Last week, Tesla announced a program for California-based owners of its home battery products. Sign up with the company, and you will become a part of what the company calls a “Virtual Power Plant”. You will be able to use your battery to keep the grid stable during periods of high demand and get well compensated for electrons.
While this may conjure up images of Powerwall batteries across the state sending power to the grid during a crisis, that doesn’t seem to be what’s happening here. Instead, the battery will be participating in a utility program designed to reduce demand, which the utility company will likely do by using the battery to supply some of the demand inside the battery owner’s home. It’s a clever way for homeowners to take advantage of a program that is otherwise limited to commercial users.
this is an emergency
Tesla’s announcement of the program says it will be part of the Pacific Gas & Electric Company’s (PG&E, a California utility) emergency load reduction program, which we will focus on in the next section. For the time being, we will see what the participants will do.
Based on Tesla’s description, Powerwall owners can sign up for the program using battery management software. Once parted, users can set a minimum battery reserve: the software will not allow the battery to drop below that value, even if grid stabilization benefits from additional power. Of course, if the grid fails, that reserve can be tapped regardless.
It will not be because of mere participation in this program. The scheme is open to any PG&E customers who are not already participating in a similar program.
The program guarantees at least 20 hours of events. If there is no crisis of power demand to the grid, they will be determined with advance warning. Demand spikes, which often accompany California’s heat waves, can exceed 20 minimum hours and warrant little warning. Participants may opt out of any Program, suspend participation, or leave at any time.
What satisfaction do participants get from helping to keep the state’s electric grid stable? A very good price for their electrons. Charging a battery from PG&E’s grid will typically cost less than $0.50 per kilowatt-hour. During these events for every kilowatt-hour an individual battery meets the system’s demand, participants will be paid $2. This is quite an important difference.
How does this price difference make sense from a utility point of view? Home users do not directly pay the price the utility pays for electricity when it is needed. Instead, they pay a slightly higher than average price that the utility would expect, allowing a degree of profit. When PG&E is experiencing an emergency load reduction need, it is because it is pushing to supply enough to meet demand. At that point, it is forced to pay for the most expensive production sources to come online, and these can cost more than the $2 per kWh battery owners are willing to pay.
(As Tesla noted in the program announcement, these high-cost generators are also the least efficient and most polluting, so they have the added benefit of avoiding activation.)
An alternative to energizing these low-efficiency, high-cost generators is to reduce power demand, which brings us to PG&E’s Emergency Load Reduction Program. There are several options for reducing demand: raising the thermostats from 70°F to 74°F, turning off some appliances until demand drops, and so on. PG&E’s program is intended for commercial organizations that can sufficiently aggregate these changes to reduce demand by one kilowatt during periods of high demand.
It appears that Tesla is aggregating the services of a large number of battery owners who, individually, would not come close to being able to reduce demand that much. And, given the involvement of batteries, it is likely reducing demand by using batteries to meet some of the energy needs of households. In other words, it is piling up a whole bunch of different households and pushing them to act as one big facility thereby reducing the demand for it.
The shocking thing here is that Tesla is apparently passing all the money it receives from PG&E directly to its battery users without charging them. There’s a chance the company negotiated a version of the Emergency Load Reduction Program agreement with PG&E, and we’ve reached out to Tesla to find out. But the fact is that the description sums it up so well that any difference is minimal.