The energy storage business has long been a flicker in the imagination of energy innovators. With cost effective energy storage, a customer could go off the grid, remote locations could reduce reliance on generators, and we could even operate the grid more efficiently.
A recent report from GTM Research and ESA called U.S. Energy Storage Monitor shows that 2015 was a breakout year for the energy storage industry, and an explosion of growth could be on the horizon.
The record year for energy storage
Overall, energy storage installations grew 243% in 2015 to 221 MW (standard discharge time of one hour for these reports). Incredibly, this is just the start of the industry's growth. The authors predict that energy storage will be a 1.7 GW, or $2.5 billion, business by 2020.
A vast majority of that was in front of the meter, meaning it wasn't home or commercial building energy storage -- but the behind the meter market is booming as well. Behind the meter is the energy storage you might put in your basement, allowing you to store solar energy for use at night, which could revolutionize the electricity industry as we know it.
The energy market Elon Musk predicted is finally coming
Remember last year when Elon Musk showcased Tesla Motors' (NASDAQ:TSLA) Powerwall and Powerpack products? They were aimed at the coming energy storage market, but that market for the most part didn't exist.
Now it's here, and Tesla Motors is already playing a large roll. Right now, Tesla is building systems for commercial building owners, and has built some utility scale projects. We don't know exactly how the economics of these projects are working out, but the end market is certainly growing.
On the residential side, its sister company SolarCity (NASDAQ:SCTY) has been testing behind the meter storage and is already rolling out a product in Hawaii, where energy storage has become economical. The Powerwall won't be a big product for a few more years, but it's now a key offering to have in the portfolio for residential solar companies.
Everyone is looking into energy storage
Tesla Motors isn't the only company worth watching in this space. AES Energy Storage has been a leader in building commercial and utility scale systems. Stem is a leader in commercial storage systems, primarily used to shave demand charges from customers' bills. Sunverge is also bringing energy storage to homes and commercial buildings.
We will also see large utility suppliers enter the business in a big way. General Electric (NYSE:GE) and ABB (NYSE:ABB) have both been developing energy storage solutions that would fit well into their electricity businesses. They would be natural suppliers to utilities or large renewable energy projects, and ABB is now one of the largest solar inverter suppliers, so it could have a path to the residential market.
The next big market in energy
We can see that energy storage is going to be a big business in energy, but no one quite knows how it will play out. Monetization strategies are only now starting to take shape, and they're rapidly evolving to meet regulatory requirements. While this will be a high growth market, it'll also be high risk, so buyer beware.
Travis Hoium owns shares of General Electric Company. The Motley Fool owns shares of and recommends SolarCity and Tesla Motors. The Motley Fool owns shares of General Electric Company. 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.