Tesla: The Future of Energy Storage
By: Harrison Waddell & Marco Di Diodato
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The Seismic Shift in the Energy Generation Landscape
The energy industry is undergoing a seismic change. Energy demand is projected to increase by 16 percent by 2030, fossil fuel use is projected to decrease by 35 percent, and the shift to renewable energy sources is imminent. At the forefront of issues is a lack of energy storage capacity. As the world shifts to renewables, it will lose the majority of its dispatchable energy sources, which can be adjusted to meet the needs of the grid. Currently, when the supply of non-dispatchable sources like wind or solar is high, the usage of oil and gas, and dispatchable energy sources is scaled back. However, as the supply of wind and solar energy diminishes, dispatchable generation fills the gap. To ease reliance on non-renewable generation, a significantly greater amount of energy storage capacity is required. There are a number of renewable dispatchable alternatives, hydrogen or other synthetic gases, pumped hydroelectricity, as well as several other more complicated methods. One standout amongst the rest is lithium-ion batteries. It’s simple to understand, it’s been heavily invested in already, and it’s very fast. However, the batteries and minerals that power them aren’t unlimited. This creates a sustainability issue to the “sustainable solution". One solution is to utilize the power of already existing batteries during periods of high demand.
Vehicle-to-Grid: The Future of Renewable Energy
V2G: Vehicle-to-grid technology is a system that allows electric vehicles (EV) to engage in two-way energy flow between their internal batteries and the grid. Vehicle-to-grid technology allows the idle battery capacity in electric vehicles to be used to store energy generated through renewable means. The energy stored in the lithium-ion batteries of vehicles can be strategically released to fill sudden energy generation gaps. Currently, electric vehicles can store about 43-kWh. To put this in perspective, the average Canadian household consumes around 19-kWh every day, allowing for just over two days of coverage for a fully charged EV battery. Through the implementation of V2G functionality, the global shift to EVs can be harnessed to promote a renewable future.
Through the decentralization of energy storage, the world can rapidly grant its grids the ability to store excess energy through the implementation of an incentive system for idle battery capacity. Just as EV owners pay to power their vehicles with fast mobile chargers, V2G technology allows owners to sell their energy back to the grid in exchange for profit. This two-way flow system, in addition to more accessible home generation, shifts the current role of consumers to ‘prosumers’ (producers and consumers) that strategically releases power to balance grid supply. V2G allows electric vehicles scattered across the grid to be used as a form of decentralized network energy storage system. Through the implementation of algorithmic energy trading, V2G technology stores energy in vehicles during peaks in supply and returns it to the grid in supply troughs. Neighbourhood driveways become a decentralized network of batteries supplementing the grid. One of the major advantages of this strategy, as opposed to controllable renewable energy, is the increasing amount of power provided locally.
Case Study: A Look at Germany’s Grid from 2015 to 2022
To better understand the future of energy, look to the past, specifically, Germany from 2015 to 2022. The past seven years in Germany have indicated that everything boils down to variability.
During the studied period, Germany was nearing its phaseout of nuclear power, which makes for a very interesting case study. From 2015 to 2022, Germany dramatically increased its solar generation capacity. In fact, Germany increased renewable generation across the board. The simple nature of most of the renewable energy sources that are used today is that when they produce energy, it is not controlled. As such, the biggest difference between 2015 and 2022 is the significantly larger variability in energy production.
With time (and money) Germany, along with every other country, will develop the infrastructure to satisfy its load requirements with renewables. As such, Germany will need another way to satisfy its nighttime demand. One such way is energy storage. By using the same week from 2022 as a historical basis, one can simulate energy storage consumption and generation under a few assumptions.
There were two notable cases that were tested in the model. Case 1 was based on IAEA and IEA projections about demand growth and fossil fuel decreases. Case 2 was based on the same demand growth but the edge case of 100 percent fossil fuel decrease. Case 1 projects 35 percent less fossil fuel generation and that the missing demand will be met 32.5 percent by solar, 60.0 percent by onshore wind, 6.0 percent by offshore wind, and 1.5 percent by run of the river.
Case 2 projects the edge case of a completely fossil-free system. The missing demand is met by the same assumptions as case 1.
