This Niche Market Is Set to Grow 100-Fold in the Next 5 Years

It's not often that you hear of a market that will grow 100-fold in the next five years. But, that's the estimate.

One of the most problematic issues for the solar and wind power industry is that the electricity, which is produced from these sources, is often wasted because there is no way to store the excess amount. As more and more renewable energy sources contribute to the grid, energy storage becomes more essential—so much so, in fact, that according to a recent IMS Research report, the global energy storage industry will increase from approximately $200 million in 2012 to $19 billion by 2017.

AES Energy Storage, a subsidiary of The AES Corporation (NYSE: AES  ) recently announced the start of operations for a 40MW electric battery storage system, which will be used by the company's Dayton Power and Light Facility at its Tait generating station in Moraine, Ohio. The system will be used to support an electric grid which provides service to 60 million people in states along the East Coast and in the Midwest.

Source: AES

The commencement of operations at this facility brings AES' total installment of energy storage to 100MW in the U.S. Abroad, AES has over 60MW of grid-scale energy storage projects in Chile. Additionally, AES has over 1,000MW of projects in development in the U.S., South America, Europe, and Asia.

The big news... 
AES Corp. does not identify the financials of its AES Energy Storage subsidiary, but judging from its domestic and foreign storage capacity, and the over 2,000MW currently under construction, it stands to reason that the earnings are not substantial enough to report—perhaps as the amount of MW of projects increases, it will be disclosed. In general, though, AES has performed fairly well with adjusted EPS of $0.32, which is an increase of $0.14 from the same period last year. AES' free cash flow for the second quarter was $148 million, and year to date they are at around $500 million, which is 56% of their 2013 guidance midpoint; however, this was a quarter-over-quarter decline of $65 million. It appears as though the company will be able to sustain the $0.04 dividend which has been unchanged since it began in Q4 2012.

In much smaller news... 
Last week, at the Solar Energy UK trade show, Power-One showcased its first energy storage solution for the residential market. The Renewable Energy Accumulator and Conversion Technology (REACT) is comprised of an inverter and lithium-ion battery that provides 2 kWh of stored capacity. Acquired by ABB (NYSE: ABB  ) in April 2013, Power-One develops inverters for both residential and commercial markets. According to ABB CEO Joe Hogan, "The acquisition of Power-One expands our renewables businesses and provides substantial opportunities to create value for our customers, employees and shareholders."

ABB's Power Systems division, which was responsible for the Power-One acquisition, had $1.3 million in orders for Q2 2013—a decrease of 31% from Q2 2012, while revenues totaled $1.96 million—an increase of 5% from Q2 2012. For the same division, operating EBITDA came in at $159 million which was 34% better than the same period last year, and operating EBITDA of 7.9% was 1.7 percentage points better than last year.

Here Comes the Sun(Power)
One of the leading players in the solar power market is SunPower (NASDAQ: SPWR  ) . Vertically integrated, SunPower does everything form making the solar cells and panels to providing Power Purchase Agreements in residential and commercial markets. During its Analyst/Investor Day last May, management cited the growing importance of energy storage; whereas currently the company is primarily focused on PV systems, by 2015 the company is looking to provide additional solutions like energy management and storage into its Distributed Generation solution. This will result in increased customer value: reduced energy bills and optimization of PV energy self-consumption.

CEO Tom Werner is so emphatic regarding the role energy storage will play that he claims it is a "fundamental change in how solar companies compete." He is making an indirect reference to one of SunPower's main competitors, SolarCity  (NASDAQ: SCTY  ) . In certain markets throughout California, SolarCity already offers a battery back-up systems to its customers. Using technology developed by Tesla Motors, SolarCity offers a battery system that can provide electricity in the case of an emergency when the utility's grid is down. Also a benefit, though, the battery system can save money by affording customers to draw electricity from the battery, not from the grid, during peak hours and higher rates.

The Foolish conclusion
There are many ways to invest in the renewable energy space. One overlooked area in the space is energy storage-- a niche market with a limited number of players. Nonetheless, the market is expected to grow from $200 million in 2012 to $19 billion in 2017! That's a pretty considerable market opportunity. 

I've been bullish on SolarCity and SunPower for a long time, and their attention to this issue just adds to my strong opinion of them. I'll be interested to see how AES and ABB proceed in addressing the energy storage market.
 

More ways to invest in energy
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


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