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 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. 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.

Lithium-ion batteries are among the cheapest grid-scale storage technologies

According to data from Sandia National Laboratories’ ES-Select Tool, lithium-ion high-power batteries cost between $800 and $1,200 per kilowatt. If Tesla can keep the price of its Powerpack batteries in the low end of this range, the company can be a serious player in the grid-scale storage market.
Excel bar chart showing high and low thresholds for various energy 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, 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 is the final installment in a five-part blog series that that examines four applications for Tesla’s batteries. Part two of the series talks about how the batteries can be used in time-of-use arbitrage. Part three discusses how the Powerwall product can be used for residential backup power. And part four speaks to how the Powerwall product can be used for demand-charge management. If you’d like to share your opinions on any of these topics, please leave a comment below or send us an email.