Will Tesla’s “Gigafactory” Crack the Energy Storage Market?

Tesla has revealed plans to develop its stationary energy storage systems.
Published: Tue 18 Mar 2014

Upstart automaker has just revealed plans to open a US$5 billion “gigafactory” to make advanced batteries for its next generation of vehicles, as well as supply lithium-ion batteries for stationary storage applications.

The batteries can be used in homes, commercial sites and by power utilities for backup power, peak demand reduction, demand response and wholesale electric market services.

Tesla could be tapping into a market that has the potential of surpassing its core business of making luxury electric vehicles. Large-scale grid energy storage may even be on the cards.

Tesla recognizes potential of stationary energy storage

Tesla, in conjunction with Panasonic, has been developing battery packs for homes. The battery can be used to store solar energy from rooftop solar panels so that consumers can use this excess power at night. The battery packs are proving to be cheap, reliable and compact. These could prove to be a real game-changer for the solar industry. The potential of this market is huge since the cost of solar technology and its installation is plummeting at a rapid rate [Read our article Cheaper Solar Installations-Watershed Moment for Distributed Generation and Renewables]. As a result, consumers will want to store this excess solar energy for personal use or sell it back to the grid.

Last year, the company agreed to supply battery packs to SolarCity in San Mateo. This formed part of a new energy-management service offered to businesses as a way to cut their utility bills.

SolarCity is developing a similar service for homes.

Investors: Grid scale storage market is growing

The market for grid-scale storage is predicted to reach US$30 billion by 2022, according to Pike Research. Large-scale energy storage has the ability to strengthen the performance of power grids and help prevent blackouts. It can also supplement the variable amounts of electricity flowing from solar power plants and wind farms.

Many experts say that Tesla has the potential of seizing a commanding role in the grid scale energy storage industry.

If Tesla proves to be a leader in commercializing battery packs, investors may never look at Tesla the same way again, says Adam Jonas, a business analyst. He explains, "If Tesla can become the world's low-cost producer in energy storage, we see significant (opportunities) for Tesla to disrupt adjacent industries."

The race towards affordable energy storage

California officials have made the development of a viable energy storage industry a high priority. In response, a number of startups are racing to find ways of storing large quantities of electricity at a reasonable rate.

The California Public Utilities Commission ordered the state's utilities to buy more than 1.3GW of electricity storage by 2020, enough power to supply 993,750 typical homes. [California’s Energy Storage Mandate-Will Others Follow?]. The mandate has virtually created a market overnight and is a further indicator that the energy storage market is set to accelerate rapidly as we recently reported in Energy Storage Solutions Continue to Boom.

However, the goal of attaining affordable large-scale energy storage has proved to be elusive thus far. Over the years, startups like Xtreme Power and Beacon Power Corp. (now newly revived with another storage idea) have filed for bankruptcy as a result.

The grid storage space is tough and is being targeted by a host of direct competitors such as BYD, Mitsubishi, Panasonic, Samsung, LG Chem, Johnson Controls, Saft and others with very big budgets, as well as a host of startups and smart grid vendors with grid energy management software and hardware.

But, perhaps Tesla will get it right? Tesla sees the Gigafactory as key to reducing battery prices and making electric vehicles more affordable. By the time it reaches full production in 2020, the proposed plant would annually produce enough batteries for 500,000 cars. The factory's economies of scale could cut battery costs by more than 30%.