{"id":9750,"date":"2017-04-11T08:20:00","date_gmt":"2017-04-10T21:50:00","guid":{"rendered":"https:\/\/www.solarquotes.com.au\/blog\/?p=9750"},"modified":"2024-10-01T10:41:42","modified_gmt":"2024-10-01T01:11:42","slug":"powerwall-2-return","status":"publish","type":"post","link":"https:\/\/www.solarquotes.com.au\/blog\/powerwall-2-return\/","title":{"rendered":"Tesla Says Powerwall 2’s Return Will Be 8-15%. Really?"},"content":{"rendered":"
\"powerwall

Is\u00a0it reasonable to expect a “8-15% return on investment” on a Powerwall 2?<\/p><\/div>\n

Last month, Lyndon Rive, Tesla’s Vice President for Energy Products, stood up in front of a large group of people, including me, and promised the Powerwall 2 will deliver a return between 8% and 15%<\/a>.<\/p>\n

I was way too busy guzzling free fizzy water to write down Lyndon’s exact words, but luckily\u00a0a much more professional reporter<\/a> did. Lyndon\u00a0said:<\/p>\n

\u00a0\u201c it\u2019s a good investment for home owners, between 8-15 per cent return on investment and a function of \u2026security and insurance.\u201d<\/p>\n

When you promise returns on a product that you are selling it is very important to use the correct language1<\/a><\/sup> so that your audience are not misled.<\/p>\n

Strictly speaking the term Lyndon used: “Return On Investment” does not inherently account for the amount of time during which the investment in question is taking place<\/a>. So he\u00a0is literally saying that if you buy a Powerwall 2 for $10,000 you will get between $800 and $1,500 back in profit.<\/p>\n

Total.\u00a0For the life of the Powerwall.<\/p>\n

I’m sure he doesn’t mean that2<\/a><\/sup>. That would be silly as I don’t know anyone who would consider $80-$150 a year over 10 years as a good profit from a $10000 investment.<\/p>\n

So What does he mean by “between 8-15 per cent return on investment”?<\/h3>\n

I honestly don’t know. And that’s the problem – we have to guess. Under Australian Consumer Law<\/a>, he’s just made an express warranty about the Powerwall 2 based on what a ‘reasonable’ person would believe. So it is important.<\/p>\n

I\u00a0contacted Tesla directly and asked them to show their work. Twice. They ignored me. I think I\u00a0might be in the naughty corner as far as Tesla Australia is concerned.3<\/a><\/sup><\/p>\n

Did He\u00a0Mean “Rate of Return”?<\/h3>\n

A layman may think that Lyndon\u00a0means a Powerwall 2 will provide you with savings equivalent to 8-15% of the purchase price every year for a specified time. Accountants\/investors call that a “Rate of Return<\/a>“.<\/p>\n

But rate of return is meaningless without a specified time period. So I have to assume he actually meant\u00a0“Internal Rate Of Return” when he said “Return on Investment”4<\/a><\/sup>.<\/p>\n

He Probably Meant “Internal Rate Of Return”<\/h3>\n

Internal rate of return (IRR) for an investment is the percentage rate earned on each dollar invested for each period it is invested<\/a>. If you don’t understand that last sentence – don’t worry. All you need to know is: it takes into account the length of the investment and the amount of return. With a wall of silence from Tesla, IRR is\u00a0my best guess as to what Lyndon actually meant.<\/p>\n

So is it reasonable to promise\u00a08-15 per cent IRR on a Powerwall 2?<\/strong><\/p>\n

I can’t for the life of me see how he can get those numbers with reasonable assumptions. I’m calling BS.<\/p>\n

At its current installed cost Powerwall 2 owners will be lucky to break even, let alone make money. \u00a0I simply cannot see how it is possible to get an 8% IRR with typical use. And suggesting people can get 15% is a hell of a stretch.<\/p>\n

So let’s go through best and worst case scenarios for Powerwall 2 IRRs\u00a0and see what range we actually get.<\/p>\n

