In May, Tesla Motors (TSLA) founder and CEO Elon Musk made a big splash with the big unveil of the company’s new “Powerwall Home Battery” for homes, as well as the business-geared “Powerpack.”
At the Tesla event, Musk explained that the Powerwall was designed for storing solar energy.
Here’s how the always-interesting Musk called it:
“Powerwall is a home battery that charges using electricity generated from solar panels, or when utility rates are low, and powers your home in the evening. It also fortifies your home against power outages by providing a backup electricity supply. Automated, compact and simple to install, Powerwall offers independence from the utility grid and the security of an emergency backup.”
I must admit that when I first heard the Powerwall news, I was somewhat skeptical that demand for the devices would really be all that strong. Although I’m an ardent Tesla stock bull, I was far more convinced about the company’s Model S, Model X and future release of the entry-level priced Model 3 than I was any home batteries.
However, my eyes were opened about the potential bullish impact of the Powerwall and Powerpack on Tesla stock in August, when the company held its Q2 earnings call.
On that call, Elon Musk and company said that TSLA has had 100,000 “reservations” for the Powerpacks and Powerwalls — an amount that adds up to a cool $1 billion.
Musk also said that the company could deliver some $40 million to $45 million in grid battery sales during Q4. The always-optimistic Musk also boldly proclaimed that sales for the battery business could be “10 times that number next year.”
Musk also added that there has been so much demand for the units that TSLA is sold out for all of the grid batteries it could make in 2016.
So, what could possibly stop Tesla and its march toward Powerwall adoption?
Enter the Supreme Court.
Will the Supreme Court Crush Tesla Stock?
Last week, the highest court in the land heard oral arguments in the case involving the Federal Energy Regulatory Commission’s (FERC) “Order 745.”
Order 745 is a provision in the law that was invalidated by a lower court this year. The provision allows electricity customers to be paid for reducing electricity usage from the main power grid. This practice is commonly known as “demand response,” and one part of Order 745 involves actually paying demand response customers the market price for NOT using electricity off the main grid.
In other words, if you have a TSLA Powerwall or Powerpack, or if you generate solar panels made from the Elon Musk-backed SolarCity (SCTY), the invalidation of Order 745 means you might not be paid for using your own stored electricity.
According to energy industry observers at the website UtilityDIVE, opponents of Order 745 say FERC overstepped its jurisdiction when it started regulating demand response at the retail level. Meanwhile, proponents of Order 745 claim that demand response is both necessary and a vital part of keeping energy markets operating efficiently.
UtilityDIVE summarized the two sides like this:
“If the decision to invalidate Order 745 is upheld …FERC will need to issue guidance to the industry on the decision. FERC could revise its demand response policy or leave the matter to individual states, while wholesale markets will need to decide whether they need to adjust their market structures to comply with the ruling.
“If the decision to invalidate Order 745 is reversed, many markets could then return to compensating demand response as they did previously. A reversal would be a win for demand response advocates and a loss for generators. Such a ruling could cause demand response to eat into the margins for competitive generators, and impact coal and nuclear retirement decisions by keeping wholesale prices down.”
So, if you are a Tesla stock bull, and if you don’t want to see any demand for non-grid power storage devices such as the Powerwall and Powerpack affected by the cessation of demand response, hope for a reversal of the decision to invalidate Order 745.
Unfortunately, a decision on this issue isn’t expected from the Suprem Court until June 2016. That’s a long time to wait for a resolution to this matter, but by then customers may have already embraced the Tesla battery technology, so it might not make any difference.
Of course, a decision to uphold the prior court’s invalidation of Order 745 could short-circuit a potentially big part of Tesla’s future business, thus harming Tesla stock.
I’m a betting man, though, and I would put my money on Elon Musk over the Supreme Court any day.
As of this writing, Jim Woods was long TSLA.
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