Navigant Research Blog

Why It’s Still Too Early to Bet on Residential Energy Storage in the United States

— April 1, 2014

SolarCity announced recently that it is discontinuing the residential energy storage product that it rolled out in California 2 years ago.  The company put the blame on the shoulders of utilities, which SolarCity said were stalling permitting of its new units.  But, in fact, SolarCity has only itself to blame for the failure of its product.

That’s because the company never stopped to ask why a residential customer would want a battery storage system.  In some cases, such as with off-grid homeowners and homeowners (such as indoor horticulture enthusiasts) with very expensive equipment that needs reserve power, batteries are a requirement.  But the typical homeowner gets no financial advantage from shifting power from one point in the day to another.  Rates that would allow such an advantage, known as time-of-use rates, are rarely offered by utilities to residential ratepayers.  Because residential photovoltaic (PV) power is usually net-metered, meaning that homeowners can receive credit for putting energy back onto the grid, there’s no reason why a solar homeowner would receive a financial advantage from storing energy.

Diesel over Batteries

Meanwhile, SolarCity was trying to sell its residential storage units at an outrageous markup.  I have SolarCity panels on my house in Boulder, Colorado, and when I inquired about the cost of the battery backup system, I was quoted $25,000 for a 20 kilowatt-hour (kWh) system.  That’s despite the fact that Tesla Motors (which makes the battery packs for SolarCity) has told the world that it is able to build its battery packs for less than $300 per kWh.  It’s hard to understand why I should give SolarCity more than 3 times the money it cost the company to buy the battery pack for a system that doesn’t earn me one penny.  The only benefit that such a system could provide me is reserve power when the grid shuts down.  However, a far more reasonable solution to that problem would be an emergency diesel generator.  Yes, it’s dirty, but the carbon and pollutants produced by running a diesel genset during the few hours of a year that I would need it would be far less than that produced from the manufacture of 20 kWh of batteries.

Mind the Wiring

So, is there any merit to SolarCity’s claim that the California utilities are responsible for freezing out the battery system product?  It’s not very likely.  That’s because a battery pack that is situated behind the meter does not require any utility permitting, just as a diesel generator doesn’t.  What does require approval is the capability of an individual building to island itself from the grid (which means that it continues to operate as a nanogrid by itself and shuts itself off entirely from the distribution grid when it does so).  If that’s the case, then the electric utility has every right to deny permitting if it doesn’t feel comfortable with the system.  Improperly set up, islanding can cause a life-threatening situation for an electricity linesman.  The practice of islanding is governed by the IEEE 1547 protocol, which is an extremely complex, difficult to engineer, and expensive set of rules governing an islanded system.

There are ways to do residential energy storage well.  In our upcoming report on the topic, Navigant Research expects that almost 20,000 residential energy storage systems will be installed in Germany, Japan, and South Korea combined in 2014.  All three countries have made concerted efforts to standardize the specifications and permitting process for PV-integrated residential solar systems.  They have also introduced generous subsidies for such systems.  It’s an expensive and politically difficult process, but it’s getting results in those countries.


Six Questions Regarding Tesla’s Gigafactory

— February 27, 2014

This week, Tesla revealed the first details about its plan to build an enormous battery factory to provide cells for its future electric vehicles.  Among the revelations: the factory will be powered primarily by its own solar and wind power parks; it will produce more than 50 gigawatt-hours (GWh) of battery packs a year; and it will cost $6 billion to build.  To kick things off, Tesla also filed to sell $1.6 billion worth of convertible bonds today.

While these are intriguing details, there’s still a lot to determine about what this factory will actually look like.  Here are my questions about the Gigafactory:

Why isn’t California one of the states being considered for the plant?  The company named Nevada, New Mexico, Arizona, and Texas as potential host sites.  To build the batteries in a different state and then ship them to California, even by rail, will add considerable cost to the batteries.  Why not locate the factory at or near the company’s vehicle assembly plant in Fremont, California? My guess is that environmental regulations for such an enormous factory are one negative factor weighing against California.  That leads to a second question: Where will the cars be built?  The batteries coming from this factory will be going into Tesla’s next-gen passenger car, not the Model S or Model X.  That means that a car factory could also come along with the battery plant.

How much wind and solar will be needed to supply power to the plant? A battery factory making 50 GWh of batteries will require enormous amounts of electricity – some for the actual making of the batteries and some for the initial charging of the batteries that is the last step in the manufacturing process.  This could require as much as 1 GW of renewable energy projects.  Is the price of those installations factored into the stated $6 billion cost of the factory?

Where will the extra 15 GWh of batteries come from? In the slides that Tesla distributed, the manufacturing capacity of cells was stated as being 35 GWh.  But the manufacturing capacity of packs was stated as being 50 GWh.  So where will the extra 15 GWh of cells come from?  From other battery company factories throughout the world? From more Gigafactories?

Why is this factory so cheap? $6 billion doesn’t sound very cheap.  But it actually pencils out to a little more than two-thirds the cost, on a per GWh basis, of other large battery factories.  Clearly, the large scale of the factory will make equipment purchases cheaper.  Nevertheless, the estimated cost of the factory seems extremely low and brings into question whether Tesla and its battery partners have some new manufacturing innovations up their sleeves.

Why wasn’t Panasonic mentioned in the news release? Most observers assume that Tesla will build the factory with Panasonic, which makes all the cells for the Model S and the upcoming Model X.  However, the news release only stated that the car company’s “manufacturing partners” will help finance and build the factory.  Is it possible that another battery supplier is inserting itself in between Panasonic and Tesla?