The steps will be:<\/p>\n

    \n
  1. Establish the initial investment.<\/li>\n
  2. Estimate the Powerwall 2’s lifespan. Best case and worst case.<\/li>\n
  3. Determine what the best and worst annual return possible is.<\/li>\n
  4. Ask Bill Gates to calculate the resulting IRR5<\/a><\/sup><\/li>\n
  5. Never again believe anything Tesla says without verifying it first.<\/li>\n<\/ol>\n

     <\/p>\n

    Step #1 Establish The Initial Investment<\/h2>\n

     <\/p>\n

    According to Tesla<\/a>, the estimated installed cost of a Powerwall 2 is\u00a0$10,000 (extra for backup functionality).<\/p>\n

    I don’t believe them.<\/p>\n

    In the real\u00a0world, where high-quality solar\u00a0installers have to turn a profit,\u00a0you will be\u00a0quoted $11,000<\/a> – $13,000<\/a> installed without backup.<\/p>\n

    Let’s call it $12,000 for a Powerwall 2 without backup.<\/p>\n

    But wait…<\/p>\n

    Lyndon said:<\/p>\n

    \u00a0\u201c it\u2019s a good investment for home owners, between 8-15 per cent return on investment and a function of \u2026security<\/strong> and insurance.\u201d<\/p><\/blockquote>\n

    I remember this bit from the launch event, he waxed lyrical about how you were not just buying a financial return, you were buying the peace of mind that backup brings.<\/p>\n

    Good installers tell me that when Tesla gets around to releasing the backup module6<\/a><\/sup> it is likely to add about $1,300 to the installed cost.<\/p>\n

    So in the real world, our initial investment is now $13,300<\/strong> for a retrofitted, fully installed Powerwall 2 with backup, fully installed by a quality installer.<\/p>\n

    Step #2\u00a0Estimate Its Lifespan<\/h2>\n

     <\/p>\n

    Worst case:\u00a0<\/strong>The Powerwall 2 has a 10-year warranty7<\/a><\/sup>. \u00a0So for Lyndon’s\u00a0worst-case scenario (8% IRR), I’ll use the worst-case lifespan: 10 years.<\/p>\n

    Best Case:\u00a0<\/strong>For the 15% IRR, best case, I’m going to assume we get lucky and the battery lasts 15 years. That’s a big call for Tesla’s\u00a0NMC<\/a> chemistry. But I’m trying to be generous here.<\/p>\n

    Step #3\u00a0Determine The Best & Worst\u00a0Real Life Return<\/h2>\n

     <\/p>\n

    Worst<\/del>\u00a0Typical Case:\u00a0<\/strong>The worst case – in terms of lower returns on a battery – is where the difference between your Feed In Tariff<\/a> and your Usage charges are lowest. The actual\u00a0worst case, then, is the Northern Territory where there is zero difference<\/a>.<\/p>\n

    But I won’t be that mean, I’ll simply go for a typical case where the savvy solar owner has done their homework. If you shop around<\/a> in Adelaide for example, you can get a 12c Feed-In Tariff from Origin and 31c\/kWh imports.<\/p>\n

    Because a Powerwall 2 is 89% efficient, Adelaideans\u00a0will lose 13.2 cents of Origin feed-in tariff if they store one kilowatt-hour of solar electricity, but by using the battery, they save 31 cents. A net saving\u00a0of 18 cents per kWh.<\/strong><\/p>\n

    With a little under half the deterioration allowed for by its warranty, the Powerwall 2 will supply an average of 11.5 kilowatt-hours of stored electricity a day<\/strong>.<\/p>\n

    If all that capacity is used, every day – a very generous assumption – then in the first year the Powerwall 2 will save $755<\/strong>.<\/p>\n

    Best Case:\u00a0<\/strong>The two capitals where a kilowatt-hour of stored electricity has the highest value are Sydney and Perth.\u00a0 In both cities, households on time-of-use tariffs pay around 50 cents a kilowatt-hour during peak periods.<\/p>\n

