Have electric carmaker Tesla and solar power installer and financier SolarCity cracked the financial code for backing up residential rooftop solar panels with household batteries?

Over the past year or so, the two companies have been quietly installing Tesla’s lithium-ion batteries to back up SolarCity’s solar panels. That’s no secret -- SolarCity advertises its home energy storage system on its company website.

But battery backup for solar panels has been too expensive to justify for all but the wealthiest of homeowners. Simply put, batteries are too expensive, and the price of power too cheap, to justify the expense.

That’s too bad, because battery backup could really help solve some of the larger-scale problems associated with connecting lots of intermittent, on-again, off-again solar power to the grid. Energy storage could help mitigate the distribution grid voltage sags and surges that can occur when clouds pass over neighborhoods with lots of rooftop solar, for example. It could also help shift stored solar power to cover peak loads that may occur slightly later in the afternoon than solar’s peak production times.

Enter the Tesla-SolarCity technology combo. So far, the two companies have submitted about 70 applications to Pacific Gas & Electric under California’s Self-Generation Incentive Program (SGIP). That program offers credits for on-site generation sources like solar power, biogas digesters and fuel cells. Starting in 2009, SGIP started offering credits of $2 per watt for energy storage systems that can store power from an eligible on-site generation system and discharge it at rated capacity for a four-hour period.

IDC Energy Insights analyst Sam Jaffe has reviewed Tesla and SolarCity’s SGIP applications with PG&E, most of which fall in the 5-kilowatt size range, and estimates that the two companies have applied for a combined 500 kilowatts of storage systems. In a Friday blog post, he extrapolates from the SGIP rule requiring four hours of discharge at rated capacity, and projects that the two companies’ applications add up to about 2 megawatt-hours of storage capacity.

That’s a lot of storage, and Jaffe predicts it’s just the beginning of Tesla and SolarCity’s plans. California’s other two big utilities, Southern California Edison and San Diego Gas & Electric, haven’t published their lists of SGIP applicants yet, and even PG&E has yet to announce the next wave to come later this year, he noted in his blog post. Given those variables, he estimates that the two may be eyeing as much as 10 megawatt-hours of home battery-solar backup systems in California in 2012.

Jaffe also states that SolarCity is offering the systems at a cost of $2,000 per kilowatt-hour, which would add up to $40,000 for a 5-kilowatt system. SolarCity bills the system as a way for homeowners to back up their homes in case of power outage, but it’s likely the bigger financial benefit would be to put power back on the grid to manage peak grid power, which could get the utility involved in further subsidies.

If SolarCity sets up the batteries to go beyond backing up solar power -- say, by charging with cheap nighttime grid power and combining it with rooftop solar power in the afternoon to make the home energy-neutral or even a net producer of energy -- that could yield additional payoffs under PG&E’s residential time-of-use tariff, Jaffe noted. That could shave about $500 more off the price of the system, he estimated.

But the big question for Tesla and SolarCity is whether or not they’ll be able to bundle the battery costs into the overall solar system costs that are eligible for the federal government’s 30-percent investment tax credits. Jaffe predicts that the two may be the first to try to do so, which would instantly pay for one-third of the price of the system.

Adding the ITC benefits to the SGIP incentives cuts the cost of the system to a mere $800 per kilowatt-hour, Jaffe estimates. With time-of-use benefits added to that, “the homeowner is paying about $6,000 for the benefit of having reserve power during short-term blackouts, which is roughly equivalent to what an advanced hard-wired generator would cost,” he said.

All in all, it’s still an expensive proposition for most homeowners. Jaffe notes that the two will have to figure out how to cut the price further to create a truly disruptive play in the home energy storage space. Still, if battery prices continue to fall as IDC predicts (down to $600 per kilowatt-hour in 2012), that could cut the overall system cost further.

Tesla and SolarCity aren’t the first to try out batteries to back solar power. Japan’s Panasonic and Hitachi are installing home-based, solar-backed energy storage in pilot projects. In the United States, battery startup Xtreme Power is eyeing smaller-scale solar-backed applications to match their big, substation-sized grid batteries, and utility AEP is working with S&C Electric Co. on “community energy storage” systems that back up grids at the neighborhood level. General Electric just inked a partnership to integrate its nickel-salt Durathon batteries with Arista Power’s power balancing system to back up solar and wind power.

One interesting note on the Tesla-SolarCity effort is that the two are offering the systems for lease in California, according to SolarCity’s website. That could open the door to SolarCity managing the batteries en masse, to maximize the value of the energy they’re storing. That sounds a bit like the plan from Stem, the startup formerly known as Powergetics, which has shifted from a straightforward home energy storage play to a cloud-managed, energy optimization technology play that manages home batteries without the customer getting involved. Of course, SolarCity and Tesla haven’t publicly disclosed any such plans. But it may be one way to squeeze more value out of what could end up being a common good.