With the help of Tesla's (TSLA -2.76%) foray into energy storage almost three years ago and the electric-car company's acquisition of SolarCity in late 2016, Tesla's energy storage and generation revenue increased from $181 million in 2016 to about $1.1 billion in 2017. But this segment is just getting started, according to Tesla.

Thanks to an expected surge in energy storage production and deliveries, 2018 will feature a huge increase in Tesla's energy storage business, the company said in its fourth-quarter shareholder letter. 

A group of Tesla Powerpacks outside in a field.

Tesla Powerpacks. Image source: Tesla.

Here comes the surge

Anyone following Tesla is well aware of the company's plans to ramp up Model 3 production in 2018. Tesla expects to go from producing just a couple thousand Model 3's in its fourth-quarter 2017 to 2,500 units a week by the end of Q1 2018 and 5,000 units per week by the end of Q2 2018. Though energy storage won't quite live up to the Model 3's importance to Tesla's growth in 2018, the company does expect sales of its energy storage products to be a meaningful catalyst during the year.

Tesla cited energy storage as one of the key reasons it expects revenue to jump this year. "With the planned ramp of both Model 3 and our energy storage products, our rate of revenue growth this year is poised to significantly exceed last year's growth rate," the company said in its fourth-quarter shareholder letter. For reference, Tesla's revenue was up 55% year over year organically in 2017.

"2018 will see major growth in Tesla energy storage deployments, as the production ramp of our storage products is just as steep as with Model 3," Tesla said. "This year, we aim to deploy at least three times the storage capacity we deployed in 2017."

Deploying 358 megawatt-hours of energy storage products in 2017, Tesla is aiming for 1,074 megawatt-hours of energy storage deployments or more in 2018.

Large projects will drive growth

Highlighting the importance of large utility-scale energy storage deployments, over 10% of Tesla's expected energy storage deployments in 2018 will come from a single project. Tesla said in its fourth-quarter shareholder letter that it is recognizing the deployment of its 129 MWh utility project in South Australia during the first quarter of 2018. It would only take a handful of projects like this in 2018 for Tesla to hit its ambitious target of tripling its deployments.

Unsurprisingly, Tesla expects large commercial projects to play a key factor in its expected jump in deployments in 2018. The South Australia project, Tesla said, has generated a lot of interest from large customers.

Due to the success of this project, we're seeing an increase in demand for Powerpack, our commercial energy storage product. With more electric utilities and governments around the world recognizing the reliability, environmental, and economic benefits of this product, it's clear that there is a huge opportunity for us in large scale energy storage.

A house with Tesla Smooth Glass solar tiles on the roof and a Model S with two Powerwalls in the garage.

Tesla Smooth Glass solar tiles, a Model S, and two Powerwalls. Image source: Tesla.

But investors shouldn't overlook Tesla's residential ambitions in energy storage. Demand for Tesla's residential energy storage solution, Powerwall, also "remains exceptionally high, with orders consistently above production levels," the company said. And this should only persist, as Tesla is increasingly rolling out its energy products at more of its retail stores.