If Elon Musk has is way, electric vehicles won't be the only industry where Tesla Motors (NASDAQ:TSLA) plays a leading role in revolutionizing energy as we know it. Earlier this year the company announced energy storage products called the Powerwall and Power Pack for residential and commercial customers, respectively.
To get a peek into how Tesla Motors is looking at energy storage and how its partners are viewing the products, I recently made a trip to one of Tesla Motors' earliest energy storage partners to see how they've changed energy consumption with the help of Tesla. Their story shows the incredible opportunity and immense challenge Tesla Motors faces in upending the utility as we know it.
A partnership born in wine country
When Tesla Motors was looking for partners to test its energy storage product it turned about an hour north of Tesla Motors' manufacturing facility to Jackson Family Wines in Windsor, California. The company owns over 30 wineries around the world and sustainability in energy is a major focus, not only for environmental reasons, but because it helps the bottom line. I got an opportunity to tour the La Crema Winery in Windsor where the company is testing a number of energy and water savings projects, which is how Tesla Motors got involved.
By late 2014 when a Tesla Motors energy storage installation was even brought up, Jackson Family Wines had already begun to overhaul its energy usage. It was building solar installations around the U.S. -- where it now has seven megawatts installed, including 918 kW at the La Crema Winery -- and it had partnered with EnerNOC (NASDAQ: ENOC) to learn more about how it used energy and how it could save money. Like most homeowners, most businesses know how much their energy bill is but they don't know a lot about how energy is used or where they may find savings. EnerNOC's software gives a look at how energy is used and they were the ones who brought Jackson Family Wines and Tesla Motors together.
Working together, the three companies had the capability to create, store, and understand energy at the La Crema facility. But how can an energy storage system that would cost upwards of $100,000 on the retail market pay for itself at a winery in Sonoma County?
Energy storage payback in real life
One of the questions I've been openly wondering about since energy storage became a hot topic and Elon Musk brought it to the attention of millions of people is: How can you make money off energy storage?
It's easy to conceptualize that energy storage is valuable, but turning it into dollars and cents isn't a trivial task. The first way companies like Tesla Motors, Stem, Solar Grid Storage, and others are trying to make money is called peak shaving. Most commercial customers pay for the energy they use, but they also pay a fee based on what their peak consumption was for any given moment in time, even if that peak only happened for an hour or two out of the month.
If energy storage can shave some of those peaks off and lower what's known as demand charge the payback can be strong for energy storage. That's what Tesla Motors started doing with Jackson Family Wines and it's still the main way the 50-50 revenue split between the companies makes money today. For this installation the impact has been significant since La Crema's energy bills are down 10% because of energy storage. But that method of making money will likely evolve in the future.
What's different about energy storage versus say rooftop solar or even energy efficiency is that it's adaptable. Energy can be stored at various times and deployed at any time. Solar panels only produce energy when the sun is out, so if rate structures like net metering changed it may be hard to adapt.
As rate structures change and customers have to adapt to how and when they store energy they'll lean on partners to help them monetize storage, whether through peak shaving, demand response, or another revenue stream. In Jackson Family Wines' case, they're leaning on EnerNOC and Tesla Motors to help with this adaptation and maximize the value of their energy storage installation.
One important takeaway is that how energy storage is monetized is evolving and the companies who understand energy and rate structures best will be able to maximize its benefits long-term. In the last month the companies had begun testing demand response as a way to make money off of these Tesla Motors batteries, instead of just peak shaving. No doubt they'll test more revenue streams in the future.
Understanding energy is the future
What's interesting with an installation like Tesla Motors has at Jackson Family Wines is that it doesn't seem like Tesla Motors is the key player in the transaction -- EnerNOC is. Tesla Motors is just providing batteries, which could come from any of the dozens of manufacturers who are building large scale energy storage systems today.
EnerNOC is helping learn about Jackson Family Wines' energy usage and adding value by bringing demand response and peak shaving into the mix. It's possible that Tesla Motors will get into that business in the future, and may be working on it now, but it doesn't seem like the algorithms behind energy storage are Elon Musk's focus today. But it should be.
Finding a way to be smarter about energy
Tesla Motors' first energy storage installations for Jackson Family Wines are more about learning than they are about making money, and that goes for everyone involved. But they're starting to show the value that energy storage can create.
When combined with solar energy, demand response, time of use rates, and other sustainability efforts there's starting to be a business case for making dramatic shifts in energy. The companies that can create the platforms needed will have a huge leg up on the competition. For Tesla Motors, unlocking value is about more than just building batteries and all of the work Jackson Family Wines has done with solar energy, demand response, and energy efficiency shows that. I just wonder how Tesla Motors will expand into offering energy services along with the battery it sells because it needs to be a full solutions business to create real value for shareholders.