On Wednesday morning, a handful of the 60 plus workers on the site drill into paved rectangles where the first of Tesla’s so-called battery “Powerpacks” will soon be installed. The boxy white battery containers—which are covered by “Tesla Energy”-branded tarps and were shipped to the island via boat—contain rows of lithium-ion batteries that were assembled at Tesla’s massive battery factory, itself under construction outside of Reno, Nev.
Last year,Tesla officially announcedthat it would sell batteries for the power grid, buildings, and homes after building a business on battery-powered electric cars. However,for many years before thatTesla and SolarCity worked together testing how solar panels and batteries could be used for customers with intensive or unique energy needs.
Since SolarCity’s deal with the Kauai utility last year, workers have been installing steel posts into the ground and mounting silicon-based solar panels that face the sun. The crew then string wiring along the rows of panels, connecting the rectangular electricity generators to inverters that convert the solar energy into usable electricity. The site is about 50% finished, says SolarCity’s senior commercial project manager, Danny Valdez.
For KIUC, the project isn’t just about solar; the utility already has that in spades. The issue is, KIUC can’t add any more solar panels to the island without adding more energy storage, says KIUC engineering manager John Cox. It has so much solar that on some sunny, cloudless days, it’s getting a peak energy load of 90% from renewables—and sometimes 70% from solar alone.
To take the next step, KIUC needed technology that could store the energy for when fast-moving clouds cover the solar panels or when night falls. The island sees peak energy demand start around 8 p.m., as residents return home and turn on lights and appliances.
In other words, the utility needed the batteries if it was to continue along its path to more clean energy. KIUC has a goal to reach 50% clean energy by 2023, and the state of Hawaii wants to hit 100% by 2045. Hawaii has notoriously high energy costs because much of the fuel used to create electricity is imported, so the state has unique incentives to go green (an issue faced by many islands).
There’s another key element driving the pioneering project: low battery and solar costs. KIUC is paying 13.9 cents per kilowatt hour for the energy and storage capability from the solar and battery project. That’s one of the lowest costs around for a deal that includes both solar panels and batteries (solar on its own can be a lot cheaper). Importantly, the energy from the project is cheaper than energy from some of KIUC’s older fossil fuel generators, says KIUC’s Cox.
With solar panels are at their cheapest moment in history, battery costs have recently started to drop as well. Originally spurred by massive factory investments by battery giants like Samsung, Sony, LG, and Panasonic, lithium-ion batteries are starting to break out of the market for cell phones and gadgets and become firmly planted in the power grid, basements of buildings, and electric cars.
Working with Panasonic, Tesla plans to lower the cost to make its batteries by a third with its Gigafactory in Nevada. Tesla confirmed that the Kauai batteries were manufactured at Gigafactory.
For an inside look at Tesla’s Gigafactory watch our video.
Low cost batteries could be a game changer for clean energy sources like solar or wind. One reason solar and wind fall short of natural gas and coal on reliability is that these renewable sources only produce electricity when the sun shines or the wind blows. In contrast, gas and coal can produce power at any time, without fluctuation. But if the cost of batteries falls low enough, clean energy can be much more competitive.
For KIUC, the Tesla batteries will also provide a needed way to maintain the power grid. When a cloud suddenly covers one of its big solar farms—like it did for much of the morning ofFortune’svisit—the energy output quickly drops, and that can throw the grid out of whack. Because batteries can react within seconds, KIUC can flip on the batteries, discharge the stored energy, and keep the grid in balance.