How much will the cells cost once the factory is up to scale? Tesla CEO Elon Musk has stated in the past that Tesla buys its cells for between $200 and $300 per kilowatt-hour (kWh).  The slides distributed with the Gigafactory announcement claim that the facility will be able to cut the costs of the battery packs by 30%.  But how much of that comes out of cell costs versus price cuts in the other equipment in the pack?  Does this get Tesla down to $175 per kWh? To $100 per kWh?

There’s no denying that this is a bold venture.  If the company manages to follow through on these plans, it will construct the biggest factory in the world (not just for batteries, but for anything).  And it will yet again echo Henry Ford’s spirit with a 21st century version of the original megafactory, the River Rouge complex.


Google Robots: More About the Patents Than the Products

— December 18, 2013

Google has quietly bought up more than eight bleeding-edge robotics companies in the last 6 months.  They include Bot and Dolly, a designer of robotic camera systems, Boston Dynamics, the creator of the famous Big Dog, and Industrial Perception, an machine learning engineering firm.  Clearly, the Mountain View, California-based search giant is planning a big move in robotics.  But it might not be what everyone is expecting.

While the head of the robot blitz, Andy Rubin, has declared that a Google robotics product will be available soon, that might end up being more of a sideshow than the real goal.  The prize for Google in this shopping spree is in the patents, not the people or the products.  That’s because, it’s my belief that, Google’s primary interest is in creating the operating system for the next generation of robots, not the robots themselves.

Rubin has always been obsessed with robot design.  In 2003 he chose the name for his photography software startup, Android Inc., as an homage to his obsession with robotics.  A year later, the company pivoted to a different business model: smartphone software.  Bought by Google in 2005, the platform that Rubin and his team created became the Android Operating System, a multibillion dollar enterprise, which is Google’s primary engine of profit growth today.

Android, Again

I believe that Rubin is returning to his original passion: creating a universal software platform for robotics.  If that is what he is doing, then it would make sense that Google’s executives and board of directors would fund it.  After all, the biggest obstacle to the ability of Android (the mobile phone OS) to completely take over the smartphone industry are the patents they don’t own that are required to make Android phones work.  Apple’s phones have some functional advantages that are protected by its patents.  And Microsoft gets more money from Google’s royalty payments for its smartphone patents than it gets from its own smartphone operating system.  This is all because Google was slightly late to the smartphone party.  It doesn’t want to be late to the next big thing.

A bigger clue as to where Google is going with this is in another of its robotic ventures: autonomous vehicles. That’s an area near and dear to our hearts here at Navigant Research because we published our first report on the topic, Autonomous Vehicles, in November. The search giant puzzled the world in 2010 when it divulged that it was experimenting with driverless cars. After the announcement, a few tittering articles were written about Google becoming a car company, but that hasn’t happened. Instead, Google has been hiring the brightest minds in the field of autonomous vehicles, getting them to invent things, and then salting away the patent trove. At some point, the income stream from those royalty payments will be considerable, all without Google ever having to learn how to bend steel.

So my best guess is that Google will utilize the talent it has acquired in the eight robotics company acquisitions (as well as many more that have probably been made that have so far gone unreported) to make a few flashy products.  Maybe it will be a disaster recovery robot or a land mine detection robot.  But the real treasure for the company will be sitting in the file cabinets of the U.S.  Patent and Trademark Office, where the more than 600 patents (according to my initial count) that go along with those acquired companies, will be sitting, waiting for this robotics thing to take off.


Winners Emerge in EV Battery Race

— November 4, 2013

In the fall of 2007, General Motors announced the launch of a new program to develop a plug-in car called the Chevy Volt, officially launching the advanced battery industry.  For such a car to work, a new kind of battery had to be created that was affordable but with more energy dense than existing batteries.  Soon, every carmaker, battery manufacturer, electric utility and consumer electronics company sidled up to the table and placed their bets on this emerging industry.  Now, 6 years later, the first stage of this horse race is over and the judgment can begin to determine winners and losers.  Here are the initial winners, in my view:

Lithium Ion: By far the biggest winner is the chemistry that has taken up more than 99% of the market: lithium ion.  While the drawbacks to Li-ion are well-known (fire potential from thermal runaway, cost, lithium supply constraints), each has been mitigated by a combination of engineering advances and economies of scale.  Li-ion batteries have completely taken over markets, a few years after entering them.  This happened in consumer electronics, power tools and electric vehicles.  And the price of Li-ion batteries has dropped dramatically—so much so that other, supposedly cheaper, chemistries have had no chance to compete.  For a closer look at the current state and the future of the Li-ion battery segment, please join us for our webinar, “The Lithium-Ion Inflection Point,” at 2 p.m. ET on Tuesday, November 5.

Tesla/Panasonic: Of all the players in this space, the ones who made the biggest bets on the future of advanced batteries either don’t exist anymore (Better Place, Coda Automotive) or have triumphed.  In the latter category, the best example is the Tesla-Panasonic partnership.  Both companies bet big that their battery solution would win out.  And both have reaped the rewards.

Tesla’s concept of using small-format batteries in combination with an expensive and sophisticated thermal management system has worked very well.  Panasonic put all of its chips on its new nickel cobalt aluminum cathode battery that powers the Tesla Model S.  The success of that car has saved Panasonic’s battery business and its factories are now operating at full capacity while its Japanese brethren such as Sony and NEC see the demand for their batteries declining.

The Observers: Ironically, the other big winners of the initial stage of the advanced battery race are the companies that haven’t placed any bets at all — yet.  Hyundai Motors is one example.  The company has not made any big investments in the electric vehicle space, but is now poised to enter that market in a big way, without being dragged down by stranded manufacturing investments.  Likewise, Johnson Controls, whose Li-ion subsidiary is overshadowed by its massive lead acid battery business, is now able to enter the market in manner of its own choosing, with a keg full of dry powder and a much more visible path to success.

In my next blog I’ll review the losers, so far, in the advanced batteries space.


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