    In Perth, the feed-in tariff for solar electricity is 7.1 cents while in Sydney it can be as low as 6 cents if you can’t be bothered to shop around.<\/p>\n

    Because a Powerwall 2 is 89% efficient, a Sydney home with a 6 cent feed-in tariff will lose 6.7 cents of feed-in tariff if they store one kilowatt-hour of solar electricity.<\/p>\n

    But by using stored solar\u00a0during a peak period they can avoid paying 50 cents for grid electricity.\u00a0 This means they will save around 43.3 cents.\u00a0 But since peak rates only occur on week days the best average possible over a week would be a saving of around 34.4 cents per kilowatt-hour of stored solar electricity.<\/p>\n

    It is impossible for a Sydney home to fully charge a Powerwall 2 with solar electricity during the day and then use all the stored power in the period when\u00a0grid electricity is most expensive every day for 18 years.\u00a0 But I’m going to play make believe for the benefit of Tesla\u00a0and pretend it can do just that.<\/p>\n

    With a little under half the deterioration allowed for by its warranty, the Powerwall 2 will supply an average of 11.5 kilowatt-hours of stored electricity a day.\u00a0 This will provide an average of $3.96 cents in electricity bill savings or $1,444<\/strong> in the first\u00a0year.<\/p>\n

    In Perth it works out almost exactly the same.<\/p>\n

    Step #4 Work Out The IRR<\/h2>\n

     <\/p>\n

    The maths to work out the percentage IRR from a list of cashflows is quite tricky, so I’m going to use Microsoft Excel’s IRR function<\/a>. I assume the code was personally handcrafted by Bill Gates and is therefore likely to be correct.<\/p>\n

    Typical case (no electricity price inflation):<\/strong><\/p>\n

    \"excel

    Calculating IRR –\u00a010 year life, typical FiT no elec price inflation.<\/p><\/div>\n

    So for a typical feed-in tariff, a 10-year life and no electricity price inflation the IRR is -9%<\/strong>. You will lose money.<\/p>\n

    But analysts I spoke to last week are expecting retail electricity prices to increase at least 10% per year for 3 years just to catch up with already increased wholesale costs.8<\/a><\/sup><\/p>\n

    So let’s do the calculation again assuming 10% electricity price increases for 3 years, then 3% for the following 7 years and a static FiT.<\/p>\n

    Typical\u00a0case with\u00a0electricity price inflation (10% for 3 years then 3% but ignoring general inflation):<\/strong><\/p>\n

    Excel gives me an IRR of -4%<\/strong> in this scenario. Still losing money on the battery despite rampant electricity price rises and no accompanying Feed-In Tariff increases.<\/p>\n

    Let’s now move on to\u00a0the even more generous assumptions and see what the best case is.<\/p>\n

    Best case with\u00a015-year life, very high prices, very low FiT, perfect utilisation, but no electricity price inflation:<\/strong><\/p>\n

    This almost perfect storm of assumptions gives an IRR of 7%.\u00a0<\/strong>Still less than Lyndon’s worst-case figure of 8%.<\/p>\n

    But we can still add rampant electricity price inflation and no FiT increases, so let’s do that.<\/p>\n

    Absolute Best case with rampant electricity price inflation:<\/strong><\/p>\n

    Best case is\u00a0a 15 year life, 10% electricity price inflation for 3 years followed by 3% thereafter, Australia’s highest electricity prices and lowest FiTs which never increase with wholesale prices. This is a scenario that is highly unlikely to reflect reality, but it does make the returns look good. Although not as good as Lyndon’s with\u00a0an IRR of 12%<\/strong>.<\/p>\n

    What If It Is Charged With Off-Peak Power?<\/h2>\n

    But what if Lydon Rive assumed the Powerwall 2 would be charged with off-peak electricity as well as solar power?\u00a0 Well, in this case, with astoundingly optimistic assumptions, it just makes things worse.<\/p>\n

