Economic Development via Tesla’s Powerwall

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    Dean Moretton

    Opportunities for electric utilities to offer services beyond that of a “kilowatt hour” energy supplier exist everywhere. A privately held Vermont utility, Green Mountain Power (GMP), announced just such an economic development endeavor.  GMP is offering 500 Tesla Powerwall batteries to their 125,000 customers on a first-come pilot basis beginning January 2016. This article highlights the economics behind GMP’s offering and outlines how cooperatives can evaluate applicability to their own situation.

    The Tesla Powerwall being offered by GMP is a 7-kWh, 3.3-kW peak, 2.0-kW continuous output, daily cycling capable, rechargeable lithium-ion battery designed to store energy at the residential level with several benefits available to the consumer, and distribution utility including:

    • Backup power for consumer
    • Load shifting for GMP
    • Peak load reduction for GMP
    • Smoothing of solar for GMP
    • Transmission charge reduction for GMP
    • Capacity charge reduction for GMP

    GMP is offering the Tesla Powerwall to their customers under three price options:

    1. Direct sale of the battery. GMP will sell the Powerwall and SolarEdge bi-directional inverter to the customer and the customer will install and maintain operations of the Powerwall subject to Tesla’s 10 year warranty.  GMP will not share in control of this battery. The cost to the customer will be $6,501, which includes the 7-kWh Powerwall ($3,000 retail), SolarEdge inverter ($2,111 retail), sales tax ($367.99), and a 20 percent mark-up covering GMP costs as well as providing a margin ($1,022.20) that will flow back to GMP customers in rates, the utility said. GMP estimates 75 Powerwalls will be purchased under this option.

    2.Sell battery and share control. GMP will sell the Powerwall and SolarEdge bi-directional inverter to the customer and will share access to the Powerwall with the customer. As with the first option, the cost to the customer will be $6,501, which includes the 7-kWh Powerwall ($3,000), SolarEdge inverter ($2,111), sales tax ($367.99), and a 20 percent mark-up covering GMP costs as well as providing a margin ($1,022.20) that will flow back to GMP customers in rates, the utility said.

    Option #2 customers will receive a monthly bill credit of $31.76, which represents the value of a reduction in both capacity and transmission costs by controlling the battery at peak. GMP estimates 225 units will be sold under this option.

    3. GMP installs, owns, and maintains the Powerwall within the customer’s facility, subject to Tesla’s 10-year warranty. “The pricing structure under this option is similar to how GMP charges for street lights,” the utility said. The customer “pays nothing up front for use of the Powerwall in their home and is charged a daily adder ($1.25 per day) to their residential rate, reflecting the depreciated cost of the battery less the power supply savings value of GMP sharing access to the battery and using it to manage load” according to GMP. The customer will also commit to stay on this rider for 10 years, representing the useful life of the Powerwall. GMP estimates 200 Powerwall units will be installed under this option.

    Financial Analysis

    Let’s examine GMP’s public filing along with information available about Tesla’s Powerwall, and SolarEdge inverter to understand the cash flow for GMP, and the consumer.

    GMP Perspective

    If we look at the December 2nd 2015 letter Josh Castonguay CIO GMP, filed with Susan Hudson Clerk Vermont Public Service Board, we see GMP’s financial analysis spreadsheet.  From this sheet, the analysis values can be extracted.

    Resale of Equipment

    On Mr. Castonguay’s financial analysis spreadsheet, we see GMP is communicating it will pay “list price” for both Tesla’s 7kWh Powerwall ($3,000) and SolarEdge’s SE7600A Inverter ($2,111).  We also see GMP has marked up “list price” of these two goods by 20% ($1,022) for a paper profit $306,658 on sale of 300 units.  Now if we assume GMP was sensible enough to negotiate a volume purchase price on 300 units of the SolarEdge inverter, and able to haggle a deal equal to what can be found online for a single SolarEdge inverter ($1,599), then additional profit exists for GMP in this reseller deal.  To estimate additional profit imbedded in the inverter sale, we take retail ($2,111) minus online price ($1,599) which yields another $153,600 ($512 per 300 units) of paper profit.

    So on purchase and resale of the 300 Powerwalls and 300 inverters, GMP should net $460,260 or $1,534 per consumer sale in the first year.

    Wholesale Energy Market Benefit

    GMP is in ISO-New England (ISO-NE), and will depend on this wholesale market for transmission services, capacity services, and energy services related to peak demand periods. As such, we should expect GMP to extract value from the GMP controlled batteries under Option #2 (225 units), and Option #3 (200 units) described above.

    We first need to establish GMP’s available and controllable Powerwall energy.

    • Tesla states the 7-kWh Powerwall will output 3.3-kW peak, and 2.0-kW continuous
    • We have 425 units deployed where GMP can control output (Option #2 + Option #3)
    • Leveling the aggregated 425 Powerwall units output over 3 hours enables 862.75-kW per hour for 3 hours

    Next we need our ISO-NE market values.

    • Transmission for 2015 is $8.90/kW Month, same value used for 2016 and 2017
    • Capacity for 2015 is $3.43/kW Month, 2016 will be $7.02/kW Month, 2017 will be $9.55/kW Month
    • Energy for period 2011 through 2015 at the hourly level was obtained from public data and was averaged for use as future energy pricing

    For transmission market benefit, it is assumed GMP is able to dispatch batteries during peak transmission times because they are over 80% of Vermont’s load and should have systems to predict when peak demand occurs.

