Tesla (NASDAQ:TSLA) is wrongly regarded by some as “just another auto company”. It is true that in the short term its stock price will probably be mainly affected by the progress of Model 3 production. Autos represent 80% of revenue at the moment. In the long term though its energy storage business can become an engine of further organic growth for the company. My article in June last year gave details of Tesla’s strong position in the market compared to competitors. Developments since then have strongly reinforced this perception.

Tesla’s Energy Storage Business.

Tesla bears point to the fact that the energy storage business is on a small scale. This is true in terms of sales, but not in terms of investment or potential. Tesla Management has repeatedly said that they regard energy storage as the greatest growth area for the company.

The Q3 2017 earnings call gives the details on this. “Energy generation and storage revenue” in Q3 increased to US$317.5 million. This was up from US$23.3 million year-on-year, a percentage increase of 1261%

Gross margin was at 25.3%. The margin will improve this year with better capacity utilisation and manufacturing cost reductions at the Gigafactory. It is relevant here that in the results the facility in Nevada was referred to as “Gigafactory 1”. “Gigafactory 2” has since opened in Buffalo and more will follow.

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A new survey of automakers from the leading research group KPMG points to a gloomy future ahead for the electric vehicle market, but the naysayers don’t appear to be taking energy storage breakthroughs into account. In the latest development, new research headed up by Brookhaven National Laboratory points the way to reducing battery charging times, a key obstacle cited by auto industry executives in the survey.

Auto Execs Still Not Sure About Electric Vehicles…

On the surface, the new KPMG electric vehicle survey paints a sad face on the electric vehicle market. Under the title, “2018 KPMG Global Automotive Executive Survey,” the research firm presents this finding from the responses of about 1,000 executives:

Despite the hype and massive automotive OEM investment in battery electric vehicles (BEVs), more than half (54%) of global auto executives say they believe these vehicles will fail commercially due to infrastructure challenges while 60 percent say excessive recharging times will do them in…

Ouch!

90 of the respondents are based in the US. Not surprisingly, the survey finds the US group to be “far more skeptical than their global counterparts.”

It also appears that automakers are having a tough time convincing the general public that all-electric transport is the way to go. KPMG surveyed 2,100 consumers in 42 countries including the US:

Only 13% of consumer respondents outside the United States and 5% in the U.S., said they would buy a pure battery electric vehicle over the next five years.

The relatively low interest among US consumers is not surprising, either. The disparity between US and global attitudes comes into even sharper focus when consumers are asked about buying hybrid EVs:

…50% of consumers outside of the United States indicate they would opt for a hybrid — hybrid electric (33%) or plug-in hybrid electric (17%) vehicles — over the next five years, or internal combustion engine (18%). U.S. consumers, on the other hand, say they’ll stick with ICE vehicles (54%), followed by hybrid electric (24%).

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On islanded (or isolated) grids with growing renewable penetrations, grid operators often struggle to maintain system stability. Operators in places as diverse as Ireland, Puerto Rico and Australia frequently rely on inertial response from thermal power plants like coal or gas-fired generators to balance sudden mismatches between supply and demand. However, recent research from Northern Ireland’s Queens University Belfast (QUB) finds that battery-based energy storage can provide inertial response for system reliability much more efficiently, at a lower cost and with substantially reduced emissions than a much larger quantity of thermal generation.

QUB’s research found that just 360 megawatts (MW) of battery-based energy storage could provide the equivalent stabilisation to Ireland’s All-Island electricity system as would normally be provided by 3,000MW of conventional thermal generation. That shift to batteries could save up to €19 million (US$22.5 million) annually and could achieve approximately 1.4 million tonnes of annual CO2 savings.

Inertia: A blink-of-the-eye grid balancing service

The California Public Utilities Commission ruled Thursday to authorize PG&E to procure energy storage or preferred resources (such as demand response or distributed solar) to ensure local reliability in areas previously served by the gas plants. The new resources can be individual or aggregated, and must be available by 2019 “if feasible and at a reasonable cost to ratepayers.”

This appears to be the first time a utility will procure energy storage to replace existing gas plants for local capacity needs. In Oxnard, a procurement process has begun to select storage instead of the proposed Puente gas plant. California deployed more than 100 megawatts of storage to shore up capacity after the loss of a major gas storage facility in the southern part of the state.

In this latest decision, though, regulators have chosen storage as a potentially cheaper alternative to maintaining two gas peakers and a 580-megawatt combined cycle plant. This process could become a playbook for phasing out more gas plants that become uneconomical in the future.

“The commission is showing confidence in the idea of preferred resources and energy storage as an alternative to the gas assets that currently provide reliability,” said Katie Ramsey, staff attorney at the Sierra Club, which filed a motion in support of the proposal. “This is a signal that clean resources don’t just compete with new gas plants — they can also perform the same services as existing gas plants.”

The case will test the economics of storage compared to existing gas infrastructure, and whether batteries in practice can provide the full range of services that a large gas plant performs.

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AES and Siemens are combining their efforts to launch new energy storage startup called Fluence Energy and compete with Tesla Energy in the fast-growing, new energy storage industry.

The new company is off to a strong start as the supplier of the soon-to-be new world’s largest lithium-ion battery-based storage project.

Today, the company announced that they received “all government approvals and authorizations and the launch of business operations on January 1, 2018.”

