Today, energystorageis often described as new, emerging or risky. But tomorrow, one word will suffice: mainstream.

In California, we have a near perfect storm of market signals moving the entire energy storage industry forward. On the hardware side, OEMs (battery and inverter manufacturers) have significantly reduced costs, while forward-thinking policymakers and financiers are creating favorable regulatory and market conditions.

To date, the industry has focused a lot of attention on grid-scale storage, but it is the massive opportunity behind the meter that will truly move the industry from fledgling to mainstream.

Utilities aren’t the only game in town

The California Public Utilities Commission (CPUC) made history last month when it passed the nation’s first energy storage mandate, directing investor-owned utilities in California to acquire 1,325 megawatts of energy storage by 2020. The impact on the energy storage market will be nearly instantaneous since contracts will need to be approved in the next few years in order to meet the CPUC’s requirements.

In addition to grid-scale storage, customer-located storage can be used to meet the mandate, codifying a huge opportunity for third-party ownership models behind the meter.

Consider this: the number of commercial industrial buildings in California alone hovers around 40,000. A typical behind-the-meter energy storage system for this customer segment would be in the ballpark of 25 kilowatt-hours. A little back-of-the-envelope math reveals that the potential for this customer segment in California is in the 1,000 megawatt range, an amount that could satisfy over three-quarters of California’s energy storage mandate.

Adding to the sheer size of the behind-the-meter market opportunity in California are favorable project economics. Distributed generation incentives like California’s Self Generation Incentive Program (SGIP), which provides rebates for qualifying distributed energy systems installed on the customer’s side of the meter, can provide paybacks for energy storage systems in under five years -- a timeframe that cuts the typical solar payback period in half. Even better, when you combine SGIP with the federal solar Investment Tax Credit (ITC), the payback period can fall to less than two years.

Financiers are jumping into the pool

With that kind of market potential, it is no surprise that financiers are jumping into the pool. Less than a week after the CPUC passed the energy storage mandate, Stem announced a $5 million project financing fund to enable its customers to obtain energy storage system with no upfront costs. The fund is backed by Clean Fleet Investors, where SunEdison Founder Jigar Shah hangs his hat as principal.

Energy storage finance is a natural progression for solar veterans like Shah who can leverage their financing expertise in the energy storage marketplace. Just as we saw in the solar industry, new project finance models will be key to unlocking the energy storage market, an insight that is beginning to ring true well beyond the solar finance community into the private equity and institutional investor communities.

Empowering developers to reach scale

The challenge is in reaching those 40,000 behind-the-meter opportunities. Again, the solar industry provides a valuable lesson; it experienced unprecedented growth behind-the-meter once intelligent management systems that accurately sized and deployed systems were put in place.

The same approach can be leveraged for energy storage. By placing intelligent management tools (software) in the hands of developers, complex energy storage systems will become predictable, manageable and repeatable. What’s more, software with interoperability across different OEMs can provide developers with a means to easily integrate the latest and greatest hardware, further driving down costs and ultimately enabling economies of scale.

The stage is set for the energy storage industry. As we have seen with the solar, combining a favorable regulatory environment with creative financing options and intelligent management tools can have a transformative impact on an emerging industry. For energy storage, tapping into the opportunity behind the meter will unleash this transformative power and enable the industry to truly come into its own.

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Michael Breen is a 20-year veteran of the renewable energy and finance industries. Breen cofounded Xtreme Power, largely regarded as the grid-scale storage pioneer, and is now CEO of Growing Energy Labs Inc. (GELI), a provider of energy storage and microgrid software management solutions.