If solar power is ever going to be a main source of power in the U.S., the industry will have to find a way to store energy created while the sun is out. The idea of energy storage has been talked about for years, but until recently it hasn't been either economically viable or technically feasible.
Now, solar companies and start-ups are trying to figure out a way to make energy storage feasible. Let's take a look at where energy storage stands today and what we can expect in the next few years.
Are battery solutions out there?
Solar battery storage still seems like a pipedream, but there are companies making it a reality today. SolarCity (NASDAQ:SCTY.DL) announced an energy storage product with Tesla Motors (NASDAQ:TSLA)-made batteries, which could leverage the thousands of customers SolarCity already has. SunPower (NASDAQ:SPWR) said it is testing battery storage in Germany, Australia, and California and hoping to commercialize a product in the next couple years. These two companies are on the forefront of solar and two publicly traded players to watch.
This week, I had a chance to talk to start-up Solar Grid Storage's CEO Tom Leyden, whose company makes lithium ion battery systems and provides energy storage as a service, not just for sale. The company can offer energy storage to solar customers building 150 kW to 10 MW systems and monetize state incentives, demand response, demand charges, and other revenue sources. In most cases, the battery system is free to installers and includes a free inverter, a win-win for both sides.
Leyden said that while cost is still an obstacle, the business model is where innovation needs to take place. Developments in solar like the power purchase agreement and residential lease made the industry viable, and the same thing will happen with energy storage. His company is using features like the PJM Interconnection to discharge energy into the grid when prices are high, generating revenue from the spread between lower-cost stored energy. Solar Grid Storage can also monetize the demand charge commercial and industrial users often face. We don't know what other business models will emerge as energy storage grows, but this is certainly an area open for innovation.
What was interesting to me is that all of these companies are using well established batteries to perform energy storage. Both SolarCity and Solar Grid Storage are using the same lithium ion batteries that probably power your smartphone, tablet, and laptop. In fact, Leyden said that his company buys batteries from major manufacturers like Panasonic (who also makes Tesla's batteries) and LG and is agnostic to new technologies in the future. Maybe we don't need a huge advancement in energy storage technology to take the next step?
Is battery technology a differentiator?
A new battery technology may emerge in the future, but as long as lithium ion batteries are used there's no major difference between one battery system and another. This is analogous to the solar industry, where most of the modules supplied are from manufacturers using similar equipment to make polysilicon cells.
That doesn't mean that technology won't be a differentiator in the future. Technologies like liquid metal, zinc air, and flow batteries are in the works, but for now they're not commercially or economically viable on a large scale. But we do need to keep in mind that the names putting millions into research are also impressive, so there is some hope. General Electric (NYSE:GE) is one company to watch, with its Durathon Battery Energy Storage Solutions as well as research into flow batteries and other technologies. The company also has a close relationship with First Solar, which could provide access to the utility scale solar market.
Panasonic is collaborating with Tesla to develop next generation battery cells, and is working on a number of other chemistries. LG Chem is also a lithium-ion battery supplier looking to advance its efficiency.
There's lots of research going into batteries, but I think investors need to be cautious about betting on technologies, because this will likely play out similarly to solar, in which CIGS, amorphous silicon, CdTe, and other technologies were once thought to be the future. Now we know that most of these emerging technologies fell flat on their faces, while the old standby of polysilicon slowly made incremental improvements to become the force it is today.
In short, being technologically agnostic is an advantage in the battery business right now.
When will the battery revolution take place?
To me, the big question is when solar energy storage will be commonplace. That's difficult to assess, but it's coming closer everyday. The cost and technology of lithium-ion and other battery technologies are improving, and as they do the economics of batteries will drive demand.
I think we're only a few years from battery technology being viable for commercial and industrial users, who put more value in backup power and have more complex rate structures. Residential energy storage will likely be years behind, just because the economics are more difficult.
One thing that I don't think is in question is that energy storage is coming and the companies who can make it a reality will have a huge advantage in solar. Keep an eye on SolarCity and SunPower as leaders from a business perspective, and watch what General Electric, Panasonic, and LG Chem can do on the technology side. These are the publicly traded leaders in this emerging market.
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 General Electric Company, 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.