The simulation study yields three noteworthy implications. Firstly, the energy generation and consumption in Germany are unbalanced over the course of a week, with significant power generation occurring during weekends and high power consumption taking place from Monday to Thursday. This highlights the need for efficient energy storage solutions that can store surplus energy for up to 3-4 days. Secondly, the V2G and battery systems must be capable of distributing roughly 15,000 MW of electricity within a 15-minute window as per the first scenario. Lastly, to support the energy requirements in the first case, Germany would need approximately 11.2 GWH of energy storage capacity, which is equivalent to the energy storage capacity installed in the United States in 2022 and can be provided by about 112,000 high-end Tesla models. Notably, 26,000 Tesla vehicles were sold in Germany in 2021.
Another key point of analysis is that when Germany produces above the load, it exports the balance, and when it produces less than the load, it imports the balance. This is important for two reasons: Germany is exporting during energy production peaks, as such, it is exporting for the lowest price, and similarly importing during energy troughs, thus importing for the highest price. This creates a governmental incentive toward vehicle-to-grid (V2G). Instead of international trade, this demand would be traded locally: at peaks to cars, at troughs back to the grid. With this strategy, Germany could limit leakages from the domestic economy.
Germany is an interesting case study in variability. The historical data indicated that as baseload production like nuclear diminishes, variable production increases. This trend was supported by evidence in the case’s projections. Thus if Germany is any indicator for the world at large, the demand for short-term energy storage seems inevitable.
The Path Ahead
From a business perspective, this looks like free growth. The demand is guaranteed, the supply exists, and the mechanism to bring equilibrium to the market is nearing commercialization. From a human perspective, the outlook is a lot foggier. One of the biggest issues with electric vehicles now is the range anxiety that drivers feel and V2G will only add to that anxiety. Thus, businesses must consider how to incentivize consumers to use the service. On the opposite side of the market, utility companies may resist this future. Bringing them to the table and incentivizing their cooperation will be key to the commercial success of vehicle-to-grid.
Why Risk Not Being Able to Get to Work in the Morning?
The simplest reason is money. Auto companies are expected to take a percentage of all the energy transactions flowing through their chargers, but making sure that they leave enough on the table for consumers to want to use the service is key to commercial success. In addition, the V2G product needs to be designed with consumers in mind. Optimizing around their calendar, historical travel, etc. to provide a product that seamlessly integrates into the consumer's life and avoids as much of the additional range anxiety as possible. In the case that something does go wrong, and consumers run out of power during their commute, auto manufacturers that now have the capacity for bilateral charging should implement a roadside assistance service powered by a fleet of their own vehicles. By offering this service to all V2G participants, auto manufacturers can enclose their ecosystem and develop trust with their consumers.
Why Give Excess Power Away Just to Buy It Back for More?
The answer is once again money. First, the alternative for utilities is to invest more into their own storage capacities, capital that could be better used expanding renewable generation. Second, grid stabilization has been shown to reduce grid reinforcement costs. In a UK case study, Kaluza demonstrated the potential to save £3.5 billion in grid reinforcement per year in the UK alone. Finally, V2G can offer solutions that have so far plagued utility companies. As weather events impact the grid, strong car batteries can provide power to homes for up to 3 days, allowing the utility companies time to repair the grid. This partnership will symbiotically improve both the utilities and the auto manufacturers' consumer relationships.
How Tesla Can Contribute
Tesla has the unique opportunity to introduce V2G compatibility to its cars and strengthen its top line while staying true to its mission of leading the shift toward renewable energy.
First, the company already has the infrastructure to connect its EVs to power grids given its development of the Tesla Powerwall, which is a vehicle-to-home implementation of the technology that would be used in V2G. This positions the carmaker to introduce this new technology for its vehicles without a long R&D period.
Second, as a leading EV maker, Tesla has the critical mass of vehicles necessary to tangibly shift the energy grid to a more renewable system. The United States, for example, had an energy grid capacity of approximately 7 GW in 2022, which is equivalent to the storage capacity of just 70,000 Tesla vehicles. In 2022, over 500,000 Tesla vehicles were sold in the United States, which implies that only a fraction of existing US vehicles would need to opt into the V2G program for it to be transformative for the country’s energy grid. This opportunity exists in areas where Tesla sees the most sales, primarily in North America, China, and Europe.
Finally, V2G could be financially beneficial for Tesla. If customers were selling their Teslas’ power to utility companies, Tesla could theoretically take a cut from these sales. Given that the basic infrastructure exists for such energy transfers, the incremental costs for the carmaker to introduce V2G compatibility would be minimal, and it has the opportunity to substantially improve Tesla’s bottom line.
