By Clayton Handleman
Recently Solar City announced that they are marketing DemandLogic™, a demand management product, developed by Tesla, which may cut electric bills for commercial facilities by 10%. This is a good thing but hardly revolutionary begging the question, how did it find its way onto Elon Musk’s radar? After all, Elon Musk is a strategic, visionary player whose goal is to transform electricity generation and transportation to zero or near zero carbon footprint. I consider it a safe bet that he is going after the nascent energy storage market. As renewable energy us increases, there will be rapidly growing need to expand energy storage. Musk describes his vision in this excerpt from a recent TED talk :
“Chris Anderson: Elon, what kind of crazy dream would persuade you to think of trying to take on the auto industry and build an all-electric car?”
“Elon Musk: Well, it goes back to when I was in university. I thought about, what are the problems that are most likely to affect the future of the world or the future of humanity? I think it’s extremely important that we have sustainable transport and sustainable energy production. That sort of overall sustainable energy problem is the biggest problem that we have to solve this century, independent of environmental concerns. In fact, even if producing CO2 was good for the environment, given that we’re going to run out of hydrocarbons, we need to find some sustainable means of operating.”
Musk’s focus and efforts are on paradigm shifting initiatives and companies. He has been instrumental in the success and direction of both Solar City and Tesla. Solar City is in the forefront of mass marketing and distribution of solar photovoltaics while Tesla has mainstreamed Electric Vehicles (EVs). How might we read between the lines to understand how DemandLogic™ fits into the grand strategy?
A good place to start is to see how Musk operates and a great place to see that is with Tesla Motors. Tesla had a clear road-map from the beginning. It was very deliberate, bold and visionary. It was not about building a car, it was about building an innovative 21st century car company, revolutionizing the EV market and not long after, the auto industry. This is being done with a three step program that began with the Tesla Roadster.
Introduced in 2008 the Roadster was viewed by many as a novelty. But it was far more, making a statement, demonstrating host of firsts and serving to inspire those inside and outside of Tesla. Several claims to fame were that it was the first production EV in recent times. It was the first production vehicle to use Lithium-Ion batteries, the first production EV to travel more than 200 miles on a charge and it demonstrated phenomenal performance, going from 0 – 60 mph in 3.7 seconds. This is a feat matched by only a very few exotic sports car models. Because those feats are noteworthy and newsworthy, they often overshadow the most exciting aspect of the Roadster which is its strategic significance as it pertains to Musk’s road map for paradigm shift. The Roadster was the seed from which a corporate template grew. The roadster creates the first phase in a bold three phase program designed to shift the auto industry into a 21st century paradigm. With the roadster Tesla laid the foundation for a great company with the best in class EV.
With the Model S the company transitioned the lessons learned to a mainstream luxury vehicle. The Model S is the safest car, the best car (according to Consumer Reports and Moter Trend) and a mainstream, mass produced production vehicle. With Model S Tesla gained best in class knowledge of all aspects of building an auto and an auto company. They also became a household name and established a network through which to market and sell their autos. It is so disruptive that many dealer networks are trying to stop it by changing laws to dictate how they sell.
The final step is the development of an EV that is priced to be affordable for the general population. Essentially, the Model T of the EV era. With that the EV market will be able to scale. And indeed this has always been part of the plan. The release date is currently being billed as 2016. But what does this have to do with DemandLogic™?
The short answer is that DemandLogic™ is undoubtedly the beginning of a less sexy but equally important piece of the zero carbon big picture. For solar energy to ever become a primary power source, solar has to be cost effective AND there has to be a cost effective way to store the electricity for the time that the sun is not shining.
Solar City is one of the companies leading the way to cost effective deployment of PV. Since the Chinese are now providing the solar modules at very low prices, the primary barrier to PV being cost competitive is to attack soft costs. For example, the cost of customer acquisition is comparable to the cost of the solar modules for residential sites. Solar City is connecting with Veridian network marketing to streamline the sales and marketing process. Solar City is also leading the way in financing. The nagging problem is storage.
