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January 10, 2016

Tesla Fails to Refute IER’s Powerwall Article

January 10, 2016
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In a recent Washington Post column[i], Charles Lane characterized the media’s coverage of billionaire Elon Musk as, “the most fawning media treatment of any public figure since Pravda covered Stalin.” We saw this once again when Engadget, a popular technology website, dared to cover our recent article explaining the economics of Tesla’s Powerwall.

The first version of Engadget’s article was fair[ii], but then Tesla’s PR machine kicked into gear and the article was updated[iii]. The updated article says that we used “shaky math”, and that our work “does not represent real-world conditions for the Tesla Powerwall and deals in misleading data.” Engadget’s reporter, Jessica Conditt, fails to explain why our math is shaky and our data is misleading.

Our analysis of the finances of Tesla’s Powerwall battery found that the payback period for purchasing Powerwall would be 38 years with on-peak rates at $0.15 per kilowatt hour and off-peak rates at $0.06 per kilowatt hour.[iv] First, it should be noted that peak-rate pricing in the United States is very rare. According to a 2012 study, the Federal Energy Regulatory Commission found that only 1 percent of U.S. residences have off-peak vs. on-peak electricity rates. Using peak-rate pricing in our analysis makes the Powerwall more economic than it would otherwise be for the 99 percent of residences that do not have peak-rate pricing.

Second, in Tesla’s response to the Engadget article, they claim that rates were “undocumented rates.” The rates we used were typical rates and not out of the ordinary. For example, the rates provided by Green Mountain Power Corporation, whose rates are $0.17356 per kilowatt hour on-peak and $0.07715 cents per kilowatt hour off-peak,[v] are very close to our example. Using the Green Mountain Power Corp. rates, the payback period is 37 years at an installed cost for Powerwall of $7,340, or 36 years at the installed cost of $7,140 from Elon Musk’s Solar City[vi].

However, the difference between peak and off-peak rates for some utilities are much, much smaller. In Washington D.C., Pepco charges $0.145 per kilowatt hour for peak electricity and $0.132 per kilowatt hour for off peak electricity during the summer.[vii] If we had used these rates in our analysis, Powerwall would be totally uneconomic because there is no benefit in using a battery system when there is little or no difference between peak and off-peak rates.

Green Mountain Power has offered the Powerwall for $6,500 to its customers. At that installed cost and the Green Mountain rates noted above, the payback period is reduced to 32 years. However, that is still over 3 times the warranty period. The warranty period is critical for Powerwall because Powerwall is a lithium-ion battery, which is the same type of battery used in laptop computers and cell phones. Despite Tesla having state-of-the-art electronic controls for its batteries, having a laptop battery lasting more than 30 years is asking a lot.

Engadget also says that the customer has the option to pay Green Mountain $37.50 per month for the Powerwall with no money down. Over the 10-year Powerwall warranty period, the Green Mountain Power customer would pay the utility $4,500—$2,000 short of the $6,500. At $37.50 per month, it would take 14.45 years for the customer to fully payback the $6,500 to Green Mountain Power for Powerwall.

Engadget goes on to say:

Tesla says that regions with renewable-energy policies like feed-in tariffs — such as Hawaii, the UK and Australia — provide a more accurate basis for the Powerwall’s use in the wild. In these areas, “the consumer can utilize a Powerwall to consume more of their solar generation and the payback is less than 10 years, while providing the non-economic benefits as well,” Tesla says.

It is important to note that Tesla is admitting here that the Powerwall has an incredibly limited potential if the state that provides “a more accurate basis for the Powerwall’s use in the wild” is Hawaii. This is because Hawaii has the most expensive electricity rates in the United States. In fact, Hawaii’s residential electricity rates are 120 percent higher than the average residential electricity rates in the United States.

Furthermore, an analysis of Australia’s off-peak and on-peak rates by Lifehacker Australia shows that the payback period would be 25 years.[viii] And that analysis assumed that the on-peak rate would be about 4 times higher than the off-peak rate, making the economics much better for Powerwall. So, even in the case of Australia, the payback period is 2.5 times the warranty period. If you include solar in the mix in Australia, Lifehacker gets a 31-year payback period because it assumed that the cost of the solar system had to be repaid, as it must be.

