We're less than three months into 2015 and already the solar industry is laying out plans to upset the electric utility industry. SolarCity (NASDAQ:SCTY) is partnering with Tesla Motors (NASDAQ:TSLA) to offer a "microgrid service" that combines solar, batteries, and software to control when and where a location uses power. SunEdison (NASDAQOTH:SUNEQ) bought Solar Grid Storage to enhance its own storage offerings from solar and wind projects.
The latest move came from SunPower (NASDAQ:SPWR), which has partnered with Sunverge for energy storage, and is now partnering with EnerNOC (NASDAQ:ENOC) to use that storage for demand response for commercial and industrial customers. There is a three-year exclusive cross-selling agreement between the two. This may help drive greater adoption, flexibility, and revenue generation from commercial and industrial solar customers.
Monetizing energy storage
On the surface, solar energy and energy storage make all the sense in the world. Storage can help smooth out the supply of electricity from the sun to a home or the grid, making the entire system more reliable and predictable. The question is, how do you make money off energy storage?
There isn't any fundamental change in the amount of electricity produced by solar panels if a home or business has energy storage, so something else is needed to make the economics of storage work. I highlighted this as my biggest challenge for SunEdison's acquisition of Solar Grid Storage, because neither company knows quite how much storage is worth or how they're going to charge for it.
One way to monetize storage is through demand response, and EnerNOC is the biggest name in the space. EnerNOC is able to sell demand reductions to utilities just like power plants sell extra power to utilities. To the grid, it doesn't matter if electricity supply goes up or demand goes down, as long as the two are in balance. EnerNOC supplies reduced demand and is paid for it.
The way it works for customers is that EnerNOC hooks into the demand sources of a building -- like air conditioning, heating, lighting, and other components -- and, when a demand reduction is requested, automatically reduces participating customers' demand. This may mean raising the temperature in a room or turning off fans, but it's done automatically. For the reduction, the building owner and EnerNOC both make money.
This could be a silver bullet for solar energy -- SunPower will be able to store energy created during the sunny hours of the day, and EnerNOC will be able to tell each building when it's most cost efficient to discharge energy or store it for later use. This should increase the potential revenue for each commercial and industrial installation and work to justify the cost of energy storage.
The future of solar energy
SolarCity alluded to a similar system in its recent microgrid announcement, but doesn't have the same market-ready partner as SunPower now has in commercial and industrial. But we're starting to see how both of these companies are going to sell solar and storage to customers and make money on it.
I wouldn't be surprised to see SunEdison begin to incorporate demand response in commercial and maybe even utility scale projects in the near future.
Energy storage is the next frontier in the solar industry, and we're finally starting to see how it will play out. For solar companies, storage should expand the market and even provide new revenue opportunities. That's an exciting development, and should provide even more value to investors long term.
Travis Hoium owns shares of SunPower. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of EnerNOC, 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.