Tesla’s Powerwall & Battery Costs Disruption

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This post was first published on Solar Love

Indian Prime Minister Narendra Modi recently met Tesla Motors CEO Elon Musk to discuss the implications of the Tesla Powerwall — the company’s battery energy storage technology — for India.

It was a simple official visit, and as per media reports, there was no talk of Tesla setting up manufacturing facilities in India. The company, however, stated earlier that India could be “one of the potential markets in Asia to have a local assembly plant” if the government moves towards a pro-electric vehicle policy.

If and when that happens, the real opportunity for India here is to leapfrog the conventional grid and move straight to distributed generation (and consumption) of power, something similar to what happened in the telecom sector where most of the country got connected via mobile telephony, without having to go through the landline model.

But the important thing which the visit did achieve was to start discussions on Powerwall usage in India. As a proof, you can look at the comments from those discussing the (un)economics of the battery and spammers trying to drive some traffic to their sites. Even at its launch, the Powerwall was discussed in the niche forums in India quite extensively.

At both times, the battery got dismissed outright as “a too costly to consider” solution.

I have one small issue (and one big rant) with these (as I call them) pseudo-economic-experts. The problem with their discourse is that, to use an idiom, they miss the forest for the trees. They have no idea of the future and certainly no understanding of how technology pricing works.

At least for us in the cleantech space, this has become a regular (boring) cycle now.

Think of any new development — and all these people want to talk about is its cost right now. If the current costs are high (which, unsurprisingly, they are), the product/technology gets labeled as just another toy for rich green people.

Don’t get me wrong — the cost is a very important issue. But it is insane to dismiss the whole idea as forever infeasible.

worlds first hard disk
World’s first hard drive with a mighty 5 MB storage via Wired

My personal favorite anecdotes to counter these ‘experts’ is to talk about cost disruptions in (quite obviously) solar PV and memory storage devices. Another famous quote to pull off at times like these is what Thomas Watson (CEO of IBM) allegedly said in 1943 — “I think there is a world market for maybe five computers.”

I believe that to reject a technology by focusing only on its current cost rather than its future potential creates an artificial barrier for the technology. This is especially harmful for the cleantech industry, as it pushes the affordability tipping point by reducing the number of early adopters (what I mean).

If it were left to me, I would classify this group in the same basket as oil companies trying to hide climate change data or their friends soft selling cigarettes by asking the wrong questions.

Similar is the case with rooftop solar. Even though it generally makes complete economic sense to go solar, ordinary folks get biased due to the confusion created by passing remarks from pseudo experts. This reduces the number of people who want to make the jump, starves the market, banks hesitate from financing such projects/products, and from there onwards you can figure out the vicious cycle yourself.

Now, let’s get to the non-rant part of this post.

Why exactly are batteries (this post only talks about lithium-ion batteries) so expensive? The answer for the major part is simply due to the scale of deployment.

While solar PV has reached 200 GW of installed capacity, batteries are still taking baby steps at best. The graph below compares the rate of deployment with falling costs for the two technologies (source).

battery learning rate
Experience curve of PV vs that of Li-ion batteries via BNEF

In spite of this, a product like the Tesla Powerwall, though expensive at its current cost for the US (save probably Hawaii), would be welcomed with open arms in Germany and Australia. Check this Wikipedia page to figure out other probable countries. The former two are important, though, because of their solar installations.

As this excellent (though a little dated) presentation from Roland Berger explains, the main costs are associated with the high cost of raw materials and materials processing as well as the costs of the cell, packaging, and manufacturing. Raw materials and processing alone account for around 40% of cell costs and have huge potential for cost reduction.

li battery cost breakup

Quite interestingly, the presentation published back in 2011 expected Li-ion battery prices to fall to $250/kWh by 2020. An article on MIT Entrepreneur Review, during the same period, holds a similar viewpoint:

… with the right battery chemistry, it’s feasible for costs to go as low as $300/kWh for lithium iron phosphate or lithium manganese oxide cells.  That’s in the best of scenarios

But if you have been paying attention, we are already there! These industrial-scale batteries will cost $250 per kWh of storage capacity — five years ahead of the schedule!

An article published in Nature backs up these claims (paywall). Björn Nykvist & Måns Nilsson (Stockholm Environment Institute) show that industry-wide cost estimates declined by approximately 14% annually between 2007 and 2014, from above US$1,000 per kWh to around US$410 per kWh. The cost of battery packs used by market-leading battery electric vehicle (EV) manufacturers is even lower, at US$300 per kWh.

Winfried Hoffman at the consulting firm ASE agrees. In an interview with PV Magazine last yearhe put it quite bluntly that battery storage costs will fall considerably faster that most experts are currently projecting. The interview post goes on to say:

If the battery has 80% usable capacity and holds 5,000 cycles, the cost of stored electricity in this evaluation will fall from €0.20/kWh ($0.25) in 2012 to €0.05/kWh ($0.06) in 2030. Should the solar power generation costs fall to €0.05-€0.10/kWh, electricity costs that are more than competitive with the cost of household electricity will result.

The cost of solar PV is expected to fall about 40% over the next two years. With battery costs plummeting similarly, the next round of solar rush is set to witness a wave of a lifetime. And countries like India are waiting impatiently.

How can you help? Don’t be myopic. Don’t push the future further away.

