The impact Elon Musk and Tesla (NASDAQ:TSLA) will have on the energy industry may be larger in the power storage segment than anywhere else. Sure, his company is a leader in electric vehicles and residential solar, but in the worlds of automakers and solar energy more broadly, Tesla is a very small player. 

Energy storage is another matter: Tesla has been more aggressive in that space, and could take a leadership position very quickly. And its product could very well upend the electricity market as we know it.

Energy storage saves natural gas from itself

The future of energy can be seen in the emergency energy storage system built in Southern California after the Aliso Canyon natural gas storage field’s massive leak late in 2015. Because of that blowout, which released close to 100,000 metric tons of methane into the atmosphere, operations at the facility were curtailed, and there was a chance the region wouldn’t have enough natural gas to meet its energy needs at peak times in the summer, leading to brownouts or blackouts. 

Most of the time, the issues at the facility weren’t a big deal relative to California’s power supply, because there was still enough energy overall to meet demand. But there was the potential for a disparity during evening hours, when people get home and turn on their lights, that demand could exceed supply. And that was a concern for the grid operators. 

Their solution was to install a large array of batteries that could store energy when it was abundant and easily deploy it to the grid when needed. Sempra Energy‘s (NYSE:SRE) San Diego Gas & Electric contracted with Tesla, Greensmith Energy, and AES Energy Storage to build 70 MW of energy storage with 280 MWh of capacity to offset the Aliso Canyon outage. Just six months after the request for proposal went out, the projects were complete. 

Energy storage added an incredible amount of value to Southern California’s grid, and it did so in very little time. And proving out these capabilities will allow more energy storage growth in the future. 

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As the cost of batteries, fuel cells, and renewable energy more broadly come down, it’s becoming clear that energy storage will be a big business in the future. It can smooth out the variability inherent with wind and solar, provide valuable services to the grid, and move cheap renewable energy created during the day to hours when it’s most needed. 

It’s becoming more clear that energy storage will be valuable, like wind and solar energy a decade ago. What’s not yet clear, though, is the answer as to how energy storage will generate value for investors. Creating a business model that can exploit the advantages of energy storage to make money will be key. And the industry may be perilous for those on the bleeding edge. 

Where energy storage has value

Generally, we know where energy storage has value. Rocky Mountain Institute has defined 13 value drivers from energy storage, including self consumption of solar, backup power, and energy arbitrage (lowering electricity consumption during high cost times and moving it to low cost times). These are the items Tesla (NASDAQ:TSLA), Sunrun (NASDAQ:RUN), and SunPower(NASDAQ:SPWR) have used to justify a lot of the limited amount of energy storage that’s been installed today, but those businesses are essentially in pilot mode. 

If the chart above is correct, the bigger sources of value may come from the utility side of the ledger. Transmission congestion relief and distribution investment deferral are two of the most valuable uses of energy storage, but they’re driven by utility needs and go through regulators. For developers, you can’t just build a battery and bid it into the open market without regulators driving the utility to buy services from you. 

There’s value from energy storage for the entire grid, from utility to customer, that much is clear. The question is, who pays for this value and how? Here’s a few viable options. 

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Rooftop solar energy is becoming a financially viable way for millions of U.S. consumers to generate their own electricity — and utilities are doing everything to kill the solar boom before it gains too much traction. Utilities in states such as Florida, Wisconsin, and Nevada have tried to undermine rooftop solar at the regulatory level and in ballot measures. As a reaction, voters have fought back and beaten the efforts to squash solar energy. 

The impact on residential solar companies Tesla (NASDAQ:TSLA), Vivint Solar (NYSE:VSLR), Sunrun (NASDAQ:RUN), and SunPower (NASDAQ:SPWR) shouldn’t go unnoticed. They’re winning the policy war against utilities, and as they do, it’ll open a larger and larger market across the country. 

Policy wins are going to renewable energy

The election earlier this month was accompanied by a number of ballot initiatives that will impact solar energy for years to come. And for the most part, solar energy was a huge winner. 

Despite utilities’ spending $26 million to pass a referendum that would have undermined solar economics in the state, Florida voters rejected the utility referendum. The state now looks like it’ll have a bright solar future. 

In Nevada, less than a year after the public utility commission essentially killed the rooftop solar industry, residents overwhelmingly voted to break up Berkshire Hathaway (NYSE:BRK-B)-owned NV Energy’s long monopoly in the state. Customers have to be given energy choice, meaning more solar in one of the country’s sunniest states. 

In the past, Wisconsin has tried to add fees to utility bills that would kill solar energy before it ever got started, but those attempts were rejected by the court. 

There’s an important trend here for utilities and solar companies: When solar energy goes on the ballot or to the court, it wins. That should have every utility in the country frightened because that gives millions of customers choice regarding their energy needs. 

