Elon Musk wants to revolutionize our energy system — with batteries

Most people think of Tesla as a company that builds expensive luxury electric cars. But CEO Elon Musk has something bigger in mind. He wants to make batteries a core part of Tesla's business, with the not-so-modest goal of transforming the world's electricity system.

There's a certain logic to this idea: Tesla is already making batteries for its electric cars. But batteries could potentially have broader applications, too. They could help utilities and homes make better use of solar power, charging up when the sun's out and saving power for when it's needed later. They could help smooth over fluctuations in the grid and protect against outages. And so on.

"Our goal is to fundamentally change the way the world uses energy"

Toward that end, Musk has launched Tesla Energy to promote new uses for his batteries. "Our goal," Musk told reporters at a press conference on Thursday, "is to fundamentally change the way the world uses energy."

Musk unveiled a new lithium-ion battery that people can buy for their homes, called the Powerwall. The price will start at $3,000 for a 7 kilowatt-hour battery or $3,500 for a 10 kWh battery; the latter has enough capacity to run a medium-sized home for a day. When installation and converters are included, a battery system will likely cost $6,000 or more. There will also be 100-kWh industrial versions for businesses and utilities.

This isn't a brand-new type of battery. Rather, it's an effort to make home battery systems more widely popular. "The issue with existing batteries is that they suck," Musk said. "They are expensive, unreliable, and bad in every way." Tesla wants to change that by nudging down battery prices — making use of its new $5 billion GigaFactory in Nevada — and integrating them with existing solar-power systems.

It's an audacious plan, and it raises some hard questions: Why would anyone buy these expensive batteries? And are they really as revolutionary as Musk claims? The short answer is that, yes, batteries could transform the energy system — but the price still has to fall much, much further.

Batteries could help boost rooftop solar — but may not make financial sense for US homes

(Joseph DeSantis/Getty Images)

In principle, batteries could prove useful for homes or companies that have installed solar panels on their roofs. And, as it happens, Musk also owns SolarCity, the largest installer of rooftop solar panels in America.

Musk said SolarCity has already outfitted 300 homes in California with both solar panels and battery storage systems. These houses can charge up their batteries during the day, when the sun is shining, and then save some of that power for later.

In most cases, selling solar power back to the grid is likely to be cheaper than storing it for later

But why would anyone do that? For one, the batteries could provide backup power during blackouts — a cleaner and quieter version of a backup diesel generator. The vast majority of US houses with reliable grid access probably don't need this, although SolarCity argues it could be useful for hospitals or military bases that are highly vulnerable in outages.

Second, some parts of the US have time-based pricing for electricity: that is, the cost of electricity varies throughout the day depending on demand. In theory, homes or businesses with solar panels could charge up their batteries during the day and then tap them when electricity from the grid gets more expensive. (Though note that solar power isn't strictly necessary here; you could charge the batteries from any source.)

The hitch? It's not clear that doing this will be worthwhile for most homes, at least not right now. In most states, if you install solar panels on your roof, you can simply sell any excess electricity you generate back to the grid at retail prices, thanks to "net metering" laws. Doing so will usually make more financial sense than paying $6,000 for a Powerwall system and trying to store your solar-generated electricity for later use.

By the same token, we're unlikely to see many people buy solar/battery systems and go completely "off the grid" (save for people in very remote regions or island communities). Again, it's cheaper to sell your solar power back to the grid than it is to buy a bunch of pricey batteries and try to go completely independent.

But now here's where things get interesting. In many states, utilities have been pushing to alter existing net metering rules that require them to pay retail rates for rooftop solar — after all, too much solar cuts into utilities' core business. In Hawaii, for instance, utilities have pushed to limit how much solar electricity they'll buy from households, arguing that it's putting an undue strain on the grid.

So this dynamic could change in the future. Intriguingly, SolarCity will start by offering solar/battery systems to customers in Hawaii who "might otherwise be prevented from using solar power." This will be a battle to watch. As Liam Denning writes in the Wall Street Journal, utilities may increasingly have to find ways to accommodate these solar-and-battery-systems — or risk being left behind entirely.

