DAVID GREENE, HOST:
And California is becoming a more lucrative market for companies that specialize in energy storage. That state has plans to get a third of its electricity from renewable sources like wind and solar, by the end of this decade.
But the lights need to stay on even when the wind isn't blowing and the sun's not shining. And so the state utility commission has called on utilities and private companies to install tons of batteries or other energy storage technologies, to help the grid cope.
As NPR's Richard Harris reports, this directive is a big business opportunity for some little companies.
RICHARD HARRIS, BYLINE: The new California rules that require batteries to be added to the power grid also specify that some of that storage capacity has to come from private companies. So I'm checking out a company called Stem, which is in Millbrae California, which is right across from the San Francisco Airport.
(SOUNDBITE OF DOOR OPENING)
TAD GLAUTHIER: My name is Tad Glauthier and I'm vice president of customer development at stem.
HARRIS: And stem is what?
GLAUTHIER: So, tem is a distributed energy storage company. We make a product that produces electricity bills for businesses.
HARRIS: One of a number of California companies trying to figure out how to make money with batteries. As the sales pitch suggests, this company's first priority is to focus on individual businesses, not the power grid as a whole. To explain how their plan works, Glauthier takes me over to a couple of large computer monitors hanging on the wall.
GLAUTHIER: The monitor on the right is showing the electric load from the carwash across the street.
HARRIS: And the graph is very spiky. There are lulls when the car wash is waiting for business, punctuated with big jigs and jags.
GLAUTHIER: And if you look at just the range within this, within the last 15 minutes, that's an incredible amount of volatility that utility has to serve them, you know, that electricity.
HARRIS: And it turns out that the car wash has to pay extra on its electric bill for those times of big demand. All companies get billed for their peak use, as well as their total electricity consumption. So if the car wash can shave off those power peaks, they can also shave this charge off their electric bill.
Stem's solution: kick in some battery power to reduce peak energy usage. The battery packs they install in businesses look like glitzy gym lockers.
GLAUTHIER: This is the brains of the operation. It's about the size of a shoebox and I'll open it up so you can see inside.
(SOUNDBITE OF SHOEBOX OPENING)
HARRIS: Not much to see in this box, mounted next to the battery. It's a tiny computer, which is linked to the Internet. The computer's job is to pull current from the battery during peak moments, and then recharge it through the grid when a company's usage is low.
GLAUTHIER: They're still using power. With the Stem system, they're not using less power. With any energy storage system they aren't using less power. They're just using power in a more level way.
HARRIS: And by doing that, the company is reducing the part of its bill that's based on peak power usage.
To be blunt, is this just gaming the system. Or if you actually manage these loads, do you actually help the local utility save money by not having to generate quite as much electricity at those peak moments?
GLAUTHIER: You absolutely help the system.
HARRIS: Well, Glauthier may be getting a little ahead of himself here.
HARESH KAMATH: Right now, it does only help the customer.
HARRIS: Haresh Kamath is a battery guru at the Electric Power Research Institute in nearby Palo Alto. He says batteries will eventually help the state power grid deal with the ups-and-downs of electricity supplies from wind and solar. But it will take a lot of battery power to make a difference. That's exactly why the California Public Utilities Commission has called for billions of dollars of batteries and other electricity storage technologies to be installed between now and 2020.
KAMATH: If you get a small energy storage system in every body's home, or in every, in every business, then that could have a substantial impact on the grid as a whole. Of course, right now, it's difficult to do that because it's a relatively expensive product.
HARRIS: Everybody's hoping that creating this huge demand for batteries will also help drive down the cost.
Batteries can help with short-term power fluctuations, say when a cloud passes over a bank of solar panels, or if the air goes still at a particular wind farm. And they can help keep the power grid stable, as operators work to match supply and demand second by second.
(SOUNDBITE OF MACHINERY)
HARRIS: Back at Stem, Glauthier gives me a lightning tour of the start-up, which occupies an abandoned discount-store showroom.
GLAUTHIER: So we have business development, field installations, a software group and a hardware integration group.
HARRIS: Glauthier says they have only installed 10 systems so far, but they have 150 more orders in the works. And once they reach a critical mass, Stem then has another way to make money. They will be able to control all the batteries they install from one central location. Then they will essentially have control over a giant virtual battery - one big enough to help stabilize the electric grid. And the grid operators will pay for that service - eventually.
GLAUTHIER: It's taken us four years, 4.5 years, to get here. I think there's another three to four years to go before we're really blowing the doors off, or anyone is in this industry.
HARRIS: They do have competition, including Tesla, which has teamed up with a solar company to get into this business. And the race here is not simply to refine battery technology but to invent business models that will make this fly.
Richard Harris, NPR News.