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How Electric Grid Problems Could Short-Circuit Tesla Motors Inc

The biggest roadblock facing Tesla Motors (NASDAQ: TSLA  ) could be America's aging and inadequate electrical grid. The grid might simply lack the capacity to provide the juice for all those electric vehicles Elon Musk and company want to put on the roads.

Power grids in most neighborhoods are simply not built to handle the amount of power electric vehicles could pull from the grid, MIT Technology Review reported. The magazine noted that fast-charging a Tesla Model S can draw as much power as three houses. Residential neighborhood grids were not built to stand that kind of use, and nobody knows how charging electric cars will affect them.

Then, there's the sorry condition of the electrical grid. When the American Society of Civil Engineers graded the power grid for maintenance and reliability last year, it got a D. The society noted that parts of the grid were actually built in the 1880s, and the number of power failures and interruptions is increasing. The grid's in lousy shape without the added demand from electric cars.

Electricity shortages possible
Even if the grid works, the electricity those cars need might not be there. New data from the U.S. Energy Information Administration, or EIA, found that electricity production in the U.S. in 2013 was lower than it was in 2007. To make matters worse, electricity price increases in 2014 were so great they actually drove the Consumer Price Index up.

Electricity prices have been rising for a variety of reasons, including the rising cost of natural gas, the high price of maintaining, expanding, repairing, and upgrading the grid, and the high cost of replacing or upgrading coal-burning power plants that do not meet strict new EPA requirements. As is often the case, steadily rising prices indicate a seriously limited supply of electricity. Some observers think that shortage will get worse as more coal-burning plants go offline. 

Smart grid and charging stations could fix problem
The good news for Tesla stockholders is that the grid crash might not occur. Tesla owners could simply use fast electric-charging stations that are connected to commercial grids that can handle the load.

Smart grid technology could enable utilities to identify the location of electric cars and upgrade lower-power lines to deal with the situation. Simply charging the cars slowly could help prevent the problem, the MIT Technology Review noted.

New technologies could add enough electricity to the grid to meet the demand from electric cars. California escaped blackouts during the drought because solar power replaced the lost hydroelectric power. Natural gas burning power plants, which put out less pollution, could replace coal burners.

Grid shortcomings still a threat to Tesla
Even with those potential solutions, the grid's shortcomings could still be a big problem for Tesla. The biggest of those problems could be price. When Nerd Graph crunched a few EIA numbers in October 2013, it made a frightening prediction: Electricity prices in the U.S. will increase by 21% over the next 10 years, and 51% over the next 20 years.

Electric cars are being sold to the public with the expectation that home energy costs will be lower than vehicle fuel costs. What happens if home energy costs start exceeding fuel costs, even as a competing non-polluting technology hits the road?

Tesla could have a hard time competing with hybrids and fuel-cell vehicles that make their own electricity. Toyota is planning to bring out hydrogen-fuel-cell vehicles that get 60 miles to the gallon in 2015. Hyundai and Honda are also planning to bring out fuel-cell vehicles for 2015. Like electric cars, fuel-cell vehicles have zero emissions.

No matter how you look at it, the electric grid could be the biggest threat to Tesla's future. Elon Musk is going to have to face that reality sooner or later if he wants his company to survive.

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  • Report this Comment On March 26, 2014, at 4:11 PM, jimbo1111 wrote:

    The DOE released a study in 2006 which suggested that, with the electric grid *then*, there was enough spare capacity for something like 150 million EVs.

    So no, there will not be an electricity shortage, not for a long time. Especially as installed capacity goes up, and as more people install home solar (~30% of EV owners in California have home solar installations which fully charge their cars).

    Further, EVs actually help electricity providers by smoothing out demand and making it less peaky. Even without smart grids, though we advance towards smart grids anyway.

  • Report this Comment On March 26, 2014, at 4:22 PM, drax7 wrote:

    What if we run out of oil quicker than the grid deteriorates. This article is again about protecting the oil cartel and aggravating climate change.

  • Report this Comment On March 26, 2014, at 4:31 PM, StanO6 wrote:

    "Elon Musk is going to have to face that reality sooner or later if he wants his company to survive."


  • Report this Comment On March 26, 2014, at 4:36 PM, miken13 wrote:

    This article has lots of scary-sounding statistics, but let's take a closer look:

    Yes, the Tesla could take enough electricity to power 3 houses, but most people will recharge it from a 220V/30A circuit; the same as their clothes dryer. I'll promise to only charge my car at night when I'm not using the clothes dryer. Problem solved.

    Yes, electricity could increase 21% in 10 years and 51% in 20 years. However, even without compounding, that is only an average of about 2% per year. Sounds like the rate of inflation to me. Get used to the idea; almost everything will increase in cost 21% over the next 10 years.

    Personally, I would rather bet on electricity costs being stable than betting on oil/gas costs being stable 20 years into the future.