Lastly, Tesla admits that the Powerwall’s economics do not make sense from a dollars and cents perspective. Tesla told the Engadget reporter that it admits that the rates structure we used, as well as the rate structure used by Lifehacker Australia, Green Mountain Power, and Pepco’s peak pricing rate structure all do not make sense to use with a Powerwall. Specifically, Tesla stated:

Transparently, if a consumer were to have a rate structure defined in the [IER] article, then the payback calculation is indeed correct. However, very few people with this sort of rate structure are interested in Powerwall for financial reasons. They are interested for energy independence, backup security, environmental reasons and tech early adoption, none of which are taken into account.

Tesla admits that the Powerwall does not make economic sense unless people consider “energy independence, backup security, environmental reasons and tech early adoption.” True enough, they are not applied in the IER analysis, and neither are aesthetics or personal happiness. IER’s analysis was economic, and it is difficult to determine what economic value one puts on these items when the economics are extremely far off. Neither Engadget nor Tesla provides Tesla’s calculation for Hawaii, Australia, or the UK, which may take these, or other non-economic issues, into account.

It is also not clear how these issues would be valued. The energy independence Tesla is apparently talking about has to be personal energy independencenot national energy independence. Tesla must be referring to energy independence in this sense because broadly speaking, solar panels reduce America’s energy independence as a whole, not increase it. America is very energy independent when it comes to electricity generation. The only fuel we import much of is oil, and it generates less than 1 percent of America’s electricity. The majority of solar panels, however, are produced in China.[ix]

Whether solar panels and a Powerwall are better for the environmental is also debatable. One reason is that rare earth minerals are used in the production of solar panels, and the production of rare earth minerals is frequently very toxic. The BBC called one of the leading places for the production of rare earths “the worst place on earth.” So it’s difficult to say unambiguously that solar panels and other products that use rare earth minerals are environmentally superior.

Furthermore, since the United States has a reliable electrical grid, why would these non-economic issues need to be entered into the analysis? It seems more likely that it should be applied to a country like Germany, where its “energy transformation”[x] policies of encouraging wind and solar power have increased residential electricity rates to over 3 times those in the United States and have forced industrial consumers to buy back-up systems because of problems that these intermittent technologies have created, making Germany’s electrical grid less reliable.

It is important to note that in Germany there are additional charges being incurred due to public policies, which have resulted in grid instability from intermittent sources being force-fed into a once dependable grid via devices such as feed-in tariffs and other subsidies, combined with mandates. When politics takes over an electric delivery system, costs are incurred in many different fashions. Tesla’s Powerwall looks to be just another potential cost, owing its livelihood to politics and the media.

Conclusion

Charles Lane of the Washington Post explained that Tesla gets awfully fawning treatment from the media and the update from Engadget is a good example of that. Tesla admits IER’s calculations are correct, but Engadget nevertheless says that our math is “shaky” and even apologizes for citing our analysis. Tesla’s PR machine obviously has a lot of pull with Engadget and tech reporters.

Neither Engadget nor Tesla showed why our economic analysis of Tesla’s Powerwall was wrong, and we have just showed that the assumptions we used were actually favorable to Tesla. If we had used the electricity rate structure used by 99 percent of American residential ratepayers, where there is no distinction between on-peak and off-peak electricity rates, things would have looked much worse for Tesla. And if we had used rates such as Pepco’s residential rates in Washington, DC (the home of IER), things also would have looked worse for Tesla.

The reality is that the Tesla Powerwall looks cool, but does not make economic sense.


[i] Washington Post, The government has spent a lot on electric cars, but was it worth, it?, January 6, 2016, https://www.washingtonpost.com/opinions/government-has-spent-a-lot-on-electric-cars-but-was-it-worth-it/2016/01/06/359bd25c-b496-11e5-9388-466021d971de_story.html

[ii] Engadget, A Tesla Powerwall pays for itself after nearly 40 years, https://web.archive.org/web/20160108035235/http:/www.engadget.com/2016/01/07/study-a-tesla-powerwall-pays-for-itself-after-nearly-40-years/

[iii] Engadget, A Tesla Powerwall pays for itself after nearly 40 years (Update), January 7, 2016, http://www.engadget.com/2016/01/07/study-a-tesla-powerwall-pays-for-itself-after-nearly-40-years/

[iv] Institute for Energy Research, How Long Does It Take To Pay Off a Tesla Powerwall?, January 5, 2016, http://instituteforenergyresearch.org/analysis/payback-on-teslas-powerwall-battery/