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Anand Upadhyay

is a Fellow with The Energy and Resources Institute (TERI, New Delhi). He tweets at @indiasolarpost. Views and opinion if any, are his own.

Anand Upadhyay has 95 posts and counting. See all posts by Anand Upadhyay

18 thoughts on “Tesla’s Powerwall & Battery Costs Disruption

  • Batteries at the moment are priced a little too high to make economic sense for residential people (like me). Tesla has promised a powerwall battery that is a lot cheaper and could make economic sense BUT it is only now just starting to become available. I can’t even get the price of one in the UK until 2016 according to the official Tesla website.

    I think there’s a lot of people like me who would like to buy batteries at a reasonable cost because the utlity companies charge more per Kwh than a battery would cost but can’t.

    • It is likely to cost about what it costs in the US. In Australia the Tesla S sports car costs pretty much exactly what it costs in the US once taxes and exchange rates are accounted for. And it’s the only electric car that doesn’t have a mark up from its home market in Australia, so thanks Elon for that. The Prius is marked up as well here.

      • Oh, I know roughly what the powerwall’s going to cost but I don’t know exactly yet due to currency rates/taxes and even if I did know the price, I can’t buy one until next year at least. 🙁

  • The best power management is to put solar roof top on houses but storage batteries would be a utility management. This will save areas which where we have to put solar panels and centralise complicated maintenance which is more on the batteries and softwares than on the panels side.

    • Only if the owner of the house with the solar roof is compensated at the correct rate. If I generate 20kwh over a day, any unused goes into the battery but when I want it back again, it’s going to be peak rate.
      Also, If the utility is going to charge me for transmission costs, then I will need compensation for that.

    • Today in South Australia the lowest wholsale electricity price was about 1.4 US cents early in the morning and the highest was about 4.3 US cents for brief period in the evening. That’s a difference of 2.9 cents which isn’t a whole lot and wasn’t around for very for long. Meanwhile, people with rooftop solar will typically get 3.5 US cents for each kilowatt-hour they export to the grid and pay about 21 US cents for each kilowatt-hour of grid. That’s a difference of about 17.5 US cents. So unless solar feed-in tariffs increase a lot, or retail electricity prices drop a lot, or some combination of the two, energy storage is going to end up in homes and businesses rather than on the grid here.

      • eh.. I thought they’re going to lower kWh costs and increase the fixed charge?
        That way you need to go full blown off-grid with a big jump to save money.. not many will be able to do that for various reasons..

        • That seems to be the way that utilities are choosing to keep people from installing a lot of solar and (in the future) batteries.

        • Well, they could get a law passed that say electricity distributors are permitted to come around to your house and take whatever they like. You car, dog, commemorative 1953 Queen’s Coronation dunny, etc. However, we’d have to be pretty dumb to let them get away with that. And we have been pretty dumb, or rather some people have been pretty clever, to let them get away with what they have so far.

          Daily supply charges are not in the public’s interest. They specifically exist to discourage energy conversation and maximise profits of electricity retailers. They need to go. I have a snowball, that I have been training up, taking him out of the freezer and exposing him to short stints in the microwave or the oven or out in the sun. He’s been doing very well. I’m going to send him to Canberra to lobby for the elimination of daily supply charges. I think he has a chance in Hell.

  • Economies of scale clearly favour the usage of batteries on a utility scale. The impact it could have on stabilizing the grid with RE as well as conventional is huge.

    For countries that are still power deficient or face increasing demand in the future, this could save a lot of capital and headache in the future. That said, for countries with high power prices, the desire of individual households gaining self reliance is understandable. If the costs decline as Tesla expect them to once the Gigafactory comes online, countries like India and China will be in prime position to change the energy industry.

  • Solar power is already below €0.10/kWh I thought?

    • It is in the US. Utility solar contracts (PPAs) averaged $0.05/kWh in 2014, which means about $0.063/kWh without the subsidy.

      Other parts of the globe are installing at lower prices than the US average, so there should be places where solar is under $0.05/kWh unsubsidized.

      In 2013 India was installing solar for less than the US in 2014 ($1.55/watt vs. $1.65/watt) . There’s a good chance utility solar in India has broken under 6c/kWh. Perhaps Anand has some info.


      • So, yes. Installations costs have come down steadily. Follow this link for cost breakup of a utility scale solar plants. – http://blog.maharshisolarpowertech.com/2015/06/15/investment-model-for-1-mw-solar-power-plant/

        In $ terms, currently the installation costs are < $1/Wp levels.

        The power generation cost however is still in the region of $ 0.08-0.09/kWh range.

        PS: On the linked webpage, please note that 10 lakh = 1 million (1 lakh = 100,000)

        • Do you have a quick answer to why the electricity costs are that high?

          If I do a LCOE using $1/watt and 18.75% CF(average US) I get about 6.5c/kWh, even using 9% finance rates.

          At more typical US rates of 5% the price drops to under 5c/kWh.

          • Just saw the 13% and 11 year financing for Indian banks.

            That explains higher costs.

            Of course that’s going to mean some very inexpensive electricity starting in year 12.

          • Was just going to reply!

            Also, add to that the beating Rupee has been taking for some time now vs US$

          • Seems like the Indian government might be able to speed up solar installations with a loan guarantee program that lowered risk to lenders and increased payoff times.

  • Modi met Musk. Modi ought to remove all import taxes from electric cars for the next 5 years.

    I want Tesla to outsell Porsche in India.

Comments are closed.