SolarCity Corp (NASDAQ: SCTY) is teaming up with Tesla Motors (NASDAQ: TSLA) for a system they’re calling “DemandLogic.”
Announced last Wednesday, the second-largest U.S. solar company by market share will be using the car maker’s batteries to provide power-storage systems to commercial customers – providing relief to utility bills and offering a source of backup power.
Billionaire entrepreneur and Tesla CEO Elon Musk is SolarCity’s biggest shareholder and its chairman, and he is also the cousin of its Chief Executive Officer, Lyndon Rive.
California’s SolarCity will attract retailers, schools, offices, and other businesses that want to lower energy consumption while reducing demand charges from utilities.
In essence, it’s a way for businesses to manage their own electricity and put heat on utility companies.
Markets in California and New England will be focal points because that’s where demand charges from utilities are the highest. The hope is to reduce those by at least 20 percent.
The DemandLogic battery system will be offered in conjunction with SolarCity’s main business of rooftop solar-power systems; many of these customers will likely want to add batteries, as well.
The first installations are set to begin in the next six months.
The company’s sales model will follow the success of its solar market: customers will pay no upfront costs for equipment and installation, signing on for long-term agreements for the use of solar electricity and energy storage.
From there, SolarCity’s software will learn a customer’s energy consumption patterns and automate storage and use throughout the day.
The main attraction of DemandLogic is the reduction in demand charges that are paid to utility companies; by signing 10-year lease agreements, customers will save significantly on these charges by what they pay each month for the new system.
Demand charges are simply just fees that many utilities tack onto a customer's bill when he or she uses peak power consumption each month. With this new battery system, electricity is stored when usage is low and then used as needed to reduce peak demand.
Commercial customers face these charges regularly, as peak demand can vary greatly from day to day. Homeowners don’t pay demand charges because energy demand is relatively steady.
The batteries will get power from the grid most of the time. In the event of a blackout, however, the system will switch to electricity produced by solar panels, so customers will never have to worry about losing power.
The two companies have been working together for roughly three and a half years now – certainly a bonus for the solar company considering the success Tesla has achieved in its automotive industry. The car manufacturer has made great strides in battery technology by improving on costs and reliability. This has only strengthened SolarCity and the bond between the two as they cross new economic thresholds together.
We know all about Tesla and its shining achievements with its electric car. Couple that with SolarCity’s success in the solar panel business, and it’s a recipe for market greatness.
SolarCity has increased its stock by 350% since its $8 debut on December 12, 2013, and it closed at $53.72 in New York on Friday.
First Solar remains the biggest U.S. solar company. Its shares closed at $58.01 on Friday.
Everything Tesla touches seems to turn to gold. The DemandLogic system is just taking off as the company looks to sign 30 megawatts to 50 megawatts worth of energy storage contracts in the coming year.
The energy storage market as a whole is still relatively new. Diesel powered generators have always been the solution for backup power. But now, with the success of rooftop solar installations, the potential for profit from energy storage systems is on the rise, and businesses can see the benefit.
The market for advanced batteries increases every single day in all walks of life – from our cars to our phones and into our businesses. Those applications reached $10.8 billion last year, according to Bloomberg.
The key is to keep costs down while continuing to add benefit.
Other energy storage service providers, like the start-up Stem based in California, are pitching similar ideas for reducing demand charges. It’s heating up.
As long as the sun keeps shining…
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