But back to DemandLogic™. Watching the build-out of Tesla one can see a likely similar scenario with DemandLogic™. The end game is to have EV’s in most garages and having them connected to the grid bidirectionally so that they can source power to the grid as well as be charged by power from the grid. This is called Vehicle to Grid or (V2G) in industry parlance. Imagine if you had an electric car and it communicated with the grid and provided power to the grid when electricity prices were high and demand was high and the cars charged when demand was low and electricity prices were low. You could actually use your car as a revenue source when you weren’t driving it! This is being actively studied. But there are a number of challenges before we get there. The biggest of these are getting the cost of storage down and getting the systems in place to get price signals to move between the grid and many many small scale storage sites.
Battery prices will drop as volume increases and Tesla is pushing this and seriously considering building their own battery plant of sufficient size to double world output of lithium Ion batteries and reduce costs.
DemandLogicTM leverages a relatively small amount of storage to achieve considerable savings by dispatching power energy in such a way that it reduces the peak demand. Companies can be penalized significantly for using too much peak power. Just as the roadster was the high value platform on which Musk grew Tesla, DemandLogic™ appears to be the platform on which Tesla is developing the in-house expertise for serving the grid with distributed energy storage on a massive scale. Interestingly, DemandLogic™ uses Tesla batteries. So it has the added benefit that it will increase demand for the batteries pushing that technology down the learning curve and therefore down in price. Simply stated DemandLogic™ is the stepping stone to Vehicle to Grid (V2G).
While demand management is evolutionary V2G is revolutionary and DemandLogic™ is almost certainly the opening salvo of that revolution. It looks like Musk and company are repeating the Tesla strategy. Identify a niche market that uses technology similar to that needed for the ultimate goal and has a tolerance for a somewhat higher cost. Work in that sandbox and ship revenue generating, commercialized products. Then, using lessons learned move to develop the commoditizable, scaleable product that can ship in sufficient volume to have an impact. It is noteworthy that DemandLogic™ has not been spun off as would seem logical. That is consistent with the theory that it is a technology stepping stone for V2G and therefore it is sensible for it to remain inside Tesla as they likely plan to transfer the lessons learned from DemandLogic™ and its likely follow-on storage products, to the Tesla when the utility infrastructure matures to the point of being able to work with V2G.
Below is a back of the envelope set of calculations that serve as a sanity check to see if EVs have enough storage to get the job done (spoiler alert, they do).
Consider 20% penetration of EVs and 200 kwhr batteries. Note that Tesla S Series cars with 85 kwhr batteries are shipping today so this seems a very reasonable and safe assumption that it will increase substantially over the next 2 decades. There are about 250 million cars in the US today so this works out to 50 million EVs. If all were fully charged there would be about 10 Terrawatt hours stored.
E = 50 x 106 x 200 x 103 = 10 x 1012 Whr = 10 TWhr
The current NREL simulation shows electricity use peaking at about 0.8 Terrawatts = 800 GW. Currently the average number of miles driven per vehicle per day is well under 50. So we will use 50 miles as a conservative estimate. A Tesla Model S requires less than 15 kwhr to go 50 miles. Assuming 8 hours of overnight charging the increased demand would be about 100 GW. However this will be off-peak so it will not increase the peak demand. If we assume that the average car owner is going to permit 25% discharge of their car battery by the grid, then that comes out to 2.5 TWhr of storage available to the utility for managing grid fluctuations. In other words, if the entire grid were wind and solar powered with turbines scattered around the country, and the sun stopped shining and salt in the molten salt storage of CSP plants cooled, and the wind stopped blowing everywhere from the pacific coast to the Atlantic off shore turbines, the EVs would have enough storage to provide the grid its power for 2 ½ hours.
But that worst case will never happen because there is hydro base-load, solar generally is shining during peak demand and the wind does not outright stop everywhere simultaneously. For example, if demand is high, the price paid for electricity will skyrocket and the majority of EVs will be selling to the grid, not buying. Further, because the price will be high many will willingly discharge by more than 25%. In addition, with a market driven SuperSmart Grid setting prices for electricity dynamically, there will be a strong reduction in demand as non-critical loads get paid to go off line. Clearly the details will require much more extensive study. The point here is that V2G is offers a storage solution that is of the appropriate scale to support vastly increased penetration of renewable energy to a percentage where it can have a major impact on GHG emissions and may well be sufficient to get emissions to an acceptable level. Just a very few years ago, NREL did not even consider V2G sufficiently viable to include in their study examining the feasibility of 80% penetration of renewable energy. DemandLogic™ offers a glimpse into a future that appears poised to come much sooner than all but the most optimistic renewables advocates imagined.