By Brian Dumaine, senior editor-at-large
FORTUNE -- One of the great -- and somewhat obvious -- shortfalls of solar power is that these systems cannot generate electricity when the sun's not shining. Now a number of companies including Tesla (TSLA), BYD, and Bosch are offering a new generation of lithium ion battery storage systems -- similar to those used to power electric cars -- to capture electricity generated by residential solar systems. Put a big battery in your home, and store the electricity generated by your rooftop system for a rainy day.
The advantage of such systems is that in power outages, you can still have as much as a day or two of power to run your lights and appliances. You can also control when you use your electricity. In markets where utilities have variable pricing -- which means higher prices during peak hours when demand is high -- a homeowner can store his solar power when rates are cheap and use it when rates soar -- like on a hot afternoon when everyone has the air conditioning humming.
There are advantages for utilities too. Having lots of batteries in the system helps power companies integrate renewables into the grid -- solar produces power intermittently, which means it surges in and out of the grid, causing instability. Storage helps level off these bumps and dips. Solar storage got a big boost in October when California regulators required utilities to procure 1.3 gigawatts of renewable storage capacity by 2020.
The big drawback for storage, however, is price. These systems are expensive, and it's not at all clear what the payback is or even whether there is one. BYD, the Chinese battery maker in which Warren Buffett's Berkshire Hathaway (BRKA) owns a significant stake, sells a solar battery system that ranges from $3,000 to $10,000, depending on size. So far BYD's system is selling well in Europe. Says BYD's senior vice president Stella Li: "We have more of a market in Europe because the government incentives there are good."
It's a different story in the U.S. where no subsidies exist for solar storage. Li thinks that a leasing model -- like the ones available for rooftop solar systems from providers like SolarCity (SCTY) and SunRun -- might help kick-start the market here. (Instead of paying the full cost of a system upfront, the homeowner pays a low monthly fee for solar power.)
Despite the pricing problem, a growing number of experts believe the long-term future looks bright for storage as battery production goes up, technology improves and costs eventually come down. Bloomberg Energy predicts that battery storage costs will fall 57% a kilowatt-hour by 2020. Thanks to strong demand in Japan and Germany, Lux Research sees the global market for solar systems combined with energy storage growing to $2.8 billion in 2018 from less than $200 million this year -- a good start for homeowners who want to free themselves from the grid.
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