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SolarCity’s new battery system might help solar become a significant source of electricity.

By Kevin Bullis

Today, SolarCity—a company that’s grown quickly by installing solar panels for free and charging customers for the solar power—announced a new business that will extend that model to providing batteries for free, too. SolarCity is a rare success story for investors in clean technology, and its business model has sped the adoption of solar panels.

The batteries could help businesses lower their utility bills by reducing the amount of power they draw from the grid. They could also help address solar power’s intermittency, which could prevent it from becoming a significant source of electricity. The batteries are being supplied by Tesla Motors, whose CEO, Elon Musk, is SolarCity’s chairman.

Other solar companies have failed in recent years. But SolarCity’s business model has helped it grow quickly. It had a successful IPO a year ago, and its stock price has risen from its IPO price of $8 to over $50 today (see “SolarCity IPO Tests Business Model Innovations in Energy”).

CEO Lyndon Rive says that eight years from now, the company might not be able to continue selling solar panel systems unless it packages them with batteries, because of the strain on the grid that solar power can cause. “It could be that, without storage, you won’t be able to connect solar systems to the grid,” he says.

Solar power intermittency isn’t currently a big problem for utilities, since solar panels generate just a tiny fraction of the total electricity supply. But solar power will become a strain on the power grid as it grows. Power from solar panels can drop in less than a second as clouds pass overhead, before surging back again just as fast. The tools that utilities use now to match supply and demand typically can’t respond that fast. Batteries could be a solution, but they’re too expensive to be used widely now. Rive thinks SolarCity can help drive down their costs by scaling up its use of batteries with the new business model.

Utilities charge companies for their electricity based on two things. The first is the total amount of electricity they use (measured in kilowatt-hours). The second has to do with their peak demand—a company that needs to draw huge amounts of power for industrial equipment will pay more than one that only needs to charge a couple of laptops, since it will need bigger transformers and other equipment. The fee based on that peak electricity demand can be a big chunk of the total bill, typically between 20 and 60 percent, Rive says.

The battery systems—and the software that controls them—are designed to reduce the peak draw from the grid. Batteries charge up using power from solar panels and supplement with power from the grid when a company needs to draw its highest levels of power—such as during summer afternoons, when air conditioners are running hard.

SolarCity is also testing battery systems with residential customers, who typically don’t pay demand charges. The main draw for homeowners would be the batteries’ ability  to provide backup power if the grid fails. But eventually regulators could adopt rules that allow homeowners to reap profits from allowing utilities to use their batteries to help manage electricity load on the grid.

Rive says SolarCity spent three and a half years developing the battery system and the last year testing it. Because batteries are expensive, it’s ideal to use ones as small as possible. Algorithms try to predict when to charge and discharge the batteries, a decision based partly on forecasts of how much solar power is going to be available and when demand will be greatest.

The batteries use the same technology Tesla uses in its electric cars. But the size of the packs could be far larger, depending on the size of the solar panel system it’s paired with.

SolarCity isn’t the only company looking to use batteries to reduce electricity costs (see “A Startup’s Smart Batteries Reduce Buildings’ Electricity Bills”).Nissan recently announced that it had used the batteries inside several plugged-in Nissan Leaf electric vehicles to reduce electricity costs for one building in Japan, as part of a test of a concept called vehicle to grid (see “Recharging the Grid with Electric Cars”).