[v] Green Mountain Power Corporation Residential Time-Of-Day Service Rate, http://www.greenmountainpower.com/upload/photos/308RATE_61_Residential_Time_of_Day_Service_10-1-15.pdf

[vi] Bloomberg, SolarCity Taking Orders for Batteries Starting at $5000, May 1, 2015, http://www.bloomberg.com/news/articles/2015-05-01/solarcity-taking-orders-for-tesla-batteries-starting-at-5-000

[vii] PEPCO, District of Columbia Time Metered Residential Service Schedule, March 6, 2015, http://www.pepco.com/uploadedFiles/wwwpepcocom/Content/Page_Content/my-home/choices-and-rates/11.DC%20Rates%20Update%203-6-2015%20%20R-TM.pdf

[viii] Lifehacker, Tesla’s Powerwall: Crunching the Numbers for Australia, May 25, 2015, http://www.lifehacker.com.au/2015/05/tesla-powerwall-crunching-the-numbers-for-an-australian-suburban-home/

[ix] Institute for Energy Research, Hilary’s Solar PV Plan Aids China Manufacturing, July 31, 2015, http://instituteforenergyresearch.org/analysis/hillarys-solar-pv-plan-aids-chinese-manufacturing/

[x] Institute for Energy Research, Germany’s Green Energy Failure, April 2014, http://instituteforenergyresearch.org/wp-content/uploads/2014/04/German-Green-Energy-Study.pdf

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  • AaronD12

    What a boring pissing match. There is no point unless there is an underlying agenda.

  • iCrap

    i haven’t read the entire thing, but does your research include a linear price model? has the price of energy gone up over the last 37 years? what were the prices of solar panels in the 1970s? people that order a powerwall now, may do so because they paid a premium for a pv system, and would like to store their excess energy. or perhaps they wish to be off the grid. or perhaps, they enjoy the tech. sounds to me like you guys are just being dicks because you have an interest in the power companies. what will happen if in 5 years the powerwalls drop 30-50% in price, and the cost of energy goes up again? will it still be a “stupid” investment?

  • Peter Tabmow

    Let’s have your hidden agenda out in the open, Koch whores…

  • Chris

    Just another jab at renewable energy (and storage) option from whom else but those who have money to loose from cleaning energy up. They would rather continue polluting our lives that consider the common good.
    Yes, there is the ‘truth’ and there is good headline to stab renewable energy.
    Of course Powerwall doesn’t make economic sense on my house that doesn’t have differential tariffs. But is surely will get up on my wall together with my solar panels.
    Also on my hunting property my payback time is about one day. It would cost me more to pull in electricity than to put a couple of solar panels and Powerwall up.
    So yes, it’s just another jab at something threatening their interests.

  • Christian

    If the Koch brothers are putting so much effort into trying to refute the claims of Tesla’s powerwall, that can only mean one thing –> they are scared! And rightly so! As stated in other comments, the costs of the powerwall can only come down. Perhaps the IER is right and the payback time now 37 years, but what will happen if the price of these batteries drops by 50-70%? Combined with an equal drop in solar panel prices? These articles are the last convulsions of a dying industry! Bye bye!!

  • eugah

    This is not economic analysis, but propaganda. It ignores the most salient aspect of why people might want to install a Powerwall/Solar Array: to do something about carbon emissions! As long as the cost is not prohibitive, most people would rather do that. Also, by combining a solar array/storage system with an electric car, one does save money.

    The purpose of this piece is to slow the rate of adoption of PV/storage, because it represents an alternative to the Koch Brothers products: hydrocarbons. They would like to slow the uptake of products like storage in order to prevent the inevitable economies of scale that come from wide-spread adoption of this clean and liberating technology. Fortunately, this is a losing game. In 20 years the Koch Brothers will realize that they did nothing but waste their hydrocarbon fortune trying to hold back technological progress and the market.

  • Luciano Elias

    This is a pointless argument. There are some areas where it will be more economically feasible to have the Powerwall, while in others it won’t make sense. That’s like that with any energy source/storage, because there are multiple variables involved.

    To try and simplify it just shows that you have only one interest in mind: selling your point of view.

    Also, there are people in this world who are interested in doing things simply because they believe it is helping a bigger cause.

  • J.P. Katigbak

    There are so much to find out why are the ideologues so obsess with environmentalism when they do not want people like me to know about the so-called “Powerwall” even as prices of such a device would drop from 50 to 70%.
    I shall see about that soon. – J.P.K.

