Elon Musk has stated that Tesla’s (NASDAQ:TSLA) energy storage business will be as large as its car business in the long term.1 ARK’s research shows that foregoing planned gas peaker plants and replacing them with utility scale energy storage could generate roughly $10 billion in revenues per year, more than six times Tesla’s $1.5 billion utility energy storage revenue in 2018. As battery costs continue to fall during the next five to ten years, the global addressable market for utility energy storage should expand to $800 billion.
Last July, California utility PG&E proposed four energy storage projects to replace natural gas plants in the South Bay.2 Two of these projects are the largest utility energy storage projects ever proposed – 1,200MWh and 730MWh – dwarfing the current record holder, Tesla’s 129MWh battery in Australia. As battery costs continue to fall, utility energy storage will begin to compete with existing natural gas peaker plants, reaching a price point that will motivate utilities to shut down underutilized plants.
The chart below compares the cost of electricity from natural gas peaker plants to the cost of electricity from battery-based energy storage, with two scenarios highlighted. The brown circle illustrates the scenario we face today: the average natural gas peaker plant is utilized ~10% of the time in the U.S. resulting in a levelized electricity cost of ~$0.14/kWh.3 The red lines show ARK’s forecast: utility energy storage battery costs should drop from $400/kWh to $150/kWh in the next five years, which results in an electricity cost of ~$0.09/kWh, undercutting the cost of natural gas plants that operate 25% of the time or less.
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