
Attendees take pictures of the new Tesla Energy Powerwall Home Battery during an event at Tesla Motors in Hawthorne, California April 30, 2015.  Photograph by Patrick Fallon — Reuters

This will be a breakout year for batteries

Updated: Sep 03, 2015 7:38 PM UTC

Batteries that let utilities, businesses, and solar panel owners store energy is a rapidly growing market. And it's not just because Tesla, the buzzy automaker, has given the so-called grid battery industry a big boost in visibility by introducing its own line of industrial-sized batteries.

This year, there will be 220 megawatts of energy storage projects built across the country, according to a new report from research firm GTM Research. The vast majority of these projects will use batteries, and specifically low cost lithium-ion batteries.

In short, this will likely be a breakout year for battery makers.

In terms of power, 220 megawatts is not a whole lot. A large solar farm can generate hundreds of megawatts of energy while a large coal or natural gas plant can generate a thousand megawatts.

But the quick growth, and the recent emergence, of the energy storage industry in the U.S. is really what matters. In the second quarter, the amount of energy storage projects installed was nine times higher than the amount built during the same time in 2014 and six times more than during the first quarter of 2015.

Energy storage market, U.S.

The rise of the consumer electronics industry has enabled the mass production of low cost lithium-ion batteries in Asia. This in turn has led power companies, as well as tech startups, to look at how this new low cost energy storage source could be used in new ways.

Utilities are starting to buy big battery banks as a way to avoid building and operating new expensive natural gas plants. If they can use battery energy during peak grid times, instead of turning to this expensive so-called speaker power plants, they can save money in the long run.

Solar companies are starting to pair batteries with solar panels as a way to store energy collected during daylight hours for use during the night. The solar and storage pairing can also make solar energy more competitive with fossil fuels, which can generate energy around the clock.

Stem batteries installed in the basement of a commercial building.  Photo courtesy of Stem 

Quickly growing tech startups like Stem and Green Charge Networks are building businesses off of selling batteries to commercial building owners. The idea is that when grid electricity rates are high, a building can switch over to using the batteries for power as a way to lower monthly energy bills.

So who's actually buying these energy storage tools right now in the U.S? The GTM Research report says the vast majority, in terms of power capacity deployed, are utilities.

Part of that is due to the sheer size of the utility battery projects. A utility could use tens or even hundreds of megawatts for a storage project, while one commercial building could use only one megawatt, or less.

But it's also because lithium-ion batteries have finally become cheap enough to be financially attractive to utilities. In addition, in certain states like California, there are government requirements that utilities deploy energy storage projects as a way to complement a transition to clean energy, which is also mandated in many states.

In the second quarter, 87% of the 40.7 megawatts of energy storage installed in the U.S. came from utility projects. The building boom is biggest on the East Coast, where the grid operator PJM has a new market that incentivizes utilities to add energy storage, followed by California.

The battery market for commercial and industrial building owners grew significantly, too. Energy geeks call this market "behind the meter," because it's using batteries on the customer's side of the electricity meter. With over five megawatts added, that sector installed over 11 times more storage capacity than it did during the same period a year earlier.

Despite Tesla (tsla) introducing Powerwall—a battery that homeowners can buy and use with a Tesla electric car—American homeowners still aren't buying many of these batteries. The residential battery market made up 1% of all the batteries installed in the second quarter. However, that was 61% higher than what was installed in the first quarter.

To learn more about battery production, watch this Fortune video: