SolarCity (NASDAQ:SCTY) is remaining on the cutting edge of solar, this time by introducing energy storage. This is the killer app that solar needs long term and, as usual, SolarCity is taking the industry into this new territory.
Before we decide that SolarCity has done something revolutionary, let's go over exactly what they have done.
Tesla to the rescue
SolarCity has released a "smart energy storage system" that will allow businesses to use stored energy during peak periods, and provide backup power during outages. The system, called SolarCity DemandLogic, will include software that automates saving and discharging energy to save customers money.
Tesla Motors (NASDAQ:TSLA), where Elon Musk is also a major shareholder, will provide the batteries and associated technology, another lockup between the two companies.
In some ways, this is similar to what demand response companies like EnerNOC do, except SolarCity is using stored energy to reduce load instead of reducing consumption. This isn't directly saving solar energy for later use, but you can see that the groundwork is being laid for solar backup power in the future.
The future of solar
The major downside of solar energy is that it doesn't provide consistent power all day long. In the current, where net metering is possible, this isn't a huge deal because extra power is just sold back into the grid. But for solar energy to be a powerhouse long term, the industry is going to have to come up with ways to store solar energy for later use. SolarCity is taking a step in that direction.
The other company to watch in this space is SunPower (NASDAQ:SPWR), which has eluded to energy storage projects, but not formally announced anything. SunPower is maintaining a presence in Europe, where solar energy storage will be needed far before it is in the U.S.
I talked with SunPower CEO Tom Werner a few weeks ago, and he said that his company is looking into energy storage opportunities, including internal development, or through a partnership. A partnership similar to what SolarCity has with Tesla Motors wouldn't be shocking in the next few years.
What does DemandLogic mean for SolarCity?
This is still a very early stage project for SolarCity, and it's really more about proving out technology than it is about generating revenue. I wouldn't expect DemandLogic to be a big revenue source for at least a year or two, but this sets the stage for SolarCity's next evolution as a business. Long term, I think being an energy service company will include installing solar, energy storage, and home monitoring and control systems. When those technologies become available and economically viable, the industry's potential becomes limitless.
Fool contributor Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. 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.