Carmaker Tesla looks to spark revolution in domestic power

Tesla Motors, the Silicon Valley electric car company, has taken a big bet on domestic power storage, highlighting the growing momentum behind a potentially far-reaching transformation of global electricity supplies.

Tesla, led by the technology entrepreneur Elon Musk, announced new batteries for domestic and business use that will allow customers to store power they generate themselves and to keep the lights on if the power grid fails.

The high cost of batteries has meant that the economics have not been viable for most potential users, but prices are falling towards the point where some analysts believe much wider adoption is possible.

Jonathan Mir, head of North American power and utilities at Lazard, the investment bank, said that if electricity storage costs fell the way the costs of solar generation had in the past decade, "that is going to change the world".

He added: "Storage really is the Holy Grail for renewable energy. We want to use much more low-carbon electricity, and we are not going to get there unless we have much greater penetration of cost-competitive power storage."

The electricity storage market is growing rapidly, with the US expected to instal 220 megawatts this year, up from 62 MW last year, according to GTM Research.

Called the "Powerwall", Tesla's battery, which uses standard lithium ion technology, comes in two sizes: a $3,500 10 kWh unit designed to provide back-up for a house if the traditional electricity grid goes down; and a $3,000 7 kWh version to help homes with solar panels handle daily fluctuations in energy supply. They will have a 10-year guarantee.

At the battery's launch in Los Angeles on Thursday evening, Mr Musk hailed Tesla Energy as the "missing piece" in renewable energy that could herald "a fundamental transformation in how the world works".

He said the Powerwall "looks like a beautiful sculpture on the wall".

The increased availability of electricity storage, from Tesla and other companies such as AES, Alevo and LG Chem, could revolutionise the market, increasing the use of small-scale distributed generation and avoiding the need for high-cost power plants.

One country where domestic batteries are expected to be increasingly popular is Germany, where tariff structures mean that customers with solar panels can save money by storing power they generate during the day to use in the evening. Two German companies, Sonnenbatterie and IBC Solar, already sell batteries for domestic use.

Analysts say Tesla's advantage is that the price of its battery will be lower than the cheapest systems generally available in the US.

Peter Rive, chief technology office of SolarCity, the domestic solar power installer that has Mr Musk as its chairman, said the company would supply the 10 kWH Powerwall backup electricity systems in the US for just $5,000. At that price, he added, they would work out cheaper than diesel generators used for emergency power, which could cost $5,000-$8,000 when fully installed.

Initially, he said, he expected more of the backup Powerwall systems would be sold in the US, and more of the load-shifting 7 kWH systems would be sold in Europe.

By the end of the decade he expects costs to fall to the point where SolarCity would offer all of its solar systems with electricity storage, and would offer power cheaper than the grid.

"We feel very confident in that," he said. "I wouldn't be surprised if we see costs [for storage] halved just in the next two years."

Dean Frankel, of Lux Research, said Tesla's Powerwall, including connections and other equipment, would be at least 10 per cent cheaper than any other system on the market. Even so, analysts said, the power it provides would in many cases still be more expensive than taking electricity from the grid.

The batteries will eventually be produced at Tesla's new "gigafactory" in Nevada, which is in the first stages of being built in a joint venture with Panasonic. The plant - an investment of up to $5bn - is intended to achieve the cost savings required to supply batteries for Tesla's new mass-market electric car, and will also have capacity to serve the stationary storage market.

Mr Frankel said driving down the cost of the batteries would be crucial for Tesla's success in the market. "No-one to date has produced thousands of battery units that all look the same and can be mass-produced to achieve economies of scale."

Tesla is not the first carmaker to consider the potential crossover between energy for cars and homes. Nissan, maker of the world's bestselling pure electric vehicle, sells a system in Japan that allows the Leaf car to power the home for up to two days. A prototype launched this year in collaboration with Endesa would allow Nissan cars to feed energy back into the grid.

BMW is also running projects alongside utilities such as Vattenfall of Sweden and Pacific Gas & Electric Company to look at "second life" applications for electric car batteries, which retain a relatively high storage capacity at the end of their useful life in cars.

Critics say Tesla's impact on the car industry has been largely symbolic. Rival auto executives argue that while Tesla has shaken the tree - leading the way in powertrain technology, connectivity, and even retail - the company, which is 11 years old, has yet to prove its long-term potency.

Nevertheless, Tesla is not shy of making bullish projections. At the Detroit motor show in January, Mr Musk said the company was capable of selling BMW-style volumes of "a few million" cars by 2025. Even the official forecast of 500,000 unit sales by 2020 is 15 times 2014 levels.

Some analysts speculated that the new energy storage business line would propel Tesla shares to new heights, but the stock was trading down slightly on Friday.

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