The electric energy industry knows it's in for disruption with technologies like solar panels, wind turbines, demand response, dynamic pricing and energy storage evolving more rapidly than utilities can catch up.
But it's also a challenge for disruptive companies to determine what the winning strategies will be and how to implement them. The world's most innovative energy companies will adapt and evolve in the next few years and how they do could tell us who creates the household energy companies of the next generation.
Solar is winning, but that's not enough
Over the past five years, the solar industry has shown it's winning the long-term battle over fossil fuels, driven by rapidly falling costs. Today's solar industry is building projects for as low as 6 cents per kW-hr and one of the only questions is how fast the industry will grow?
But being a low cost provider isn't enough anymore in the solar industry. Solar energy is still an intermittent energy source that can't be turned off and on, like a natural gas plant, so it's not currently a great base load source of energy. Add-on services like energy storage, demand response, and intelligent integration into the larger energy infrastructure are needed to develop the grid of the future.
That's why SunEdison (NASDAQOTH:SUNEQ) recently bought Solar Grid Storage, why SunPower (NASDAQ:SPWR) partnered with Sunverge, Tendril, and EnerNOC (NASDAQ:ENOC), and why SolarCity (NASDAQ:SCTY) is excited to be a sister company to Tesla Motors (NASDAQ:TSLA). They know that they'll need to create more than cheap solar energy, they need to make energy that integrates with how consumers are using energy today.
Answering the challenges with solar
Since solar energy is an intermittent energy source -- meaning it doesn't create energy at a constant rate throughout the day -- energy storage is a natural add-on to solar systems to create a more consistent energy system. That's why it shouldn't be any surprise that leading solar companies like SunEdison, SunPower, and SolarCity have all begun building strategies to include energy storage with their solar systems. Even though storage may not create energy, it will actually make solar energy more valuable as an energy source.
The challenge is that there's no easy way to put a value on moving one unit of energy from one part of the day to another. Without fully dynamic pricing, which only exists in for a small percentage of locations, it's difficult to put an exact dollar amount on energy storage's impact, even though it's easy to see that it makes solar energy more valuable. This is where information could be a key addition to the energy mix.
Information is a key to the future of energy
That challenge of how to monetize energy storage is one reason why I think information will play a key role in the future of energy and solar. If we know when consumers are likely to use electricity, when solar panels will create energy, and how a customer's pricing profile looks, we can use this knowledge to manage energy and create a smarter grid.
But that's a lot of data and how exactly it gets aggregated and used is unknown at this point. What we do know is that companies are trying to figure out how to incorporate data into the mix. SunPower's partnerships with Tendril and EnerNOC are all about gathering information and even turning that information into revenue with demand response.
SolarCity's recent partnership with Google's (NASDAQ:GOOG) Nest is driven by the same trends. SolarCity has said it is building integrations with the Nest Learning Thermostat that can "deepen solar integration capabilities and help homeowners further optimize their savings". It's no coincidence that this comes just before SolarCity and Tesla Motors are expected to announce a new home energy storage product.
Why the future of energy is key for investors
There's no question that energy is changing and smarter, cleaner, energy sources are driving that change. But companies are still trying to feel out what that future looks like and what capabilities are needed.
Right now, it looks like solar, energy storage, demand response, and a broad information system are going to be keys to the future of energy. The companies amassing those technologies today will be the ones to watch for decades to come.
Travis Hoium owns shares of SunPower. The Motley Fool recommends Google (C shares), SolarCity, and Tesla Motors. The Motley Fool owns shares of EnerNOC, Google (C shares), 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.