Tesla Grid Battery – The Hype and Impacts to Natural Gas

It started in the end of March with a Tweet from Elon Musk, CEO of Tesla about how their next big product was “not a car”.   Now there are articles daily on the prospects of Tesla coming to market with a residential and utility scale battery all leading up to the official announcement from Tesla planned for today, Thursday, April 30.

There is no doubt Elon Musk is an innovator and now has a proven track record of executing on very complicated engineering projects.   After all, the guy started a car company (Tesla) and a space launch vehicle company (Space X),  both of which have been successful and transformed the industries in which they operate.  Is the utility industry next?

It should also be noted Mr. Musk sits on the board of SolarCity – a California-based residential and commercial solar array installation company – and his cousin is the CEO.  So Tesla finding new markets in residential and commercial applications for the batteries coming out of the soon-to-be-opened ‘gigafactory’ in Nevada is not a stretch.

All of this caught BTU Analytics’ attention and of course we want to know: what is the impact of a Tesla grid battery to the natural gas and electricity markets?  What does the current electric storage market look like today and how might it change in the future especially if the generation backing new storage is increasingly renewables?

It would appear Tesla and other companies are eager to impact this market.  California is providing regulatory tail wind with the passing of the 2013 AB 2514 which mandates an incremental target for 1.3 GW of electricity storage be built by 2020 (excluding pumped hydro storage).

In the past, electric storage has typically been used to back fossil generation.  For example, pumped hydro storage has long been used to take excess power from coal plants at night to run electric pumps to fill reservoirs that can then run hydro-electric plants during peak demand in the afternoon.  A brief look at the current state of electric storage shows that pumped hydro represents over 95% of installed capacity in the US and California, representing 20,382 MW and 3,967 MW of storage capacity, respectively (we chose California as it is the home of Tesla and on the leading edge of alternative energy).  Note – other storage types are: thermal storage (ex. ice and salt storage), electro-chemical (ex. lithium-ion, lead acid) and electro-mechanical (ex. flywheel, compressed air).   Notice lithium-ion battery deployments, the same type of storage Tesla is expected to sell, have gone from almost none in 2011 to over 9,000 kW in 2014 in California.

BTU Analytics Tesla Battery Blog 4.29.2015

If we look at planned and under construction electric storage in the US and California we see that pumped hydro storage, while still king, is seeing some competition from electro-mechanical and electro-chemical storage technologies.  As you would expect with the enactment of AB 2415, California represents 45% of all new US electric storage development.

BTU Analytics Tesla Battery Blog 4.29.2015_2

Following is some data on the California electric and natural gas markets.  We see generation fluctuates from 350,000 MWh/d to 550,000 MWh/d while natural gas demand fluctuates seasonally between 5 Bcf/d and 9 Bcf/d.  The US natural gas market is approximately 70 Bcf/d, so on average, California represents 10% of the US gas market – a market worth watching.  What the slide below shows is that natural gas, as a percentage of total generation, represents over 60% of the stack and stands to potentially bear the brunt of efficiencies achieved by incremental electric storage backed by renewables.

BTU Analytics Tesla Battery Blog 4.29.2015_3

The impact of additional deployments of battery electric storage paired with solar photovoltaics (PV) is natural gas demand stands to take a double hit.  Below is a schematic from JLM Energy (a battery supplier with a solution called Gridz) which shows the electric impact of PV on a res/com site where grid demand disappears at mid-day as PV ramps up as shown in yellow below – the first hit.  The second hit is if the PV array also charges a battery and the battery serves load at the site in the morning and in the evening (as show in blue below). This will further erode grid demand which as mentioned is predominately backed by natural gas in California.

The California ISO has expressed concerns about the increased volatility of electric demand as more renewables are dispatched in the generation stack.  The changing shape of the demand curve projected over the next five years takes the shape of a duck as shown below – hence the ‘duck curve’.  Wide scale deployment of residential, commercial and utility scale battery electric storage backed by solar could act to diminish the impact of the duck curve, particularly in the evening.

BTU Analytics Tesla Battery Blog 4.29.2015_5

We will have to see what details emerge around the Tesla grid battery announcement today.  Battery storage technology is working from a very small base today so material impacts to electric and natural gas demand will likely be minimal to start but this is a trend worth watching, especially considering Mr. Musk’s track record of innovation and commercial execution.

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Andrew is the CEO at BTU Analytics, LLC and has worked in the energy and technology industries for over 20 years. Prior to BTU Analytics, he was the Senior Commercial Director of North American Natural Gas at Platts-Bentek Energy where he led the natural gas analytics team. Andrew’s past experience includes positions at Amoco Production Company and Constellation Energy. He holds a Masters in Energy and Environmental Analysis from Boston University and a Bachelors in Geology from Colorado College.

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