EnerNOC (NASDAQ:ENOC) and Comverge pioneered the demand response business and in turn made energy conservation as valuable as energy production. This was their business plan all along, but they may have inadvertently created a path for energy storage to be a new growth product in the industry.
Energy storage has a great future if it can make storing solar or wind energy economical or allow a homeowner or community to leave the grid entirely. But for that to happen the energy storage industry needed a business model to make its product profitable. That's where demand response comes in.
Making batteries economical on a large scale
When the PJM Interconnection, a regional electrical power transmission organization, ruled that lowering demand was just as valuable as increasing electricity production it opened up opportunities for EnerNOC and Comverge to build demand response networks. But it also made an energy storage business model viable.
What Solar Grid Storage and SolarCity's (NASDAQ:SCTY.DL) battery system built by Tesla Motors (NASDAQ:TSLA) are planning to do is reduce peak energy usage at their installations by storing cheap energy or on-site generation and saving it for more valuable times of the day. This saves on demand charges, which are costs for the highest energy usage a building uses, and can also save money if peak charges are in effect. This is important in areas covered by PJM because electricity generated before or after peak times can be stored and sold into the system at peak prices.
This simple change to the use of demand response to supply storage creates a business model for the battery industry until markets like solar or wind are economical enough to demand storage.
Out in front of energy storage
The companies getting out in front of energy storage are going to have a key advantage. Interestingly, Panasonic could be a huge winner because it supplies Tesla's batteries and companies like Solar Grid Storage use the same lithium ion technology.
Look for General Electric to make a play as well. The company is working on flow batteries and has its Durathon Battery Energy Storage Systems. There's a vested interest to play a role in energy storage since it may replace some of its power plant business.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of EnerNOC, 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.