Tesla Becomes The Harbinger Of Doom For Utilities

It’s rare to see a new product which could fundamentally change the way average Americans live, today is certainly not that day. However, upon announcing the Powerwall  and Powerback, Tesla innovators shined the media’s light on the 800 pound gorilla which has been staring American utility companies squarely in the face: batteries. Tesla is by no means alone or a first-mover in the battery market, with the construction of similar manufacturing facilities underway by mega-giants such as BMW, Ford, Chrysler, Nissan, BYD in China and Bosch in Germany.

Tesla’s electrical storage system falls short of being accessible to middle-class Americans, with the standalone cost of a single 10kWh Powerwall being quoted by the company as being $3,500 while SolarCity — Tesla’s manufacturing partner — declared the amount to be the wholesale cost, giving revised estimates of up to $7,000 per system. SolarCity also estimates that two systems will be necessary to disconnect completely from the electrical grid, raising the sticker price to $14,000 for complete energy independence — solar panels not included! The Powerwall may be scalable to the point where it becomes more economic than using the electrical grid, but the vast majority of consumers will never be able to shell out that kind of money for it.

So why was this announcement important for utilities?

Customers. First and most apparent, utilities are losing customers. Tesla Energy already has over 38,000 pre-ordered Powerwall systems, and has said itself that it has an inability to satiate market demand even given its pending factory. With the fixed costs of acquiring renewable energy instruments still high, it is likely that all sources of energy generation, renewables included, will see their long-term profitability fall as customers hoard their energy and use it more efficiently.

Arbitrage. The most ethereal yet costly threat utility companies may face is that of increasingly user-friendly and transmissible energy storage devices. Creating energy storage devices for entire homes which are as easily tradable and mobile as the average alkaline battery is not the technology of today, but the very real possibility of tomorrow. The ability for consumers to buy and completely cut-out utility companies by selling or trading energy locally is becoming more material with each improvement in these storage systems.

Speculators. The Energy Information Administration (EIA) sites that natural gas prices can fluctuate over the course of a day, with normal price volatility that can range from just a few cents to over twenty cents per million British Thermal Units (Btu) over 24 hours. Prices are typically highest at peak hours of the night, when most people are still awake. Suddenly, with the arrival of innovations such as the Powerwall, significant amounts of energy can be gathered from the grid during low-cost periods and sold back during peak hours. Every single system suddenly becomes an investment vehicle for minimizing household costs or even making money off of electricity producers. Excellent news for Americans with expensive Powerwall systems, and yet, damning to the many poor and middle-class consumers who will likely see gas prices rise because of it.

To survive, electrical production companies need a way to outcompete battery manufacturers while updating much of America’s aged and unreliable transmission infrastructure… without this, or a significant decrease in the cost of batteries, the grid may become an expensive necessity only the poor and middle-income are relegated to.

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