Almost no other company in America generates passionate debate like Tesla. Despite the fact that Elon Musk has built the company up from nothing amid extremely trying circumstances, while simultaneously upending the rocket industry with SpaceX, many investors continue to scorn Tesla. It was little surprise then that Tesla’s announcement of its grid-scale battery systems was greeted with skepticism and outright derision in some quarters of the market. Tesla bears may come to rue that dogmatic view.
Musk described demand for his firm’s batteries as “crazy off-the-hook”, and a recent report backs up that colorful assessment. The U.S. deployed 112 megawatts of energy storage in the fourth quarter of last year alone, bringing the total for 2015 to 161 megawatts. That figure is particularly remarkable in the context of the fact that there were only 221 megawatts of total storage in the entire country at the end of the year. This sequence of facts suggests the market is in its infancy and growing like crazy. The U.S. generates about 4.093 billion kWh of electricity annually, so the installed storage base is essentially nothing at this point. The situation won’t remain that way.
Many investors scoffed at Tesla’s proposed battery system arguing that it was too expensive for homeowners. That’s largely true, but also largely irrelevant. The real bulk in the energy storage market is from the utility-scale portion of the market. From traditional utilities to solar and wind farms, almost everyone in the power business is interested in energy storage. Peaker power plants are expensive to build and utilities are interested in moving away from that model. Doing so would allow many utilities to produce (or buy) energy overnight and then sell it to consumers during peak hours at a hefty mark-up.
Indeed, in some states, a company could literally be built around simply buying electricity at off-peak prices, storing it by battery, and then selling it back onto the grid at peak prices. Grid-scale options make a lot of sense for many power companies at a certain price point, and improving technology combined with production efficiencies from Tesla’s Gigafactory are rapidly pushing the country towards that point.
In addition to grid scale options, the residential and commercial business side of the market is more significant than many detractors believe. That market is small, but growing even faster than the utility side of the market is – a whopping 405 percent in 2015 for instance.
The market is likely to continue growing at a breathtaking pace. GTM Research which produced the report on 2015 growth is forecasting 1 gigawatt of installed storage by 2019 (up five-fold from present levels), and 1.7 gigawatts by 2020. That will make the market worth roughly $2.5 billion with plenty of runway for future growth.
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For investors looking to take advantage of that growth, there are not a lot of options. Tesla is perhaps the cleanest option. ABB and AES Energy Storage both make a variety of industrial equipment products, but their business models don’t have that much exposure to growth in the energy storage markets. Start-ups like Orison are great investments… except for two problems; since they aren’t publicly traded most people cannot invest in them, and you really want to have a broad portfolio to mitigate company specific execution risks.
By Michael McDonald of Oilprice.com
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