    For capacity market benefit, it is assumed GMP is able to dispatch batteries during peak market points.  As the 7-kWh Powerwall is capable of daily cycling, GMP is not limited on the number of battery dispatches in any one month.  However, GMP will only get one 3 hour dispatch per day.  And during this battery dispatch interval, 425 controlled Powerwalls will contribute 863-kW per hour, for 3 hours, after applying 87% efficiency on DC conversion.

    For energy market benefit, it is assumed GMP will charge the batteries during low wholesale energy cost hours and will discharge the batteries for one 3 hour dispatch per day during peak wholesale energy cost market hours.  To calculate the value of energy saved annually by dispatching batteries for 3 hours per occurrence, this study used 200 complete dispatches per year to align with Tesla’s 10 year warrantee.

    So with these ISO-NE market values and using 863-kW for Transmission, Capacity, and Energy markets, below is estimated wholesale market financial benefits for 425 Powerwalls:

    Market 2015 2016 2017
    Transmission $92,142 $92,142 $92,142
    Capacity $35,511 $72,678 $98,871
    Energy $28,891 $30,335 $31,852
    Market Annual Value $156,543 $195,155 $222,865

    Utility Ancillary Costs

    GMP projects first year costs for marketing ($5,000), pilot rollout ($55,000), maintenance ($5,000), administration ($3,125) and bill credit of $31.76 per Option #2 ($81,000) totaling $149,125 for first year utility costs.  Subsequent year’s costs won’t include pilot rollout nor marketing and A&G costs reduce for 2nd year yielding an annual utility cost of $81,987, and 3rd year annual utility cost of $108,093.

    Utility Summary Figures

    Combining the Equipment Resale benefit with the Wholesale Energy Market Benefit and Utility Ancillary Costs, we see the first year estimated value of $467,678 or $935.36 profit per unit deployed.

    Estimates 2015 2016 2017
    Market Annual Value $156,543 $195,155 $222,865
    Annual Utility Costs ($149,125) ($90,335) ($90,422)
    Equipment Resale $460,260 $0 $0
    Annual Value $467,678 $104,820 $132,443


    If we examine the benefit for the consumer, we certainly have the backup power benefit.  A single Powerwall will output 7-kWh per day.  Per EIA 2014[1] data, the average GMP residential customer uses about 0.82-kW per hour around the clock every day.  Furthermore, EIA Reliability data shows the average GMP customer will incur a 12.7 hour of outage about 2.2 times per year.  Therefore, the Powerwall would not be able to supply full power for the average GMP home for an average outage with normal appliance operation; some energy usage curtailment would be advised.  But assume with reduced consumption at the residence, an outage is covered by the Powerwall and the consumer is happy.  What does this cost?

    From GMP, you can purchase the Powerwall and inverter for $6,501 but that didn’t include installation. SolarCity[2] estimates installation would be $2,140.  If we take these two values, we have an installed cost of $8,641.  With GMP Option #2, what is the break-even point using the $31.76 monthly payment?

    Assuming interest free money, and $8,641 installed cost, an Option #2 consumer would breakeven in 23 years on a system warrantied for 10 years.  Using interest free money and $6,501 as “all-in” cost where the battery system gets installed for free, break-even would take 17 years.  When using 3% money, the break-even points become 38 years and 24 years respectively.

    For Option #3 customers, who lease the system from GMP, the $8,641 installed cost scenario would take 19 years to break even on a system warrantied for 10 years.  If installation were free, the $6,501 “all-in” system would break-even in 14 years.

    Cooperative’s Economic Development Scenario

    The information presented here for GMP would need to be collected for your distribution cooperative and values then recalculated using your specific objectives for your members to formulate benefit to the Coop and the constituents.

    Several opportunities exist for reducing energy storage project cost: volume discount purchasing, Federal or State research grants, coupling storage and solar PV to leverage the 30% Investment Tax Credit, and price risk sharing are immediate ideas.  Clearly a scenario where price risk is shared between the member and the cooperative, and less profit is guaranteed to the utility, is the Cooperative way.  Under GMP analysis, it appears GMP earns about $1,400 per installed Powerwall in the first 3 years.  If this Pilot’s 10 year cash-flow risk was shared with the cooperative member under an “Actual Plus” contract supported by a “Not to Exceed” number, member’s return on investment would improve significantly.

    Applying for Federal Education Grants to fund cooperative staff training on installation techniques for Tesla Powerwalls and SolarEdge inverters seems a logical step.  This installation ($2,140) and ongoing maintenance service could be offered to cooperative members as a value added service available from their distribution cooperative.

    And finally, as other cooperatives have found, bundling components creates a more attractive solution.  Bundle Tesla Powerwalls with solar PV (community or rooftop), or controllable electric water heaters, or AC control techniques; these would go a long way to flattening a residential cooperative’s power load curve.  This demonstrable, flatter curve, is beneficial for lowering bids when negotiating long term supply contracts with 3rd party generation providers.

    [1] U.S. Energy Information Administration. Form-861 Data 2014

    [2] Lifehacker, Tesla’s Powerwall: Crunching the Numbers for Australia, May 25, 2015

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