  • Report this Comment On March 26, 2014, at 4:42 PM, SkepikI wrote:

    <When the American Society of Civil Engineers graded the power grid for maintenance and reliability last year, it got a D. The society noted that parts of the grid were actually built in the 1880s, and the number of power failures and interruptions is increasing. The grid's in lousy shape without the added demand from electric cars.>

    While I do not disagree with the basic conclusion that the grid is in lousy shape (no thanks to wind and solar, more later), the details in the above are flat out wrong. The parts of the grid built in the 1880's must be vanishingly small, I challenge anyone to specifically name them. Most of the grid that exists today wasn't even dreamed of in the 1880's let alone built then. A very large chunk of the West wasnt even electrified till the 20th century... I know I worked in a lot of it and sited power plants along much of it in the 1980's and 1990's- a century after your bogey.

    The biggest problem the grid has other than security is the "on demand" nature of current control - which I DONT WANT TO SEE CHANGE- but which delivers a "peaking" and grid reliabilty headache of considerable proportion. This is accentuated by the either UNCONTROLLABLE or LESS CONTROLLABLE (depending on how honest you want to be) generation assets like wind and solar we have added willy nilly to a creaky system.. Add in similarly less controllable loads like car batteries at two or three times the load designed for and the headache turns to ummm a stroke?

    This is not a problem that once it starts, you magically fix by uttering "smart grid". Serious utility scale controllable powerplants take more than 4 years to plan, design build and commission. Major grid backbones maybe more. That's if you can get people to allow them to be sited....which can take 3-10 years more.

  • Report this Comment On March 26, 2014, at 6:00 PM, asia555 wrote:

    This is so stupid. Can we get more negative articles on TSLA to bring the stock price down? And yes, I will buy more shares. The company is doing great and will be doing great for a long time.

  • Report this Comment On March 26, 2014, at 6:36 PM, timlonely wrote:

    "Electricity prices in the U.S. will increase by 21% over the next 10 years...". Please remind me how much was gas 10 years ago? Average was $1.60. In 10 years gas price doubled. I don't mind paying electricity 21% increase in the next 10 years because in 10 years gas price could double. Some will say no way but if 10 years ago someone told you that gas price in 2014 will double, what would you have said? No way!!!

    As a reminder gas price in many European countries are between $7 and $9. Our Canadian neighbors are paying an average of $4.60.

    The grid issue will give homeowners more incentive to go solar where price have dropped nearly 60% ( and to add a battery pack from Tesla to seriously go off the grid or very little dependency from the grid.

  • Report this Comment On March 26, 2014, at 8:23 PM, CAGriffinX2 wrote:

    This is all just more bull$hit FUD in the media to harm TSLA stock. This author must be short TSLA.

    Anyway, this will not be a problem since the vast majority of EV owners will charge their cars during off-peak hours at night when there is an abundance of electricity available on the grid. You can plug in your Tesla when you get home for the evening, and set the car to start charging when electricity is at it's lowest demand (and lowest cost!). With Tesla's optional "High Power Wall Connector" installed in your garage, you can charge a fully-depleted 85kWh battery pack in just 4.5 hours during these off-peak hours.

    Also, as Jimbo1111 stated, many EV owners will have solar systems on their homes to charge their cars.

  • Report this Comment On March 26, 2014, at 8:55 PM, CarFanatic wrote:

    This is just another headline grabber based on mis information.

    Tesla cars do not use the same power as 3 homes. An electric oven/stove uses much more.

    Only a Supercharger could possibly use that much. And just used on long trips.

    As stated by commentators: EV's will charge at night during off peak hrs.

    Tesla is doing a great job and exceeding all expectations.

    They are trying to reduce our dependence on oil.

    And help clean up the environment.

  • Report this Comment On March 27, 2014, at 12:38 AM, DrDauger wrote:

    This question was addressed months ago in a study of actual EV owners and their community in Texas last summer:

    I am a Model S owner and have solar panels. My car starts charging at midnight and and ends at 2-5 am, depending on how far I drive, at a rate of 9 kW (NEMA 14-50 plug) for 9c/kWh. I sell my solar power into the grid at up to 5 kW for about 28c/kWh. My electric bill ends up negative averaged through the year.

    Shutting down generators for the nighttime dip in demand is prohibitively expensive, so the electricity providers come up with clever ways to consume that supply. One is to create incentives to move load to past midnight. Works for me. Surely they're smart enough to do the math and adjust the pricing so that it works for them too. The grid is already evolving to address these issues.

  • Report this Comment On March 28, 2014, at 11:49 AM, SkepikI wrote:

    ^ piffle. This sort of small outrageously subsidized (.28/kwh 290/Mwhr!!!!) sort of works, at least is minimally damaging when Tesla penetration is .1%. It does not work AT ALL when EV and Tesla guy penetration gets to say 25%.....AND that my friends will never ever penetrate the craniums of impervium.

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Daniel Jennings

Daniel G. Jennings is a professional writer with a strong interest in stocks. He's an old school value investor who thinks that Benjamin Graham was right.

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