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Tesla Motors (NASDAQ: TSLA) CEO Elon Musk has big plans for the first Gigafactory. The battery factory will have 35 GWh of annual production capacity and the capability to assemble another 15 GWh of battery packs each year, bringing the total annual capacity to an astounding 50 GWh of finished products. That will be more than enough to supply batteries for the company’s stated goal of 500,000 electric vehicles, so the additional capacity is being dedicated to a growing portfolio of stationary energy storage products for home (Powerwall) and utility (Powerpack) customers.

The energy storage market is still in its infancy today, as technologies mature and companies iterate business models that work as seamlessly as possible within the complicated ecosystem of power distribution. While the economics work only for a small niche of individual customers, Musk is hoping that an integrated Tesla Powerwall plus solar panels from SolarCity (NASDAQ: SCTY) will generate more interest and value over time. The economics are slightly easier for utility-scale deployment of Powerpacks in the near term, but only after state and federal incentive programs are factored in. Success in the nascent industry is more difficult to achieve than it looks.

Some speculate that Tesla is willing to take on short-term pain to grow market share, establish relationships with key customers, and build its brand. That, the argument goes, should position the company for long-term success as battery prices fall and the kinks are ironed out of financing models. After all, Tesla has substantially more capital to deploy than nearly all other energy storage manufacturers and wields the largest battery manufacturing facility on Earth. 

There’s just one problem: Lithium-ion batteries probably aren’t the future of home or grid energy storage. Although capital and a Gigafactory provide Tesla with a formidable competitive advantage today, that could evaporate in the next decade as the energy storage market becomes segregated by application.

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This summer, just after Tesla Motors (NASDAQ:TSLA) showed off its Gigafactory to the press, Tesla CEO Elon Musk said the company would have an announcement related to its energy storage business later this year. The teasing continued when Musk mentioned upcoming “next-generation technology” for its energy storage solution during the company’s second-quarter conference call. 

Now, Tesla is giving investors a clearer idea of what to expect, and it’s putting a target date on this new technology’s unveiling. “Aiming for Oct 28 unveil in SF Bay Area of new Tesla/SolarCity solar roof with integrated Powerwall 2.0 battery and Tesla charger,” Musk said on Twitter Thursday morning. 

Here’s a closer look at what this product might look like and what investors should know about it.

What to expect

An integrated solar and energy storage product in partnership with solar panel company SolarCity (NASDAQ:SCTY), where Musk is the largest shareholder and board chairman, isn’t necessarily news. Indeed, Tesla has described a product like this on several different occasions.

In July, shortly after Tesla revealed its proposal to acquire SolarCity, Tesla teased an integrated solar and energy storage product in the company’s update to its Master Plan. Tesla plans to launch “a smoothly integrated and beautiful solar-roof-with-battery product that just works,” the plan read, “empowering the individual as their own utility, and then scale that throughout the world. One ordering experience, one installation, one service contact, one phone app.”

In August, when Tesla announced it had reached an agreement with SolarCity to combine, Tesla said an acquisition would enable the company to “create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.”

And Musk specifically noted during SolarCity’s second-quarter conference call in August that the differentiated product the solar company has been promising to unveil later this year is “a solar roof.” In other words, the solar roof will be the roof itself.

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If electric-car maker Tesla Motors (NASDAQ:TSLA) has its way, there will be a day when it is just as much of an energy company as it is an automaker. Its 2014 introduction of energy storage products for residential and commercial customers and its construction of the world’s largest battery factory highlight its bet on an energy-storage dependent electric future. To this end, the company has dropped Motors from about every reference to the company except its official publicly traded name, now going by “Tesla” instead.

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Energy storage is coming in a big way in the U.S. and around the world, but before it does, the industry needs to figure out how installing batteries is going to make customers money. Building batteries in buildings or on the utility’s grid isn’t going to be done because it’s cool or somehow saves the planet — it’ll be done because it makes money. And energy storage has the ability to make a lot of money.

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We’re getting some interesting news lately about the pace of cost reductions in the lithium ion battery industry and it could bode well for new industries forming today. According to energy storage company Stem’s Chief Technology Officer, battery prices have fallen a whopping 70% in the last 18 months. 

Battery prices are key to unlocking energy storage in homes, at large buildings, and at utilities that could shave peak energy costs and allow more renewable energy to hit the grid. And for electric vehicles, falling battery costs could make it attractive for millions more people to buy an EV.

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Energy Storage News – Don’t look now, but corporate America may lead the next phase of the renewable energy revolution. And that’s terrible news for utilities across the country.

Companies are looking at renewable energy as a way to save costs, lock in rates, and go green, and they may have more power to upset the utility business model than even a million homeowners installing solar panels. The defection of even a small number of large companies from the traditional grid could cause havoc in the utility industry. 

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Energy Storage News – Renewable energy is now one of the lowest-cost sources of electric energy in the world, winning billions of dollars in open bids to provide energy to the grid. But as the renewable sector grows, utilities have to deal with the intermittent nature of its energy production, both on a minute-by-minute basis as well as through seasonal changes. And energy storage will likely play a key role in that adaptation.

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