Energy storage is widely referred to as the holy grail and linchpin of our renewable energy future.

That's debatable. There are certain countries and grids that have managed to incorporate high penetration of renewables without the benefit of storage.

And for now, almost all energy storage technology has questionable economics, unproven reliability, and exists in a fuzzily defined regulatory framework.

Here's Vinod Khosla giving his compelling viewpoint on energy storage.

Still, a few energy storage firms have managed to show signs of viability with a rational business plan.

Beacon Power is one of them -- despite its money-losing ways, small market capitalization, and battered stock price.

Beacon (Nasdaq: BCON), a public firm since 2000, develops flywheel energy storage that uses a rapidly spinning cylindrical rotor which serves as a kinetic battery. The CTO of the firm compares energy storage to data storage. Some storage, like RAM, is accessed very frequently, while other storage media, like a DVD, are accessed infrequently. Beacon is more like RAM with frequent access and high throughput. And Beacon's payment is based on throughput. Beacon claims a significantly longer cycle-life compared to electrochemical storage solutions such as batteries or regenerative fuel cells -- which is important for utility capital costs.

I spoke with Bill Capp, the CEO, about Beacon's business. The firm actually started out applying their technology to the telecom market but soon moved into the frequency regulation sector of the utility energy market. Beacon estimates the frequency regulation market as well in excess of $500 million and about one percent of load.

And although Beacon designs and manufactures the flywheel storage systems, the firm now utilizes its flywheels in its new role as an Independent regulation services provider or IRSP (pronounced IRSP). We've covered this transition from energy storage hardware supplier to energy storage service provider before. Beacon has taken advantage of deregulation and now has the ISOs as their customers, rather than the utility.

Beacon was just granted $5 million for construction of a 20-megawatt flywheel energy storage plant in Hazle Township, Pennsylvania and was a recipient of a $43 million DOE loan guarantee for a New York-based storage farm, now in operation. Beacon has raised approximately $125 million through the sale of stock but will have to raise considerably more funding to bankroll operations and begin construction of its next plant. Obviously, this financial situation implies that energy storage is still in early days.

The market for storage is counting on receiving regulatory support. FERC has proposed rules for paying rapid-response assets for their performance advantage over fossil fuel generators in frequency regulation markets. This pay-for-performance (PFP) regulation market tariff-in-the-making could be the catalyst for energy storage firms and an incentive to accelerate deployment of this type of technology.

Capp reckons that although Beacon is more expensive than lithium-ion batteries on a capital cost basis, the firm is cheaper on a per-cycle basis. Capp also sees the growing wind power resources in the ERCOT territory, California, Denmark, and Ireland as creating more demand for Beacon's products and regulation services.

There is a growing market ahead for Beacon of hundreds of megawatts of potential -- if it can raise sufficient capital to grow and if it can continue to scrub out cost from the flywheel technology.