In April, electric-car maker Tesla Motors (TSLA 12.06%) officially expanded its operations when it announced a new business called Tesla Energy. The business would provide energy storage solutions, which would aim to both offset demand from the grid during peak hours and to store and distribute energy from intermittent energy sources, particularly solar and wind. While Tesla certainly wasn't the first to offer energy storage solutions, one competitor in the space is making headlines this week because of its sheer size and clout: General Electric.
Tesla Powerwall, energy storage for residential and small business applications. Tesla's commercial energy storage solution is called a Power Pack. Image source: Tesla Motors.
Following a Reuters report saying GE wants to be a "sizable player" in energy storage, Tesla shares fell as much as 5% on Monday.
GE's energy storage ambitions
Jeff Wyatt, GE's head of energy storage, expects the market for energy storage solutions to quadruple by 2020, reaching $6 billion -- and the company wants in on this growth.
"We believe in the space and its ability to grow," Wyatt said in an interview with Reuters. "We think we can be a sizable player within it, and that's really what we're intending to do."
Going forward, GE plans to vertically integrate its energy storage offerings.
"Now Fairfield, Connecticut-based GE is repositioning itself as a one-stop shop for power producers seeking to install energy storage systems," wrote Reuters author Lewis Krauskopf, "offering inverters, control systems, software as well as financing options."
Tesla Energy
But even though GE, worth $260 billion, is a much larger business than Tesla at $32 billion, Tesla isn't necessarily the underdog in energy storage. The company has said it plans for as much of a third of its currently under-construction $5 billion Gigafactory's cell production to be purposed for energy storage. And Tesla is already landing a handful of high-profile, large-scale deals.
Tesla calls the factory Gigafactory 1, highlighting the company's intention to build more Gigafactories in the future. Image source: Tesla Motors.
One of Tesla's newest customers illustrates the potential for energy storage, particularly in states where electricity costs are high. A San Diego County school district recently signed a deal with Tesla to build energy storage systems for three of its Escondido high schools, according to The San Diego Union-Trubune. Michael Simonson, the district's superintendent of business services, estimates the system will cut the district's annual utility costs by as much as $300,000.
San Diego Union-Tribune author Pat Maio explained:
In Escondido, Tesla has proposed charging several large lithium ion batteries at night -- when power costs fall to roughly 12 cents per kilowatt hour -- and using the stored energy during the day, when rates can rise to 42 cents, according to Simonson.
Tesla analysts at Deutsche Bank have said Tesla could eventually generate as much as $4.5 billion in annualized revenue from energy storage sales.
It's too early to tell who will lead in the nascent and fast-growing energy storage market. Sure, GE's sheer size and track record in a broad range of industries certainly suggests the company will be a tough competitor. But GE's choice to invest in energy storage expansion isn't necessarily bad news for Tesla investors. GE's vocalization of its ambitions for energy storage offers an important vote of confidence for this new market. Furthermore, GE's efforts in the market may help facilitate incremental demand generation for energy storage solutions.
