Utilities use large-scale batteries for a wide variety of applications, such as shifting excess supply to times of higher demand, regulating frequency, supporting voltage, deferring transmission and distribution upgrades, and relieving congestion. Although many electric storage products are available to utilities, lithium-ion batteries are becoming more popular.

Well suited to being grouped into banks of tens or hundreds of units, the Tesla (NASDAQ:TSLA) Powerpack battery is competitive for grid-scale markets. Tesla sells the Powerpack batteries for $250 per kilowatt (kW), but with associated power electronics and installation costs, the batteries will probably cost at least $500 to $1,000 per kW installed. According to Sandia National Laboratories, the least expensive technology for grid-scale storage is hot thermal storage, at about $110 to $300 per kW (see Figure). One of the most popular technologies for grid-scale storage is pumped hydro, which comes in at $1,800 to $2,200 per kW. Cavern compressed air, another utility classic, is pegged by Sandia at $700 to $1,300 per kW. If Tesla can actually deliver batteries at an installed price of $1,000 per kW or less, it has a good chance of competing in this market.

The data for this table was obtained from the ES-Select Tool made available by Sandia National Laboratories. It documents the minimum and maximum costs for a variety of grid-scale storage technologies.

 

FIGURE: Lithium-Ion batteries amongst the cheapest grid-scale storage technologies 

 

Grid-scale storage is a commodity business, and Tesla, which until now has sold premium products to early adopters, will have to demonstrate that it can compete in this sphere. Judging from the partnerships the company has forged so far — including agreements with Southern California Edison (NYSEMKT:SCE-E), AES (NYSE:AES), and Oncor — it seems the company is well on its way to building the capabilities needed to compete for utility sales. Indeed, on a revenue basis, it appears that utilities are going to be Tesla’s biggest battery customers. Tesla chief technical officer JB Straubel estimates that about 70 percent of the billion dollars of battery reservations Tesla has taken so far are for the Powerpack industrial-sized battery that utilities will use for grid-scale systems.

As with so many things associated with Tesla, gearing up for this business is requiring the company to make huge investments. It remains to be seen whether Tesla can produce stationary batteries at a high volume and do so profitably.

This post is the final part of a five part series. The first post, titled Who’s reserving all those Tesla Batteries and what do they plan on using them for? explains why only three of the five applications proposed for the Tesla battery line are likely to be successful. The second post, titled Tesla's battery - a good fit for time-of-use arbitrage but investors beware examines how the batteries are unlikely to pay for themselves over the course of their useful lifetime. The third post, titled Tesla's Powerwall as residential backup power details why the Tesla Powerwall is likely to take market share from small backup generators, and even expand the home backup power market. The fourth post, titled Demand Grows for Demand-Charge Management, examines the economics of battery demand-management systems for commercial buildings.

This blog series was originally published on the E Source Blog.

Jay Stein, Senior Fellow at E Source, is one of America's leading energy technologists. Over the course of his nearly 40-year career he has played numerous roles, including entrepreneur, manager, designer, researcher, and thought leader. Some areas of technical expertise he's well known for include utility emerging technology programs, black box technologies, HVAC technologies, distributed energy systems, and energy storage. He has also authored and coauthored several hundred technical papers, magazine articles, blog postings, book chapters, and conference presentations.