05May 2015

Tesla Motors announced a few days back its new battery pack for the residential market. Called the PowerWall, it will be offered through Tesla’s sister company, SolarCity, to residential customers. Tesla says that this home battery will allow consumers to charge it using solar panels to power their homes at night. Alternatively, consumers can charge it at night when electricity prices are low, and use this stored energy during the peak-rate hours, often in the afternoon hours. In the parlance of utilities, this is called “peak shifting,” i.e., the consumer gets to shift the load. In financial terms, this is called arbitrage, i.e., buy energy at the low price, then sell it (or use it) when the price is high.

Tesla’s PowerWall is rated at 10 kWh with a smaller product version rated at 7 kWh. SolarCity advertises that the fully installed cost of the PowerWall is $7,140 + tax, which would be a total of $7,730.

So let’s decipher these numbers and see whether they make sense to a residential home. To make the analysis simple, I will offer my own electricity usage as a model to determine whether our home is a candidate for the PowerWall. Fortunately, PG&E, our utility, offers through its website a detailed log of our electrical usage, hour by hour. So I downloaded our home usage data and analyzed our consumption of electrical energy as well as our rate — in other words, the amount we pay for each kWh of electricity that we consume. For the analysis, I used the data for four representative months during 2014: January, April, July and October, or the first month in each quarter of the year.

First, let’s see how much electricity we utilized. In January, we used on average of 26 kWh per day; in April the daily average was 22 kWh, rising to 28 kWh in July then dropping to 19 kWh per day in October. Again, these are daily averages over the entire month in consideration. So on average, it nets out to about 24 kWh per day over the four seasons. According to PG&E’s analysis of our data, our electricity consumption ranks in the middle of the range of “similar homes.” I am not sure what it really means, but I will take it as saying that our daily averages are good representations of many homes in our area.

Given our average daily utilization, let’s amortize the cost of the PowerWall over the expected 10-year lifespan of the battery. Simple math gives us a cost of $2.15 per day just for the battery capital cost, or about $0.09 /kWh, again, just for the cost of the battery itself, i.e., it does not include the cost of the electricity to be stored.

Now let’s assume that I would want to use this battery to offset my peak afternoon pricing by purchasing the electricity at night on the cheap, storing it in this battery, then using it during the peak hours. This arbitrage would necessitate that the rate differential from PG&E, i.e. the difference in electricity price between the peak rate and the low rate, ought to be more than the $0.09 / kWh just to break even. In reality, it ought to be substantially bigger for me to realize some meaningful savings. The bigger the differential, the more the savings. If the differential is small, then the economics of the battery will simply not make sense.

The next chart shows the actual rate ($/kWh) I paid to PG&E during the four months in consideration. Our plan is a time-of-use which means our rates fluctuate during the day and seasonally. For the months of January, April and October, the lowest rate was about $0.12 /kWh. This is low for the day, but not as low as one may read in the papers about the rates in Texas — these could hit a low of $0.05 /kWh. My peak rate in January and April was a little over $0.20 /kWh, so the differential in January and April was marginal and not very economically compelling. The peak rate in October climbed to $0.35 /kWh, so that made the battery more interesting for the month of October.

But here’s the real shocker. My low rate in July jumped up to $0.20 /kWh at midnight, nearly double what it was in January…ouch, PG&E! It’s a shocker because the rates that the utility will charge me, both the low and high rates, are subject to change in the future. I have no control over these rates, yet by buying a PowerWall battery, I have now committed myself to a period of 10 years to recoup my money using a mathematical formula that is almost guaranteed to change in time. So the risk is all mine but my upside is minuscule and questionable over these 10 years. This is not an economical incentive. This is a recipe to give Tesla and SolarCity a great upside opportunity while shifting the economical burden onto residential consumers. The math simply does not work out. Tesla needs to drop their battery prices further and the utilities need to support this effort (i.e., not torpedo my potential savings by raising the lowest rates in the future) before I can feel that there is a stable financial incentive for me. Until then, I will not be buying a PowerWall any time soon. As Christopher Helman at Forbes accurately pointed out, this Tesla home battery is another toy for rich green people.