Why Elon Musk's Batteries Scare the Hell Out of the Electric Company
Here's
why something as basic as a battery both thrills and terrifies the U.S.
utility industry. At a sagebrush-strewn industrial park outside of
Reno, Nevada, bulldozers are clearing dirt for Tesla Motors ...
Fri, Dec 5, 2014, 7:59pm EST - US Markets are closed
Why Elon Musk's Batteries Scare the Hell Out of the Electric Company
By Mark Chediak
1 hour ago
Here's why something as basic as a battery both thrills and terrifies the U.S. utility industry.
At a sagebrush-strewn industrial park outside of Reno, Nevada, bulldozers are clearing dirt for Tesla Motors Inc. (TSLA)'s battery factory, projected to be the world's largest.
More from Bloomberg.com: Why Elon Musk's Batteries Scare the Hell Out of the Electric Company
Tesla's
founder, Elon Musk, sees the $5 billion facility as a key step toward
making electric cars more affordable, while ending reliance on oil and
reducing greenhouse gas emissions. At first blush, the push toward more
electric cars looks to be positive for utilities struggling with
stagnant sales from energy conservation and slow economic growth.
Yet
Musk's so-called gigafactory may soon become an existential threat to
the 100-year-old utility business model. The facility will also churn
out stationary battery packs that can be paired with rooftop solar
panels to store power. Already, a second company led by Musk, SolarCity Corp. (SCTY), is packaging solar panels and batteries to power California homes and companies including Wal-Mart Stores Inc. (WMT)
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"The
mortal threat that ever cheaper on-site renewables pose" comes from
systems that include storage, said Amory Lovins, co-founder of the Rocky
Mountain Institute, a Snowmass, Colorado-based energy consultant. "That
is an unregulated product you can buy at Home Depot that leaves the old
business model with no place to hide."
J.B.
Straubel, chief technology officer for Palo Alto, California-based
Tesla, said the company views utilities as partners not adversaries in
its effort to build out battery storage. Musk was not available for
comment.
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The
Tesla systems are arriving just as utilities begin to feel increasing
pressure worldwide from the disruption posed by renewable energy.
Lima Meeting
In Germany,
the rapid rise of tax-subsidized clean energy has undermined wholesale
prices and decimated the profitability of coal and natural gas plants.
Germany's largest utility EON SE (EOAN) said this week it will spin off
its fossil-fuel plant business to focus on renewables in part because of
new clean energy competitors coming onto its turf.
Threats
to the traditional utility model come as energy and environment take
the world stage at the latest round of United Nations climate talks that
began Dec. 1 in Lima.
Delegates, backed by global environmental groups, want to leave the
conference with a draft agreement to tackle climate change by lowering
carbon-dioxide emissions -- something that has eluded them for years.
The
Rocky Mountain Institute's Lovins has installed solar on his house in
Snowmass and uses it to power his electric car. His monthly electric
bill: $25. He has a lot of company.
100,000 Plug-ins
In
California, where 40 percent of the nation's plug-in cars have been
sold, about half of electric vehicle owners have solar or want to
install it, according to a February survey by the Center for Sustainable
Energy, a green-energy advocate. More than 100,000 plug-ins have been
sold in California,
according to data from HybridCars.com and Baum & Associates, though
EVs make up less than 1 percent of all U.S. car sales.
Few
homes and businesses use solar and back-up-battery storage, proof for
some utilities that the systems remain a hard sell outside of states
like California or markets like Hawaii where high power costs make solar
competitive.
Still, the
Edison Electric Institute, a trade group representing America's
investor-owned utilities, recently announced that its members will help
to encourage electric vehicle use by spending $50 million annually to
buy plug-in service trucks and invest in car-charging technology.
"Advancing plug-in electric vehicles and technologies is an industry priority," said EEI President Thomas Kuhn.
Charging Stations
Analysts
think the industry has been slow to react. Tesla, SolarCity and
green-energy companies are already moving aggressively into unoccupied
space. "Some of the more nimble companies that think and move more
quickly, they are beating the utilities to the punch," said Ben Kallo, a
San Francisco-based analyst for Robert W. Baird & Co.
Tesla
has installed 135 fast-charging stations, some powered by solar, across
North America where its Model S drivers can refuel for free. NRG Energy
Inc. is building a network of public charging stations in major cities
that drivers can access on a per-charge basis or for a flat monthly fee
of about $15.
And then
there's the home front. In a July report, Morgan Stanley said Tesla's
home and business energy-storage product could be "disruptive" in the
U.S. and in Europe as customers seek to avoid utility fees by going
"off-grid."
‘Sufficient Appreciation'
"We
believe there is not sufficient appreciation of the magnitude of energy
storage cost reduction that Tesla has already achieved, nor of the
further cost reduction magnitude that Tesla might be able to achieve
once the company has constructed its ‘gigafactory,'" Morgan Stanley
analysts wrote.