  • Robert N. Henry

    The real plus of the power wall is freedom to leave the grid and live anywhere.
    Also it starts the cycle of cost reduction for batteries. The cost per KWH for solar has dropped by 90% since 1992. The same thing will happen with power walls as new battery technologies (super capacitors and nano tech) are right around the corner. I’m not even a greenie and I love this product.
    Finally I note that the FA was defective because it doesn’t take into consideration the increase in the cost of electricity (as far as I can tell.) In 20 years we will not be talking about 12 cent per KWH but something like 50 cents per KWH. Thus a 6 cent difference now will be a 15+ cent difference then. Plus the only reason that 99% of the grid don’t offer different rates is that they are using old style meters which don’t capture energy use by time of day.
    This is a breakthrough technology and should be celebrated.

  • Brian Janot

    Big surprise. This website is funded in part by the Cock,oops, Koch brothers.

  • J.P. Katigbak

    There are so much comments around here in one of IER’s articles about the so-called “Powerwall” technology intended for use in off-grid electricity service.
    Of course, capturing energy use by time of day is justified to increase in the electricity cost, especially in the US. Then, why? IER shall out in one of the future articles soon.
    Finally, there are claims that the cost per KWH for solar electricity has dropped by 90% since 1992. Robert N. Henry said “the same thing will happen with power walls as new battery technologies (super capacitors and nanotechnologies) are right around the corner”. Say, are such technologies really a panacea? In my opinion, it’s for SURVIVAL! Someone can tell about the “Powerwall”: It’s for SURVIVAL. Period. – J.P.K.

  • Bernd Vöhringer

    I’m from Germany and I really was not aware that our power grid had gone so bad. In the news when I hear of power outages it’s in the US

  • Michael B

    Ouch, IER… with comments like these, who needs enemies, right? LOL Any merits to your calculations and “analysis” are now moot, as you’ve been *exposed*.

  • vensonata

    The premise: $7300 for the powerwall or $6500 from Green mountain power. The premise is wrong! That sum includes the inverter from solaredge at $3500. If one installs a solar system, the entire system including the inverter is priced and the “payback period” is based on that. Don’t count the inverter twice! A true and appropriate calculation is the entire package of PV, inverter, battery and labor. Now divide the total cost by the lifespan. You can either calculate the price per kwh free standing or the “displaced electrical grid cost”. You will find that a whole package including 30% tax rebate will compete nicely with the grid in New England, California, Arizona and Nevada. But not, say, in Washington State where it is cloudy and cheap electricity.
    I won’t go into every detail such as the estimated lifespans of each part of the system etc. But just remember that in calculations if you start with garbage in, you end with garbage out. Please read something by someone who is competent both in the technology that is being discussed and the math that needs to be applied. And did you notice, I didn’t call anybody any names?

    • Robert Haylar

      Unfair, and typical of the obsfucation that package prices produce.
      In Australia, Powerwall+inverter+solar is packaged at AUD 15,500 to 16,500. The same capacity solar+inverter can be installed for AUD 5,500 to 6,500, putting the cost of the Powerwall+inverter at $9000 minimum. Peak energy in the major cities is typically 22c to 25c/kWh, saving a possible 6.4kWh x $0.25 = $1.60/day or $584/year.
      Payback time for the Powerwall+inverter is 15.4 years. I chose the most flattering numbers from the range, but it could be 20 years.
      Exceptional tarrifs, for any reason, do not reflect the majority.

      But, there is at least one matter unmentioned. The battery will age.
      According to Tesla’s warranty, capacity at 10 years will be 85% of the original capacity at 2 years, 72% at 5 years, ending in 60% at 10 years. Since you mentioned competence, I am sure you can calculate the implied integral. After 10 years, gradually shrinking capacity means the expected income of $584/year, will become an ‘average’ of $409. There will still be $4,910 to pay off.
      But now, the next 10 years begin with a battery that has 60% of the initial capacity. Payback is essentially impossible.

  • Ignatz deFyre

    The payback period is irrelevant if 20 years from now the air is full of SH*T to breathe, all your aquifers have been fracked and water costs more than crude.

    I’ll tell you what IER: I’ll take a serious look at your numbers after you’ve rolled in all of the Oil Industry’s externalized costs, and apply actuarial reasoning to non-renewable inputs.

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