Germany's decision to throw in the towel on nuclear power by 2022 could shift demand to wind and solar power. The market certainly got excited about the move, shooting LDK Solar (NYSE: LDK), JA Solar (Nasdaq: JASO), and GT Solar (Nasdaq: SOLR) higher yesterday, as all three companies rely on solar demand in Germany, directly or indirectly. But this brings up questions about the validity of renewable energy on a large scale, since renewables are already a large portion of Germany's energy production.

Solar power is easy to integrate into a grid when it's a tiny fraction of power generation, like it is in the U.S. But make solar power a large portion of generation, like it is in Germany, and it's a whole new story. Germany's electricity transmission exchange reported the scale that renewables have grown to in Germany on a sample day, Feb. 7, 2011.

  • PV generated 13% of supply at noon.
  • Wind generated a peak of 32% of supply at midnight.
  • Wind and solar generated 29% of demand at noon.

The problems with this from an energy management perspective are obvious. Both solar and wind have the capacity to generate as much as one-third of power in Germany, but neither can be relied upon consistently. Germany will be the first large-scale test case for how utilities will handle renewable energy, and this will push new technologies to develop.

Making the grid smarter
If renewable energy is going to become a larger portion of Germany's power generation, the grid will have to become smarter. Demand response can help pick up some of the slack when demand is high or supply is low.

EnerNOC (Nasdaq: ENOC) and Comverge provide that service here in the U.S. They can turn down lights and air conditioning when electricity demand is high, thus reducing load on the grid. A big part of their success is active monitoring of energy usage, which requires more advanced electronic components.

General Electric (NYSE: GE) takes the smarter-grid concept down to the meters in our homes. These smarter meters can do things like reduce air conditioning at peak times, maybe not ideal on steamy days in Miami, but these are the choices users will have to make.

Backing up all that power
The biggest technological challenge facing Germany is power backup. Energy efficiency, a smarter grid, and demand response will work to balance supply and demand on an hour-to-hour basis, but what about a calm, cloudy day?

The field of energy storage is full of ideas and void of great solutions right now. So far, battery storage, pumped hydro, and compressed air storage have provided some energy storage in localized markets, but we aren't talking about a national solution. That's why I've called it the hidden key to alternative success.

A123 Systems (Nasdaq: AONE) and Ener1 (Nasdaq: HEV) are testing grid-level storage now, but expecting a battery to contain days of electrical power isn't likely the answer.

Pumped hydro and compressed air storage are capable of larger-scale storage, but geography will play a role in whether that's feasible.

So what is the answer? That's where Germany comes in. So far, energy storage is in test stages and no real demand has developed for commercial applications. It's similar to where the solar industry stood 10 years ago when demand in Germany took off. Ten years ago, who would have thought we would have even considered building solar plants for $1 per watt in the near future? But that's the way technology works. Where there is demand, engineers will find solutions. Hopefully energy storage takes a similar path.

Solar power needs Germany now more than ever
In 10 years we may look back at 2011 as a turning point in energy storage and the revolution the solar and wind industries needed. Maybe battery technology will improve, maybe caves underground is the answer, or maybe universities will find an effective way to produce and use hydrogen.

Whatever the answer, Germany is the first place where the solution will be needed, and the rest of the world will follow.

Keep track of energy's up-and-coming companies with our free My Watchlist feature. Just add a stock to My Watchlist and we'll find all of our Foolish analysis of that stock.

Fool contributor Travis Hoium owns clean-energy stocks, but none of the companies mentioned here. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of EnerNOC. Motley Fool newsletter services have recommended buying shares of EnerNOC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.