    Again I’ll be very kind and assume the Powerwall 2<\/a> is completely cycled twice<\/strong> a day, once using stored off-peak electricity and once with stored solar electricity.\u00a0 Again, this is impossible, but Tesla has shown it isn’t concerned about reality, so I don’t see why we need to be.\u00a0 As the stored off-peak electricity would displace shoulder electricity and not peak electricity, the average saving per stored kilowatt-hour would be around 20.7 cents.\u00a0 Because the Powerwall 2 is being cycled twice a day, keeping the same assumptions, this means it won’t\u00a0last as long.\u00a0 In Sydney, this comes to a saving of around $1,739 a year for 9 years, which is an IRR of 3.4%<\/strong>.<\/p>\n

    The results for Perth are worse because of their higher off-peak electricity rates.<\/p>\n

    Making wild claims about space flight and $150k supercars is cool.\u00a0Misleading\u00a0pensioners is not cool.<\/strong><\/h2>\n

    Tesla’s mission is:<\/p>\n

    to accelerate the world’s transition to sustainable energy<\/p><\/blockquote>\n

    And boy, that is an important mission. The survival of the species depends on it.<\/p>\n

    But they can achieve that without misleading cash strapped homeowners about the returns of their home batteries.<\/p>\n

    I totally understand that one of Elon Musk’s successful strategies is to claim the seemingly impossible, and then it eventually happens. Just look at SpaceX. Just look at how amazing Tesla cars are.<\/p>\n

    The problem is that Down Under, Tesla Energy can’t compete with Aussie solar panel installers on cost and efficiency. So they are going hard on batteries instead. It seems to me that their desperation to move Powerwalls in Australia is clouding their judgement when it comes to their claims of financial returns.<\/p>\n

    There are plenty of early adopters in Australia that are buying batteries for lots of good reasons\u00a0and I applaud them. The early adopter market gets excited over technology, helping grid stability, and blackout protection – not financial returns. So there’s no need to gild the financial lily when selling batteries in Australia\u00a0right now.<\/p>\n

    The good domestic installers who have a great existing business installing solar know this. They offer solar and batteries but do not make wild claims about battery payback.<\/p>\n

    An anecdote from the Powerwall 2 launch<\/h2>\n

    At the glitzy Powerwall 2 launch last month,\u00a0I sat next to a gentleman who was probably mid-60s. I asked him what brought him to the launch. He said had put down a deposit for a Powerwall 2.<\/p>\n

    I said that was exciting – and asked him why he was buying a PW2.<\/p>\n

    He said: “I don’t want to send all my solar to the grid, I want to use it at night and save money.”<\/p>\n

    I\u00a0asked what kind of return on investment he was expecting. He said he had no idea.<\/p>\n

    I asked him if he was confident that his new battery would pay for itself.<\/p>\n

    He said he was very confident. He said he was convinced\u00a0he would get a good return and he trusted the brand.<\/p>\n

    Now I don’t know the financial position of this gent. $13,300 may be a drop in the ocean for him. Or it may be a big financial stretch for him. But I do know, from talking about batteries in public forums, that most of the audiences are made up of over 60’s who are not rich, but are prepared to invest in batteries because they feel it is the right thing to do.<\/p>\n

