop solar is already a pretty successful business, despite being a relatively young one.
However, the issue of peak generation not lining up with peak usage is especially pronounced in this case. Most homeowners aren’t home during the day, when solar panels are getting the most sun, meaning they’ve got great power capacity during the moments when they’re not being used. Then, at night, when your whole family is using power, those solar panels are essentially really expensive roofing. Not an ideal situation.
For some time, the proposed solution was to simply have home owners sell the power from their panels back to their power company for use elsewhere. If your neighbor works from home, the power company would basically pay you for the electricity your panels are generating that you’re not using, route it back into the grid, and send it next door.
Utilities, noting that they were the ones paying to maintain the grid (which was increasingly more difficult and expensive due to these rooftop solar displays), started to push back, lobbying for legislation that would require homeowners with rooftop solar to start paying for grid maintenance. In Hawaii, where high energy costs have pushed an explosion in rooftop solar that dramatically outpaced the mainland, the utilities even put a stop to new installation of solar arrays entirely.
So, we appeared to be on course for an angry, contentious debate between utilities and the solar industry, with millions sunk into lobbying efforts and television ads. Until now.
As we wrote earlier, Tesla will likely partner with SolarCity ($SCTY) to offer a system that combines the Tesla battery with a SolarCity solar array. Essentially, any house, or strip mall, or apartment complex, or building, really, can become its own, self-contained electrical grid. The panels collect energy when the sun’s up, the battery stores that energy until you need it. If the amount of energy used over the course of the day is less than the system’s maximum capacity, one could hypothetically get by without drawing any power from the grid at all.
Imagine being able to call SolarCity and purchase a system that would eliminate your power bill entirely. Or, contract them to install a system at no cost to you and just pay for power them instead of the utility company, getting a steep discount in the process. A widely available Tesla home battery would fundamentally change the nature of the product that home solar companies are offering their customers, something that could mean explosive growth for the segment.
The Sun: It Keeps Going, and Going, and…
However, as much as a home energy-storage system could be a potential game changer for the energy and tech sectors, the second part of the anticipated Tesla announcement is also pretty exciting in its own right. People are widely anticipating that Musk is going to announce a much larger, utility-scale battery product in addition to his smaller home system.
Few people seem to really appreciate everything that goes into maintaining an electrical grid. If you’re a utility, you have to be ready to handle peak demand at any time, even if that means operating in an extremely inefficient manner during the vast majority of the day/year when demand is below those peak levels.
If there’s one week in August every years when everyone turns their air conditioners on and watches television at full volume while charging their phones and iPads, you have to be prepared to handle that at any time. That may mean that you’re operating in a really inefficient manner most of the time, building plants and infrastructure to react to peak demand rather than average or typical needs. But that’s the nature of the business. As long as consumers continue to be totally unwilling to accept occasional brown outs as a cost of doing business, utilities are handcuffed.
But, imagine a world where utilities can build massive battery installations that efficiently store power. If power companies could rely on the ability to store large amounts of energy they could then deploy at peak hours, their focus could shift to operating as efficiently as possible rather than just being able to react to spikes in demand. Rather than building new power plants if demand increases, they could just build more storage and squeeze more use out of existing plants, potentially increasing flexibility and reducing costs.
It would also be a boon for utility-scale renewable energy. For every solar or wind installation, there has always needed to be a traditional power plant that could produce electricity on-demand and fill those gaps in which the weather isn’t cooperating. We’ll always need at least some sources of electricity that can be reliably switched on, but being able to store energy on a large scale really changes the equation for renewables. If a particularly windy day happens to fall during a low-use period, wind turbines can still take advantage of the good weather, getting while the getting’s good and simply storing that energy to be used later on, when it’s needed. It appears to be a functional solution to what has always been utility-scale renewable energy’s biggest limitation.
Solar Batteries: The Motor Behind Tesla
So, why are people so amped about a car company making a big announcement that doesn’t involve cars? Because the announcement could just as easily be the start of us no longer thinking of Tesla as primarily being a car company.
It’s impossible to say at this point just how deep the penetration of products like this will really be, but it could possibly be revolutionary. This announcement has the potential to completely change the entire process through which our lights turn on when we hit the switch. That sort of hyperbole may end up looking pretty ridiculous ten years from now (or ten days from now, if Tesla really does introduce a motorcycle tomorrow), but the potential is definitely there.
The opportunity for investors is harder to pin down. Tesla’s stock is already pretty expensive, and it’s hard to say just how much of the potential success/failure of this has already been priced in. However, there are very likely some pretty attractive potential plays in the periphery – small-cap companies providing the sort of infrastructure and technical support to systems like these that could benefit from Tesla’s high profile.
Only time will tell if Elon Musk’s transformative vision of how battery technology can change our world is truly brilliant or just another example of overblown hype from a tech company that has yet to turn a profit, but keeping an eye on this would be pretty wise for any investor trying to figure out what that next “big thing” might be.
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