Tesla Needs an Energy Supplier License

At the end of April 2020, Tesla applied to the UK’s Gas and Electricity Markets Authority for an electricity generation license. This license allows Tesla to generate electricity “for the purpose of giving a supply to any premises or enabling a supply to be so given” in the UK. While Tesla has not provided details of what it wants to do with the license, Tesla could use it to build utility-scale energy storage systems to participate in the UK’s balancing and frequency response markets. In South Australia, Tesla and the French developer Neoen had built a successful battery in terms of performance and marketing. However, similar success in the UK is unlikely due to very competitive ancillary markets, where players get relatively small returns compared to Tesla’s consumer products. Tesla could be competitive due to its technical advantage but other factors, such as capital costs, play an important role in auctions by reducing the overall project cost.

Batteries Provide Opportunity for Upgrade Services

As an alternative, Tesla could aggregate the batteries it sells to residential and commercial and industrial customers. Other battery companies, such as British-based Moixa, are employing this strategy in the UK. The installed base for Tesla’s Powerwall in the UK is small, and this is unlikely to change due to the unfavorable economics for solar plus storage in the UK. Tesla could acquire significant capacity if it can upgrade Tesla 3 chargers to provide vehicle-to-grid services. This capital-light strategy could be more profitable, but Tesla would need to entice customers to participate in this scheme. Given the premium prices for new Tesla products, the small monthly check that customers would receive to provide grid services is unlikely to attract their attention.

Tesla Should Become an Energy Supplier

Becoming an energy supplier could change the equation for Tesla. No one doubts Tesla has innovative products, especially in the vehicle segment, but many of its buyers are also there for the badge. Tesla can offer little to a buyer in terms of cashbacks to participate in a virtual power plant (VPP) in the premium car segment, so it should focus on ways to provide their customers with an emotional reward. If Tesla becomes an energy supplier and packages the VPP into a consumer-friendly product like a Tesla energy community, it can give its customers this emotional reward. Who would not want to tell a neighbor that their new Tesla Y can share its energy with the Tesla 3 down the road?

Tesla could replicate what sonnen is doing in terms of products and take them mainstream; after all, Tesla may be the only widely recognized brand in the distributed energy market.  If Tesla decides to follow this path, the consumer’s view of energy as a commodity and the energy supply market might be transformed forever.