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Is Tesla disrupting non-renewable energy?

We are fans of Tesla as well as other innovating companies in the energy space. As we tuned in to the Tesla media event regarding their new PowerWall system, we couldn't help but think that this is the future. Critics immediately begin talking about cost effectiveness and cost per kilowatt ratios not making sense. This is an incredibly narrow vision using today's standards. What they don't seem to be seeing is the longer term trajectory. Just look at solar, the cost has dropped nearly in half in just five years putting it on parity with some of the more expensive grid options. While grid based utilities have increases prices at inflationary rates. Five years ago, solar critics would squawk about the high cost of solar compounded by the low efficiency.

The thing with renewable energy sources is that there is plenty of sun, wind and hydro energy to power the planet many times over on a daily basis. To address our planet's energy usage involves two simple things. 1. Finding cost effective ways to convert this natural energy into usable electricity. 2. Managing the erratic delivery of natural energy to better align with human usage.

With #1, huge strides have been made here especially with solar. The US is actually lagging in this area as other countries such as China and Germany have fully committed to renewables. China is flooding the market with cheap solar panels and is the worlds leading producer. Where the US is leading though is through innovation. US solar companies are focused on improving efficiency and ease of installation. There will be a breakthrough with solar and that will likely come from a company focused on innovation with actual R&D investment. The last five years has focused on lowering costs. We believe that the next five years will see gradual reduction of costs and gradual improvement in efficiency. The benefit of both will in essence lower the price of solar significantly yet again. Within 10 years, we anticipate a breakthrough in solar technology to become commercially viable. This will be a tough environment for solar companies with huge downward price pressures but great for consumers.

Wind and Hydro seems by solar standards to be much more stagnant. The focus here has been mainly on lowering costs in both equipment as well as geographic locations. What will benefit all of these sources of energy is a cost effective way to store the excess capacity. That is where batteries come in.

Today, even with Tesla's announcement of a $3500 10 kWh battery (compared to $10,000 from other competitors), the price for storage is still slightly too high when directly compared to grid pricing. So other factors such as emergency backup power and pure environmental benefit concerns will be emphasized. It's a shame that in today's society, price plays such an important role but that is the reality. But guess what? We can't tell the future but we would not be going out on a limb to suggest that batteries too will continue to see huge price drops as supply ramps up to meet demand and efficiency continue to improve. Here is a great article and study from Winfried Hoffman that projects battery storage costs of $0.25/kWh today to $0.06/kWh in 2030. We actually think that this is too conservative as it doesn't factor in possible paradigm shifting (hate this cliche but it's appropriate here) advances in efficiency and costs. There is a ton of work going into exploring new materials such as magnesium, sulphur, capacitor, copper foam, etc. Yes, most of it is vaporware, but the exciting thing is that there is more and more attention put into advancing battery technology.

Basically, Tesla created a modular battery system that highly leveraged their experience in automotive. They can basically infinitely scale up the battery modules to serve consumers, businesses and large scale utilities. To us, this almost seemed inevitable. It seemed really odd to us that our grid system is truly based on a on-demand type usage. Brown outs, power surges, mandatory usage restrictions are all a relic of this type of system. Our power grid is antiquated and actually quite vulnerable. The timing is perfect for upgrading and re-thinking our nations energy infrastructure. A battery based solution almost seemed obvious to normalize the loads on our grid but costs were always prohibitive until now. Utilities move very slowly so adoption will take decades not years but the outlook is promising. One bit of irony is the fact that Tesla is promoting DC microgrids. For those that follow Nikola Tesla, you'll be familiar with his huge battle with Thomas Edison on the merits of AC vs DC. Apparently, Edison was a huge proponent of DC but that would have required massive investment into micro-grids located near users. He even went as far as electrocuting dogs with AC current publicly to denounce Tesla. We feel that AC was the definite way to go back in the early 1900's. But now with advances in DC capabilities, it is time to explore the benefits of both.

So did Tesla's PowerWall "disrupt" the traditional utility industry. The short answer is no, not today. But they are clearly laying the groundwork for them and many other innovate energy companies to truly transform how we capture and store energy in the future. It's inevitable.




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