Stephen Coughlin, president and CEO of Fluence, commented on the launch:

“We continue to believe in and deliver on the promise of energy storage to reduce costs, improve power systems, and create a more sustainable future. However, we saw customers struggling to find a trusted technology partner with deep knowledge of the power sector and the ability to deliver an industrial grade solution they could count on to be there in the future. With a team drawn from both Siemens and AES, we are fluent in the power sector and bring the capabilities, global reach and experience to make sure our customers achieve the full value of storage.”

Fluence will become the supplier of AES’ Alamitos power center energy storage project in Long Beach, California serving Southern California Edison and the Western Los Angeles area.

The 100 MW/400 MWh is expected to become the biggest in the world – beating Tesla’s 100 MW/ 129 MWh project in South Australia in energy storage capacity and reaching parity with Tesla’s power capacity record.

The new startup listed some of its energy storage features in a press release:

• Bankable, proven and industrial-strength technology platforms optimized for different customer needs, including speed of response, long-term dependability and integration with other power resources;
• A comprehensive set of services and warranties covering the entire energy storage journey, from early-stage commercial analytics through the full operations and maintenance life-cycle of a project;
• The broadest set of energy storage grid applications including power generation, transmission and distribution alternatives, renewable energy integration, and commercial and industrial applications;
• Full turn-key installation and support services in more than 160 countries, tailored to meet specific needs and conditions; and
• A suite of financing packages through a new partnership with Siemens Financial Services, including leasing and project finance options.

AES and Siemens claim that the new startup instantly became the new world leader in energy storage with “nearly 500 MW deployed or awarded across 15 countries.”

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Last month at Greentech Media’s Energy Storage Summit, I had the pleasure of moderating a panel, Crowdsourced Market Insights: Role of Energy Storage in Creating the Grid of the Future. This panel employed a unique structure where our experts on stage were asked to interpret and weigh in as 500 attendees answered live polling questions on the top themes in the market. 

The results, with additional context from our research, are presented in a new research report, available for free here. Below, I summarize some key findings.

Storage will displace natural gas peakers (eventually!)

Only 1 percent of attendees feel that natural-gas plants will always out-compete storage, a perspective that may have been shaped by Shayle Kann’s earlier presentation indicating that 4-hour storage begins to compete with peaker plants within four years, and always wins financially within 10 years. The majority of attendees foresee energy storage dominance outside of a five-year time frame.

Broad optimism among the industry on utility engagement

More than four out of five attendees believe 41 percent or more of utilities will be including energy storage in their IRPs within five years — and their optimism seems justified. GTM Research’s tracking shows the trend is not just emerging — energy storage is becoming the norm in utility planning. 

In fact, Oregon is a sign of the times for utilities — Portland General Electric recently announced RFPs for up to 39 megawatts, the upper limit of the state’s energy storage mandate. When was the last time we saw a utility outpace legislators?

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The first ‘smart neighbourhood’ in the US state of Georgia is being created by utility Georgia Power and homebuilder PulteGroup, with each home equipped with solar PV, battery energy storage and other smart, clean and distributed energy resources.

PulteGroup said the planned new development builds on learnings from a prototype Zero Net Home, a residential building which offsets total energy consumption, either through efficiency measures or by producing more clean energy than the amount drawn from conventional grid sources. That prototype was built in northern California for local investor-owned utility Pacific Gas & Electric’s (PG&E) Zero Net Energy Production Builder Demonstration scheme, in a state which has already mandated new residential dwellings to be net zero energy by 2020.

Georgia Power, a subsidiary of Southern Company, will use Georgia Power Smart Neighbourhood as a real-world R&D and test facility for the future of such homes, much in the same way as Panasonic’s Fujisawa Sustainable Smart Town project in Japan has been doing since opening in 2014.

An initial 46 homes are planned at the Georgia development, each with 3 or 4 bedrooms, equipped with modern insulation, advanced heating and cooling, LED lighting and home automation including smart thermostats and voice-activated controls.

Through this partnership with Georgia Power, we continue to be at the forefront of energy efficiency that can shrink our homes’ carbon footprint, but also make our homes less expensive to own, translating into lasting savings for homeowners,” Ryan Marshall, president and CEO of PulteGroup said.

The development is planned for a grand opening later this year.

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NV Energy has issued a request for proposals that could add up to 330-MW of new renewable energy projects to be built in Nevada. This additional commitment to renewables, which includes the potential integration of battery energy storage systems, will provide enough carbon-free electricity to power about 200,000 Nevada homes.

“As important as this opportunity is to further the state’s desire for clean energy, equally important is that we expect to deliver these renewable projects to customers without increasing rates,” said NV Energy’s President and Chief Executive Officer Paul Caudill.

The request for proposals seeks wind, solar, geothermal biomass and biogas technology projects that are compliant with Nevada’s existing renewable portfolio standards. NV Energy will also, for the first time, consider adding supplemental battery energy storage systems that are integrated with the proposed renewable energy resource.

“Since 2009, NV Energy has more than tripled its in-state renewable energy production and our electricity prices today are 15% lower than they were at that time,” explained Caudill. “We expect these new projects to provide some of the lowest-cost renewable energy available in the market, which will directly benefit our customers. In fact, adding these new renewable projects serves to diversify the portfolio we use to provide power across the state and protects against the risk of increases in the price of natural gas used to generate electricity,”

The new projects will be competitively evaluated on a number of factors, including best value to customers of NV Energy and creation of economic benefits to the State of Nevada.

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