The past decade has brought about a huge amount of change in the energy sector. The cost of natural gas has fallen so far that it's beginning to replace coal for electricity generation and even gasoline for truck fuel. Wind turbines have become economical around the world and have even made their way miles out to sea. And most surprisingly, the cost of solar has fallen dramatically over the past decade, making solar power cost-effective in many parts of the world.

The last two developments, centered on a move toward renewable energy, pose problems for utilities as these energy sources become more widespread. The wind doesn't blow all the time and the sun doesn't always shine, so what are utilities to do to fill the gaps?

Part of the answer is natural gas. Natural gas plants can be turned on and off more quickly than coal plants, making them a better complimentary power source to renewable energy, but it isn't enough. The ability to store power needs to play a role in our energy future, and I think this is the next big thing in energy.


Steven Berberich, president and CEO of California Independent System Operator Corp., said that storage is "not a matter of if -- it's a matter of when." So what should investors keep their eyes on?

Large-scale storage
The dream for utilities would be to find a way to store large amounts of power to smooth out the electricity supply coming from large renewable-power plants. Plants being completed by First Solar (NAS: FSLR) and SunPower (NAS: SPWR) are now exceeding 250 MW, so a large cloud or a sudden thunderstorm can have a big impact on the electricity supplied to a utility at a moment's notice.

The two very large-scale storage methods currently used by utilities are pumped hydro and compressed- air storage. There are 21 GW of pumped hydro in the U.S. and 38 GW in Europe, so while this technology doesn't get a lot of attention, U.S. utilities do use it.

Compressed-air storage has also been used, but only on a relatively small scale. There are currently only two compressed-air storage plants, but PG&E has proposed a 300 MW project to back up wind power in California.

Battery backup is also being used on a smaller scale, but a scale of hundreds of MW or GW is still years away at best. Batteries may make more sense on a smaller scale, which I'll get to in a minute.

One technology getting some publicity recently is pumped-heat electricity storage, a technology Isentropic Energy uses. The company received a $22 million investment to build a 1.5 MW, 6 MWh storage unit in the U.K. to demonstrate the technology. The system uses gravel and air instead of oil or other chemicals to store heat, hypothetically making it more environmentally friendly than other technologies. Isentropic also thinks it can build large-scale storage at $8 per kWh, a cost much lower than batteries or other technologies.

Small-scale storage
The most likely way storage gets an early foothold is in small-scale form for small projects or communities with a large amount of distributed generation. Battery technology is being tested at utilities from the U.S. to Russia by companies such as Ener1, A123 Systems (NAS: AONE) , and even General Electric (NYS: GE) .

A123 thinks it has a winner on its hands with its new Nanophosphate EXT technology. The batteries made with this technology will require less cooling than its previous technology, lowering costs and maintenance requirements.

GE has invested $100 million in Durathon Battery technology, a nickel salt battery intended for telecommunications, utilities, and applications that can't have power interruption. Siemens (NYS: SI) is also taking steps to get into the battery game, recently supplying a 500 kWh energy storage solution in Italy. If these two energy giants have taken notice you know that energy storage is a big deal.

Right now the problem with battery technology is the cost involved. Utilities have been willing to test this technology on a small scale, but a larger scale is so far out of reach for this technology.

Concentrated solar-energy storage
As the cost of PV solar has fallen, concentrated solar has lost some of its shine, but BrightSource Energy and eSolar are building solar plants with the possibility of integrating energy storage. They use mirrors to bounce the sun's light onto a power tower, where a liquid (usually oil) is heated and run out of the tower to eventually run a power-generating turbine. BrightSource in particular is selling this technology as an advantage for concentrated solar power.

The final frontier
As the cost of wind and solar power comes down, the next challenge will be integrating these power sources into the grid seamlessly. Power storage will need to play a key role for these power sources to take growth to the next level. The developments may seem small now, but every step toward cost-effective energy storage is a good one for renewable energy.

For another great play in energy, check out our report highlighting an energy stock for any condition. The report is free.

At the time this article was published Fool contributor Travis Hoium owns shares of SunPower in personal and managed accounts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. Motley Fool newsletter services have recommended buying shares of First Solar. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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