What could Tesla’s virtual power plant do for California’s grid — and what will customers get out of it?

Will customers sign up for its incentive-free program or flock to other distributed energy aggregators that are willing to pay?

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Earlier this month, Tesla quietly launched a call to customers equipped with its Powerwall batteries: join what could become the biggest behind-the-meter battery aggregation in California and help support the state’s grid during what’s expected to be a tough summer for keeping the lights on.

What Tesla isn’t offering these Powerwall volunteers, at least for now, is payment for their participation.

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Instead, the company has positioned its Tesla Virtual Power Plant project as a public good program to support the California grid.” That puts its new call into the same class of voluntary actions that it and other solar-battery vendors undertook last summer to help prevent a repeat of the rolling outages that left hundreds of thousands of Californians without power for hours at a time on the evenings of August 14 and 152020.

Whether Tesla can turn this volunteer-based effort into a money-making proposition, as the company suggests it could do in the future, will depend on several factors, according to analysts.

Those include whether enough customers will sign up to give Tesla the critical mass of participants needed to pursue money-making pathways for grid services in California. Tesla did not respond to a request for comment, and its Virtual Power Plant website doesn’t state whether or how it might pursue such opportunities.

Tesla doesn’t have a revenue stream lined up for this project. In a sense, it’s aggregating first and setting up the revenue stream after,” Isaac Maze-Rothstein, an analyst with research firm Wood Mackenzie, said in an interview last week.

Building a virtual power plant on goodwill?

There’s little doubt that Tesla has the technical chops to put thousands of Powerwalls to use to support the grid, Maze-Rothstein said. The company has proven this capability in deployments with utilities such as Vermont’s Green Mountain Power, featuring more than 2,500 Powerwalls, as well as a solar-battery VPP in Australia aimed at aggregating up to 50,000 customers, he said.

Both of those VPPs offer participants significant financial incentives for participation. Green Mountain Power offers customers an opportunity to lease a battery for a heavily discounted price of $55 a month or offers upfront incentives of up to $10,500 for their purchase, depending on how much control the customer gives the utility over their operations. Its Australia program offers up to AUD $220 (USD $162) per year per Powerwall in bill credits in exchange for their grid services, which includes a commitment to allow Tesla to tap the batteries up to 50 days per year.

Tesla says it has 50,000 or more Powerwall-equipped customers in California who could take part in the new program. If every one of them joined its new VPP, that would add up to 350 megawatts/​675 megawatt-hours, given the 7-kilowatt/13 kilowatt-hour capacity of a single Powerwall 2 unit.

In context, that would be the second-largest battery in California” on a cumulative basis, Maze-Rothstein said, behind the Moss Landing utility-scale battery project being built by Vistra for utility Pacific Gas & Electric.

But that topline figure is almost certainly not what Tesla’s VPP will be able to deliver to the grid, he noted. First, Tesla has promised VPP participants that they’ll be able to hold some battery capacity in reserve to protect from power outages, which means a smaller amount would be available for grid services.

Second, there’s the question of how many customers will agree to sign up without the promise of financial rewards. Tesla Powerwalls are also being tapped by other VPP aggregators, such as Swell, that are promising to share their revenue with customers, which could draw California Powerwall owners away from Tesla’s offering, he noted.

The fact that there are no clear financial incentives, even compared to a Swell or a Sunrun” — another solar-battery vendor that’s aggregating virtual power plants in California — “[leads] us to think we won’t see significant uptake,” he said.

Why behind-the-meter batteries struggle in California’s grid markets

While Tesla’s VPP program isn’t offering incentives, California customers did prove themselves willing to reduce gigawatts’ worth of collective electricity use without the promise of payment during last year’s grid emergencies. Several companies that earn money for encouraging homes and businesses to shave household power in exchange for utility or grid market payments also extended their calls for conservation, despite market rules that led them to lose money for those decisions.

This highlights another barrier to Tesla offering its prospective VPP customers money for joining up, said Kate Unger, senior policy advisor for the California Solar & Storage Association trade group.

What’s missing is the regulatory framework that allows compensation,” she said. The regulators are missing in action here.”

Unger’s comments reflect a widespread view among behind-the-meter battery providers including Sunrun, Stem and Tesla and demand-response aggregators such as OhmConnect, Enel X, CPower, Leap and Google Nest. These companies have been asking the California Public Utilities Commission (CPUC) to make changes to the complex rules that govern how demand-side resources can be credited and called on to provide capacity when power plants from inside and outside California’s borders can’t cover the grid’s needs.

A March decision by the CPUC made changes designed to expand the role that demand-side resources could play in supporting the grid this summer, including a new Emergency Load Reduction Program offering a lucrative payment of $1 per kilowatt of reduced load. The program will also allow behind-the-meter batteries and electric vehicles to export power to the grid — something that isn’t allowed under the demand-response regimes via which the vast majority of the state’s aggregated resources are now earning grid revenue.

That’s a major limitation for behind-the-meter batteries with greater capacity than the buildings they serve, Unger said. California’s resource adequacy regime, which pays for resources to meet peaks in grid demand, still hasn’t taken up the battery energy export issue, despite repeated requests from stakeholders to do so, she said.

If you’re limited by the load that’s on-site at the customer and bringing that to zero, there’s all this unused capacity,” she said. There are some ways to get compensation — but they are limited, and they sell the value of behind-the-meter resources short.”

The CPUC and state grid operator CAISO are already relying on a massive influx of utility-scale batteries to help California’s grid remain stable amid rising temperatures, retiring natural-gas power plants and increasingly uncertain availability of electricity from beyond its borders. Companies such as OhmConnect and Nest and the state’s community choice aggregators are promoting approaches to enlisting customers for grid aid that go beyond the state’s existing rules and frameworks.

In that sense, Tesla is offering up this VPP, and who knows how many customers will respond at this point,” Unger said. We’re hopeful they can provide some proof of concept with this.”

(Lead photo: RoschetzkyIstockPhoto/​Getty Images)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.