How Energy Innovators See the Future of Storage

By Markets Fool.com

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Energy could soon be a common feature in your workplace. Image source: Stem.

Energy storage seems to be a hot topic and disruptive force in energy that few people know anything about. It theoretically makes sense to pair with energy sectors such as wind and solar, but how much value is that storage worth to a customer? After all, as long as the power outlets work most people don't really care where their energy comes from.

Slowly but surely, energy storage companies are starting to figure out how to add value to their customers, and as the cost of batteries falls new markets will open up. This week, I spoke with John Carrington, CEO of energy storage company Stem, which has secured investments from Total,General Electric, andExelon. Its next funding round will be led by Mitsui & Co. Ltd. Here's what I learned about energy storage and the future of energy.

What is Stem and what is energy storage today?
Stem is an energy storage company that doesn't make any batteries. Instead, it installs batteries manufactured by third parties, and Stem provides software and analytics that teach a building to provide cost savings to customers.

It's another company establishing information as the key to the future of energy. It will become increasingly clear in the next few years that the value in energy will be in knowing when and how energy is going to be consumed and produced and matching up those sources. No longer will the power plant be the biggest value creator in energy; instead, information will be.

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Software will play a key role in creating the value in energy storage. Image source: Stem.

How will Stem, or energy storage in general, make money?
I've talked to a number of energy storage executives in the past few years, and one common thread is emerging. They see energy storage as a way to add value to the grid and to intermittent power sources such as solar, but in the near term their business models are focused on lowering demand charges for commercial and industrial customers.

These are charges based on customers' peak demand and added to the per-kilowatt hour cost they pay a utility. So, even if you only hit your peak for 15 minutes in a month, you still have to pay the demand charge based on that peak.

Stem can understand a building's inner workings enough to know when those peaks will occur and store sufficient energy to offset the demand. This lowers the overall energy cost for consumers, which is how they justify the Stem energy storage system.

I think this business model will evolve into more grid applications and renewable energy storage, but demand charges are enough to give this nascent industry a start.

What is Stem's technology?
Like many of its competitors, Stem is technology agnostic.

Right now, Stem uses lithium-ion batteries because they discharge quickly and have high energy density, but if another technology emerges with better qualities and lower costs the company would switch in a heartbeat. This is very different from another big name company talking a lot about energy storage.

Is Tesla Motors a threat?
One of Carrington's most telling statements about competition in the battery space came when I asked about Tesla Motors . There's no doubt Tesla has an eye on the energy storage market, and it thinks it can lower costs enough to increase adoption dramatically.

Carrington said he doesn't view Tesla as a threat, but instead as a catalyst for the energy storage industry. In fact, he even said that if he could invest money in the Gigafactory to push it along faster he would, but not because he thinks it's a good investment.

When the Gigafactory begins pumping out product it will double the world's supply of lithium-ion batteries, which could push prices even lower. It's simple supply and demand that works in favor of companies buying batteries on the open market, not those manufacturing them.

So, Tesla Motors isn't a threat to Stem or other energy storage companies that are buying batteries from third parties, it's actually going to help them lower costs.

Energy storage might not look like you think
It's easy to believe energy storage will lead to a wave of people defecting from the grid. But even companies within the storage industry don't believe that would be possible for many years.

Energy storage's role in the near term is lowering demand charges for commercial and industrial customers -- something most people don't even know exists. That's where the focus of Stem and its peers is today, and it's the first market to watch to see if energy storage will indeed reach its potential for disrupting the energy market.

The article How Energy Innovators See the Future of Storage originally appeared on Fool.com.

Travis Hoium owns shares of General Electric Company and Total (ADR). The Motley Fool recommends Exelon, Tesla Motors, and Total (ADR). The Motley Fool owns shares of General Electric Company 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.