Tesla sees
itself taking on a grand mission -- not just to lower emissions from
cars and trucks, but to have a societal impact. "If we only do it on the
transportation side, we ignore the utility side, and we are probably
ignoring half of our responsibility," said Mateo Jaramillo, director of
powertrain business development at Tesla Motors, at the recent Platts
California Power and Gas Conference in San Francisco.
Tesla
and Oncor Electric Delivery, owner of the largest power-line network in
Texas, have discussed a $2 billion investment in stationary battery
storage to solve the problem of fluctuating output from wind and solar.
Tesla and SolarCity are separate entities and only share management at
the board level.
Tesla fell 2 percent today to $223.71 in New York.
Smart Home
A
glimpse of that future can be seen in Davis, California, where Honda
Motor Co. has developed a "smart home" that produces more energy than it
uses while charging a plug-in car. The home was designed in
collaboration with SolarCity, PG&E Corp. and the University of
California at Davis to showcase energy-efficient and renewable
technologies. It will serve as a home for a member of the UC Davis
community and a lab for the study of new businesses and technologies.
SolarCity
rival SunPower Corp. is offering its solar and storage systems to
buyers of electric cars from Audi AG and rebates for solar-panels to
Ford Motor Co. plug-in customers. SunPower also has struck a partnership
with homebuilder KB Home to begin installing solar and storage systems
in California.
The time
when residents can charge their electric cars with excess solar stored
in their home batteries is "not decades away, that is years away," said
SunPower CEO Tom Werner.
Holy Grail
Both
SolarCity and SunPower say their goal isn't to move customers
completely off-grid, just to reduce their dependence on it. "Grid
storage has been the Holy Grail for renewables because the energy is
intermittent," Kallo said. "Finding a way to store that is very
powerful."
For the power companies, the stakes are high.
In
June, EEI issued a call to action, saying converting people from
gasoline cars to electric vehicles is nearly essential for survival. The
report concluded: "The bottom line is that the electric utility
industry needs the electrification of the transportation sector to
remain viable and sustainable in the long run."
To
that point, executives at some of the nation's largest utilities from
New York to California say they are preparing their grids for more
plug-in cars, reaching out to automakers and working with regulators to
make sure customers as well as the utilities benefit from the trend.
Natural Partnership
"I
read a lot of articles about Elon Musk versus the utility companies,"
said John Shipman, who heads electric vehicle programs at New York-based
Consolidated Edison Co. "I don't see it that way at all. There is a
natural partnership that can exist there."
In
California, where electric vehicle adoption is the highest in the
nation, and Governor Jerry Brown has set a goal of having 1.5 million
zero-emission vehicles on the road by 2025, utilities are already in the
game.
"The electric grid
will be just as important in the years to come because the grid is
becoming the platform that makes it possible for people to plug in solar
panels, batteries and charging stations," said Ellen Hayes, a PG&E
spokeswoman. "Having a solar panel that isn't connected to the grid is
like having a computer that's not connected to the Internet."
Edison
International's Southern California Edison and Sempra Energy's San
Diego Gas & Electric have proposed investing about $500 million in
car charging stations. Along with PG&E, they are backing a proposal
that would loosen restrictions on utilities owning charging facilities.
Grid Upgrades There is yet another side to the argument -- can utilities manage the load?
"Electric
vehicles can be the best thing to ever happen to our industry or the
worst thing to ever happen to our industry," said James Avery, a senior
vice president at San Diego Gas & Electric.
Avery
doesn't foresee most customers leaving the grid, but does see the risk
of an influx of electric cars that overtaxes the network. SDG&E,
whose territory has the highest penetration of plug-ins in the U.S.,
plans to spend as much as $3.2 billion to upgrade its grid. It already
offers cheaper rates for EV owners to charge overnight when power demand
is lowest.
Southern
California Edison is planning to spend about $9.2 billion through 2017
to allow the two-way flow of electricity on its system, said Edison
International CEO Ted Craver.
"We are certainly big supporters of electric transportation," Craver said.
He
added: "That electric car isn't just going to stay at home. It's going
to go other places. It's going to need to get charged in other places.
And I think our ability to provide that glue for all those things that
are going to plug into that network is really how we see our core
business."
Shifting Landscape
Some utilities are more amendable to the shifting landscape than others. Last year, Pinnacle West Capital Corp.'s Arizona
Public Service raised the ire of its customers and the solar industry
by tacking on a monthly fee of about $5 for residents with solar
systems. Adding fixed connection charges or additional fees to such
customers may cause more of them to defect, said Lovins of the Rocky
Mountain Institute.
"Utilities
should look at Elon as a brilliant entrepreneur and innovator who is
helping create the new electricity industry and betting against him
hasn't worked so well," Lovins said. "I would look at ways to benefit
from what he is bringing to the market."
(An earlier version of this story corrected the description of Tesla's charging stations.)
To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net
To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Will Wade, Steven Frank
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