Dive Brief:

• The Public Utility Commission of Texas has until November 15 to decide on Tesla's application to sell electricity in the state's deregulated market.
• Tesla's application, originally filed on August 17, seeks to make subsidiary Tesla Energy Ventures a retail electric provider (REP) that could purchase electricity on the wholesale market and sell it to retail consumers. The company has also filed applications to build utility-scale Megapack battery storage facilities in Houston and near its new Gigafactory in Austin. 
• According to the filing, the new REP would target "existing customers that own Tesla products and market the retail offer to customers through the mobile application and Tesla website."

Dive Insight:

Tesla CEO Elon Musk has made no secret of his ambitions to make the electric car company part of "the long-term solution to the sustainable energy future," as he said in an earnings call in April. The company has deployed 177 MW of solar and 1,719 MWh of storage in the first two quarters of 2021. In past quarterly earnings calls, Musk has also indicated Tesla could leverage its solar and storage products as distributed energy resources. 

That could make Tesla a unique player in the deregulated electricity market, said Ted Kury, director of energy studies for the Public Utility Research Center (PURC) at the University of Florida. 

"Usually an electricity service provider that doesn't have generation on the ground essentially acts as a middleman, they buy on the wholesale market and turn around and sell to customers," Kury said. "Tesla would have the ability to act as a buyer and seller simultaneously and have access to a lot of data. Regulators are going to have to think about what the implications might be."

A harsh winter storm in February led to the loss of almost half of the Electric Reliability Council of Texas' (ERCOT) generation and left millions without power for days. The outages also caused chaos on the deregulated market, with electric retailers forced to purchase electricity at sky-high prices.

According to Texas Monthly, five electric retailers have left the market since February, but another 13 have submitted applications to sell power. 

Musk has used the Texas storm as a selling point for Tesla's storage buildout, needling ERCOT on Twitter during the February blackouts. In the April earnings call, Musk discussed the "peak power demand" in Texas, saying that "because the grid lacks the ability to buffer the power, they have to shut down power."

Tesla is also partnering with Brookfield Asset Management and real estate developer Dacra on a residential community in Austin outfitted with solar panels and storage, with homes capable of sending electricity back to the grid. The company also operates a 50,000-home, 250 MW virtual power plant in southwest Australia through its Autobidder trading and control platform. Tesla in July invited California Powerwall users to join a similar distributed battery system. In 2020, Tesla was also granted approval to generate electricity in the United Kingdom. 

In a note to investors, Morningstar analyst Travis Miller said that Tesla's move to beome a retail energy provider "does not present an immediate threat to NRG or Vistra," noting that the two energy companies control 60% of the Texas retail energy market. Miller added that Tesla could stand out in a "hypercompetitive market" and that the move "confirms our long-held view that consumer-oriented technology or telecom companies might try to enter retail energy markets."

Kury said that Tesla's brand recognition — and loyal customer base — will help it stand out in the market, regardless of its performance.

"There are probably 50 companies that have filed to become retail service providers in Texas or New York or Pennsylvania this year and I haven't been asked to comment on any of those," Kury said. "The [Tesla] name attracts people, but the most important thing in these markets is that consumers have to know the prices are not regulated. Yes, you have the freedom to sign a contract with anyone you want, but then you have the responsibility to understand it."