Earlier this month, Tesla announced its new Powerwall, a home battery system designed to hang in your home or garage. Since the announcement, there has been an explosion of buzz about the new device, with some already heralding Tesla’s victory over fossil fuels and the utilities. With this post, I’ll introduce Powerwall, and discuss why you shouldn’t expect it to unleash solar or kill the utilities, despite what the hype suggests.

Introducing Powerwall

Powerwall is a wall-mounted lithium-ion battery pack designed to store energy from the either grid or rooftop solar panels. The pack is designed to remain unobtrusive, with a depth from the wall of just seven inches. Despite its slim exterior, the pack can hold up to 10 kilowatt-hours of energy, enough to power a typical U.S. home for about 10 hours. Furthermore, the device includes its own liquid cooling system to ensure safe operation and a long life. The device is warrantied for 10 years.

Two models are available: a 10 kilowatt-hour system designed for backup applications priced at $3,500, and a 7 kilowatt-hour model designed for daily cycling priced at $3,000. The quoted prices do not include the inverter or installation, both of which can be significant. According to reports, SolarCity will offer 10 kilowatt-hour systems starting at $5,000 for a nine-year lease or $7,140 for purchase—more than double Tesla’s quoted price.

Not Just For Solar Energy

Elon Musk’s Powerwall presentation wasn’t just a product unveiling, it was also a pitch for Tesla’s vision of the future of energy: solar power stored in Tesla brand battery packs.

While this vision is certainly compelling, it turns out its unlikely the first Powerwalls will be used to store solar energy, because today it is more economically advantageous to send solar power directly to the grid than it is to store it.

Most utilities offer customers with solar panels a net-metering rate, where produced solar energy essentially rolls back the customer’s electric meter. Given the choice to either send solar energy to the utility as it’s produced or store it in your Powerwall, lose 10 percent of the energy to inefficiencies, and send it to the utility later, the obvious choice is sending solar energy directly to the grid without storing it.

Jonathan Bass, a spokesman for Elon Musk’s own SolarCity, clarified this point to Bloomberg, saying SolarCity would not offer the 7 kilowatt-hour Powerwall because it “doesn’t really make financial sense” to store solar energy on a daily basis due to existing net-metering regulations.

What Powerwall does offer to customers with solar panels is the ability to run off their own solar power during an electric outage. Today, solar panels typically must totally disconnect from the grid during an outage, leaving the customer without power. Powerwall changes that, acting as a buffer between the power supplied from solar panels and the electricity demand from the home to provide firm, reliable power during an outage. It’s worth noting that a typical U.S. home only experiences one to two outages a year, so it’s questionable whether Powerwall’s reliability benefit will outweigh its cost.

One thing Powerwall might actually do on a daily basis is work to reduce electricity bills for customers that have time-of-use rates, which have a higher energy price during the day and evening than at night. Powerwall would store energy at night, when electricity rates are lowest, and then discharge in the late afternoon and evening, when rates are typically highest. The effect would be to reduce the customer’s net energy use during peak hours and their bill.

Even for these customers, Powerwall would preferentially store energy at night, so it probably wouldn’t capture energy from rooftop solar panels. Rather, it would increase demand for inexpensive nighttime electricity generation, which is mostly coal in much of the United States.  

Don’t Ditch the Utility Yet

With the announcement of Powerwall, some are predicting the rise of grid-independent homes powered entirely by their own rooftop solar panels and battery systems. Does Powerwall spell doom and gloom for traditional utilities? Not exactly.  We’ll always need the their wires, but there will be less and less need for their energy.

The paper, “Leaving the grid: An ambition or a real choice?” recently published in the journal Energy Policy examines the decision to ditch the utility company from the perspective of a residential customer under various scenarios, including various technology costs, photovoltaic-battery system sizes, consumer electric loads, and utility tariffs/incentives. Under all of the scenarios considered, staying connected to the grid resulted in lower costs, greater reliability, and more convenience for the consumer.

It all comes down to a sort of catch-22. If the homeowner doesn’t have enough solar panels and batteries to cover their electricity use 365 days a year, they want to stay connected to the utility for reliability purposes. If the homeowner does have enough solar and batteries to cover all of their needs, they’d still rather stay connected to the grid in order to sell any excess solar power to the utility rather than waste it. So don’t expect a mass defection from the utilities just yet.

While utility customers will still want the wires connecting them to the wider grid, they will have less and less need for electric energy generated by the utility. This fact makes covering costs difficult for the utility, which traditionally uses income from the sale of energy to pay for meters, wires, poles, transformers, and other electric delivery costs.

To cope with the transforming electricity system, utilities will have to shift to an energy-services model, which provides grid connectivity to not only deliver energy, but also buy energy and other services from customers. The utilities are the only bridge between a typical homeowner and the wider electric grid, so there will be a market for their wires—they just have to find out how to bill customers in a way that pays for them.

A Spark for the Future

While Powerwall isn’t a game changer for solar or the utilities yet, it has undoubtedly stoked excitement from Tesla’s sizable fan base and many others who might not have previously known about the concept of storing energy in a home battery system. Seemingly overnight, Powerwall moved the idea of home battery systems from a far-off future possibility to a very real issue that will be debated by legislators, regulators, and other decision makers. I anticipate the real impact of Powerwall will be felt once the conversation it started is resolved, and a market framework exists to utilize home battery systems and other distributed resources in a way that maximizes their value to the wider grid, and makes the best use of renewable energy.