Energy storage could help utilities use more renewable power

(Photo by Kevork Djansezian/Getty Images)

Guests pose with the Powerwall unit after Elon Musk, CEO of Tesla, unveiled a suit of batteries for homes, businesses, and utilities at Tesla Design Studio April 30, 2015, in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Batteries don't have to be a threat to existing electric utilities. Many power companies could conceivably use Tesla's batteries to bolster the broader electricity system.

One key fact about our current power system is that electricity typically has to be used the second that's it's generated. And that creates a couple of problems. When energy demand soars — say, on a hot summer afternoon because everyone's cranking the A/C — utilities often have to flip on highly expensive and polluting gas-powered "peaking plants" to ensure adequate power. If, alternatively, they could store electricity during periods of low demand, they wouldn't need as many peaking plants when demand spikes.

Better energy storage will help bolster solar and wind power

A lack of storage has also made it harder for utilities to harness intermittent sources like wind and solar. Right now, wind turbines are only useful when the wind is blowing, and solar panels are only useful when the sun is shining. This puts a constraint on the growth of wind and solar, which currently provide just 4.4 percent and 0.4 percent of US electricity, respectively. (Note that the majority of solar power in the United States is generated by utility-owned photovoltaic farms, not rooftop panels.)

Better storage options could make renewables far more useful. For example, many solar panels produce their peak output during the mid-day. But people are typically using the most electricity during the evening, when they come home from work and flip on their appliances. Storage could help balance supply and demand.

The use of batteries or other storage techniques could also improve the reliability of the grid, making it easier to handle outages. For more on this, check out this Department of Energy report from 2014.

Utilities have long since grasped the value of storage, and they're now planning to spend billions of dollars over the next decade to boost their capabilities. That includes all sorts of different options: batteries, yes, but also pumped hydro, compressed air energy storage, flywheels, electrochemical capacitors. (Right now, about 95 percent of energy storage in the United States is still done through pumped hydro.)

If Tesla can drive down battery costs, that would help expand the storage options available. But we're probably not there yet. Various analyses have suggested that energy storage costs need to fall to around $150 per kWh to persuade utilities to shift away from simply firing up gas turbines to balance loads. Tesla's storage systems appear to cost two to three times that much (the company says its industrial batteries will cost $250/kWh, though it's not clear how much installation will be and so on).

The big question: Will batteries keep getting cheaper?

For batteries to have a truly revolutionary impact on the energy system, they'll need to get much cheaper. So what are the odds of that?

For an optimistic view, see this post by Ramez Naam. He notes that costs for energy storage have been falling for 20 years — including lithium-ion batteries. Check out this recent study in Nature Climate Change, finding that electric vehicle battery costs have been declining since 2005.

(Nykvist and Nilsson, 2015)

Tesla is hoping its massive factory in Nevada can find ways to bring the price down. And Naam is optimistic about this. As batteries become more widespread and the market expands, he notes, it's reasonable to expect the price will keep dropping. That would allow battery storage to become more widespread — not to mention boost Tesla's electric-car business.

That said, there are also skeptics who don't think battery prices can keep plummeting. In 2013, Fred Schlacter wrote an essay for the Proceedings of the National Academy of Sciences on why batteries are fundamentally different from things like mobile phones or computers and we shouldn't necessarily expect prices to fall indefinitely.

"Batteries are not like [mobile phones or computers]," Schlacter wrote. "Ions, which transfer charge in batteries, are large, and they take up space, as do anodes, cathodes, and electrolytes. A D-cell battery stores more energy than an AA-cell. Potentials in a battery are dictated by the relevant chemical reactions, thus limiting eventual battery performance. Significant improvement in battery capacity can only be made by changing to a different chemistry."

So who's right? It's still an open question, and the answer will go a long way toward determining whether batteries will prove as revolutionary as Musk hopes.

Further reading

-- Also read this follow-up post by Ramez Naam on battery economics. He points out something I missed — the economics of solar plus battery storage could be more favorable in other countries where utilities don't already buy excess solar back from homeowners.

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