On the surface, it makes little sense to put a big battery bank next to a commercial solar array. As it is, solar power is still more expensive than the grid in many places, so adding pricey batteries would just push the cost of energy up more.

But what if you could finance the energy storage equipment, much the way solar panels are financed, and the batteries provided a revenue stream? In an off-grid-solar scenario, old-school lead-acid batteries are just there to provide power at night and on cloudy days. But modern grid-scale battery systems are only put in place to save money or provide services to the grid.

Last week, representatives from project developer Standard Solar, Maryland governor Martin O’Malley, and FERC chairman Jon Wellinghoff dedicated Maryland’s first solar-powered microgrid. The installation includes 402 kilowatts' worth of solar canopies in the parking lot and, in a twist that differentiates it from most commercial solar projects, a shipping-container-sized battery from startup Solar Grid Storage.

Built around off-the-shelf lithium-ion batteries, the storage system includes an inverter and controls that will allow it to provide 50 kilowatts of emergency power for four hours in the case of a grid outage. On a daily basis, though, the battery will deliver frequency regulation services to the local wholesale grid operated by PJM. By providing quick bursts of power to keep a steady balance between supply and demand, battery owner Solar Grid Storage will earn money that is normally paid to natural gas power plant operators.

Is this project, carried out at the facility of real estate company Konterra, a sign of things to come in solar? It's still early days, but there are some signs that the combination of solar and storage will become a desirable combination for both customers and installers. If workable business models for solar and storage financing can be developed, it’s a shift that could have big implications for distributed solar and utilities.

Here are the factors that are driving the combination of commercial solar and energy storage.

1. The technology is there

The grid energy storage market is benefiting from the big investments that the auto and battery industries have made in lithium-ion technology and manufacturing. These batteries are more expensive on a per-kilowatt-hour basis than are other types of energy storage, but they are well suited for frequency regulation, where fast response times are very valuable. For the customer, having four hours of backup power for critical loads, particularly if the battery can be recharged with solar panels, means that a building can stay in business during an outage.

Solar Grid Storage uses batteries from LG Chem and Panasonic, but it is agnostic as to which type is used, said Solar Grid Storage CEO Tom Leyden, who worked for years in the commercial solar industry before starting the company. The development of less expensive bulk storage technologies -- something many companies are pursuing -- will make energy storage more attractive.

Advances in inverter technology are also a significant development. Solar Grid Storage designed a “dual-use” inverter that provides AC to the building from solar panels as well as power to the grid for frequency regulation. It can also put the microgrid on “island” mode and operate independently from the grid.

2. The economics can make sense

Solar Grid Storage won’t be the first to earn money with energy storage from frequency regulation. Project developer AES Energy Storage, for instance, provides frequency regulation services to PJM at a wind farm in West Virginia, buffered by a 32-megawatt lithium-ion battery bank. But energy storage owners don’t have that option everywhere. Instead, they will need to find other sources of revenue. “When you look at different parts of the country, we’ll have to cobble together revenues and values to make it worthwhile,” said Solar Grid Storage’s Leyden.

Startup Stem sells relatively small lithium-ion batteries -- as small as 18 kilowatts for one hour -- to businesses, such as hotels. Its revenue comes from reducing demand charges by using stored energy during peak hours. Most of its customers are in California, which has subsidies for distributed energy storage. By contrast, the desire to have emergency power has become a priority in East Coast states hit hard by Hurricane Sandy and other severe storms.

A Maryland state grant funded the addition of storage to Konterra’s solar installation. But for solar and storage to take off more broadly, project developers need to be able to tap capital from outside investors.

Stem on Thursday signed on project finance money from Clean Fleet Investors, a step it hopes will lead to attracting mainstream institutional investors. Similarly, Solar Grid Storage has financed its first projects with environmental-sustainability-oriented funds, but Leyden expects banks will follow. “This is very much like the solar industry ten years ago,” he said. “There’s a very similar type of atmosphere in storage.”

3. Solar installers want storage -- if it pencils out

Now that Konterra has energy storage, all of Standard Solar’s customer want it, said president Scott Wiater. “I think it will be on the majority of [non-residential] solar systems once it’s figured out, because it adds so much value,” he said. Military bases and island locations that rely on diesel generators are obvious candidates, he added.

There are also a number of technical reasons to add storage to solar arrays. A battery can smooth out the flow of power that panels provide to the local grid and address issues, such as the drops in voltage that come when clouds pass over. Batteries could also enable solar installations in places, such as farms, which would have required costly upgrades to the grid infrastructure, said Wiater.

“When you can really squeeze value out of [solar and storage], it will revolutionize not just solar, but the way the grid operates,” he said. “You’ll see lots of distributed generation and microgrids, and the grid will be more of a backup.”

There are a number of hurdles, however. The contracts to finance a combined solar and storage system are complex and need to become more standardized, as power purchase agreements are, said Wiater. Financing these types of systems is still relatively new and developers need to find customers willing to try not only solar, but also relatively new energy storage technology.

But technical improvements should improve the economics. And for utilities, adding energy storage to solar could make solar more palatable by turning an intermittent resource into a more predictable and reliable one. That’s a change that would push solar further into the mainstream.