Tesla sells more than just cars. It sells battery storage solutions to utilities around the globe.
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Heat, climate change, renewable power, and the grid are all in the news, with record temperatures and wildfires in California threatening citizens with rolling blackouts.
There is a lot going on and a lot for investors to consider. Tesla (ticker: TSLA) CEO Elon Musk tried to simplify things in a pair of power-related tweets this past week, saying the sun and wind plus battery storage is all the U.S. needs.
“The primary solution to a sustainable energy future is solar/wind with batteries for when sun doesn’t shine or wind doesn’t blow, interconnected with conventional high voltage lines,” tweeted out Musk this past Thursday. “No unknown technology is needed!”
Investors shouldn’t be surprised that Musk favors renewable power and batteries. He founded Tesla to help put the world on a path toward his vision of a sustainable energy future. Tesla , of course, also sells solar roofs as well as residential and utility-scale battery storage products.
Power consumers, however, might worry Musk’s vision would lead to higher prices and a less reliable power grid. Those fears, however, look misplaced.
Electricity generated from solar and onshore wind assets is already among the lowest cost power produced, according to the U.S. Energy Information Administration.
The devil, of course, is in the details: not every state or location is as sunny or windy as another, tax credits for producing renewable electricity help those assets compete, and coal and natural gas costs vary across the U.S.
Also, rechargeable batteries to store power are expensive, adding significant cost for anyone wanting to turn a wind farm or solar array into an asset that can produce electricity 24-7.
For now, solar plus battery costs need to be compared with the cost of electricity production used to meet peak demand—typically on the hot days about the time when everyone gets home from work.
On Monday morning, for instance, power demand in California was about 30,000 megawatts. That is the demand coming from the state’s roughly 13 million households and businesses at that time. California has closer to 50,000 megawatts of power generating capacity, but there is no squeeze at 10 a.m. The threat of rolling blackouts comes later in the day.
One way utilities meet peak demand is with natural gas power plants, generally referred to as peaker plants, which get started up when electricity demand rises. Electricity from those plants can cost roughly 10 times what consumers are used to seeing on their monthly utility bills.
Solar power plus batteries today can deliver electricity for about the same cost as the peaker plants, says Credit Suisse renewable power analyst Maheep Mandloi.
The amount of battery storage needed, according to Mandloi, is enough to meet about four hours of power demand. That is enough to get utilities and grid operators through the peak.
As costs fall and more states move toward renewable power generation a key question for investors is who benefits? Tesla, of course, would benefit, but Tesla remains, primarily, a car company that trades for a big premium relative to the rest of the industry.
Mandloi has a handful of other Buy-rated stocks that investors could check out including: battery maker FREYR Battery (FREY), solar equipment maker Enphase Energy (ENPH), and storage solution provider Fluence Energy (FLNC).
Those four stocks are up about 5% year to date on average, better than the 14% drop of the S&P 500 and the 22% decline in the Nasdaq Composite. The average isn’t that helpful though. Fluence stock is down about 47% while Enphase shares have gained about 66%.
Investors are still figuring out the renewable power winners and losers.
Write to Al Root at [email protected]
