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 independence—not 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.
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, https://www.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, https://www.instituteforenergyresearch.org/analysis/hillarys-solar-pv-plan-aids-chinese-manufacturing/
[x] Institute for Energy Research, Germany’s Green Energy Failure, April 2014, https://www.instituteforenergyresearch.org/wp-content/uploads/2014/04/German-Green-Energy-Study.pdf