    People who understand batteries, warranties and financial returns have a duty to objectively explain what Australians\u00a0can expect from their\u00a0$10,000+ battery investment. And this little blog strives to do that. Big players like Tesla should strive to do the same.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Last month, Lyndon Rive, Tesla’s Vice President for Energy Products, stood up in front of a large group of people, including me, and promised the Powerwall 2 will deliver a return between 8% and 15%.<\/p>\n","protected":false},"author":1,"featured_media":10460,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[551],"tags":[197,578,552],"class_list":["post-9750","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-battery-storage","tag-payback","tag-powerwall","tag-tesla","entry"],"acf":[],"yoast_head":"\nTesla Says Powerwall 2's Return Will Be 8-15%. 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It\u00a0seems particularly impressive when you consider\u2026","rel":"","context":"In "Battery Storage"","block_context":{"text":"Battery Storage","link":"https:\/\/www.solarquotes.com.au\/blog\/category\/battery-storage\/"},"img":{"alt_text":"powerwall 2 and piggy bank","src":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=1050%2C600&ssl=1 3x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/powerwall2-vs-piggy.jpg?resize=1400%2C800&ssl=1 4x"},"classes":[]},{"id":8533,"url":"https:\/\/www.solarquotes.com.au\/blog\/buying-powerwall-2-youll-need-lots-solar-panels-charge\/","url_meta":{"origin":9750,"position":1},"title":"How many solar panels should you install with a Powerwall 2?","author":"Ronald Brakels","date":"December 14, 2016","format":false,"excerpt":"The Tesla Powerwall 2 is going to be big.\u00a0 Really big.\u00a0 I mean that literally and not figuratively.\u00a0 It's going to be big as in 13.5 kilowatt-hours of storage big.\u00a0 From the point of view of most Australian households that is huge. This large capacity presents households with two main\u2026","rel":"","context":"In "Battery Storage"","block_context":{"text":"Battery Storage","link":"https:\/\/www.solarquotes.com.au\/blog\/category\/battery-storage\/"},"img":{"alt_text":"powerwall and solar mix up","src":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/Tesla_mixup.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/Tesla_mixup.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2016\/12\/Tesla_mixup.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":20796,"url":"https:\/\/www.solarquotes.com.au\/blog\/tesla-powerwall-2-price-increase\/","url_meta":{"origin":9750,"position":2},"title":"Tesla Increases Cost Of Powerwall 2 To $9,600 — Not Including Installation","author":"Ronald Brakels","date":"April 24, 2018","format":false,"excerpt":"Sorry I've been slow in reporting this, but back in February Tesla raised the price of a Powerwall 2 in the United States by 400 Mickey Mouse dollars; an increase from US$5,500 to US$5,900.\u00a0 We've also copped it sweet here in Australia and the price has increased by $600 to\u2026","rel":"","context":"In "Battery Storage"","block_context":{"text":"Battery Storage","link":"https:\/\/www.solarquotes.com.au\/blog\/category\/battery-storage\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2018\/04\/powerwall2-cost.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2018\/04\/powerwall2-cost.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2018\/04\/powerwall2-cost.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2018\/04\/powerwall2-cost.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2018\/04\/powerwall2-cost.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":7991,"url":"https:\/\/www.solarquotes.com.au\/blog\/tesla-powerwall-2\/","url_meta":{"origin":9750,"position":3},"title":"The Tesla Powerwall 2: Batteries Can Finally Pay For Themselves","author":"Ronald Brakels","date":"October 29, 2016","format":false,"excerpt":"Today at 12:15 Eastern Standard Time, Elon Musk announced the arrival of the Tesla Powerwall 2. 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Look closely at the Australian version of Tesla's Powerwall\u2026","rel":"","context":"In "Battery Storage"","block_context":{"text":"Battery Storage","link":"https:\/\/www.solarquotes.com.au\/blog\/category\/battery-storage\/"},"img":{"alt_text":"powerwall 3 launch signage","src":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2024\/08\/powerwall3-launch.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2024\/08\/powerwall3-launch.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2024\/08\/powerwall3-launch.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2024\/08\/powerwall3-launch.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2024\/08\/powerwall3-launch.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":81719,"url":"https:\/\/www.solarquotes.com.au\/blog\/powerwall-3-australia-latest\/","url_meta":{"origin":9750,"position":5},"title":"Powerwall 3: What To Expect When It Arrives In Australia","author":"Finn Peacock","date":"February 22, 2024","format":false,"excerpt":"Update: 16 August 2024 -Tesla Australia have launched the Powerwall 3 - read all about the launch here. 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