Tesla Powerpack energy storage for businesses and utilities. Image source: Tesla Motors.

While Tesla Motors' (NASDAQ:TSLA) new energy storage products will help homeowners reduce their dependency on the grid, particularly if they have a connected solar system installed, Tesla is repeatedly demonstrating growing demand for energy storage at a much larger scale. A just-announced energy storage system using Tesla Batteries for an Orange County, California-based water utility puts the spotlight on this opportunity.

Another utility wants Tesla batteries

Clean tech energy storage leader Advanced Microgrid Solutions (AMS) will design, finance, install, and manage an energy storage solution, using Tesla batteries, at Irvine Ranch Water District, the Irvine Ranch water utility announced on Monday. 

A press release from AMS and the Irvine Ranch utility described the project:

The cutting-edge grid support project will enable the public water agency to store energy, making it available to reduce demand from the grid when requested by the utility without interrupting water treatment operations and reducing the need for additional supply from fossil fuel generation in a region challenged by the closure of the San Onofre Nuclear Generating Station.

The partnership utilizes a 7 megawatt/34 megawatt-hour Tesla battery system, representing the largest energy storage integration at any public water agency in the U.S.

The benefits for the water utility are substantial. Namely, by using energy stored in the Tesla batteries during peak demand periods, when electricity prices are higher, Irvine Ranch expects to save $500,000 annually. In addition, the grid will reduce the water utility's carbon footprint.

Just the beginning

This deal follows another big contract Tesla landed with a utility earlier this month, continuing to highlight an optimistic outlook for this nascent segment as demand grows and Tesla's ability to deliver more megawatt hours increases.

Rendering of Tesla Powerpack energy storage for businesses and utilities. Image source: Tesla Motors.

Between Tesla's 80 MWh system for Southern California Edison electric utility, announced earlier this month, and this 34 MWh system, Tesla has contracted more than 4.5 times its previous quarterly record of energy storage delivered in a quarter. Tesla's record quarter for energy storage was in Q1, when the company delivered 25 MWh worth of energy storage, made up of 2,500 Powerwalls and nearly 100 Powerpacks.

Tesla's confidence in accepting such large orders highlights a solid start to a business it expects to grow from less than 2% of revenue today to represent a significant portion of total revenue in the future. By landing contracts like this, the company clearly must be ramping up its production at its Gigafactory, where Tesla is manufacturing the battery packs for its energy storage business and also plans to eventually build batteries for its vehicles.

Increasing energy storage sales are important for Tesla investors. The company has always purported that increasing production of batteries is critical for the company to achieve the economies of scale required to begin to drive battery costs lower. Specifically, Tesla anticipates that fast-growing production of batteries for its vehicles and energy storage products will result in 35 gigawatt-hours of production in 2018 and a cost reduction of more than 30%.

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