On December 12, one day before SolarCity had a successful initial public offering, the Solar Energy Industry Association released its third-quarter installation numbers for the United States.  Through the first 9 months of the year, more than 1.9 gigawatts (GW) of photovoltaic systems were installed.  SEIA expects that, by the end of the year, that number will be above 3 GW.

So are we in the midst of a solar bubble?  Hardly.  Most module and inverter manufacturers are just barely profitable or losing money right now.  Even installation aggregators like SolarCity are having their share of financial struggles, thanks to potential conflicts with the Internal Revenue Service.

The solar industry, nevertheless, is expanding rapidly: Pike Research forecasts that more than 31 GWs of solar power will be installed globally in 2012.  It just isn’t the type of success that many venture capitalists expected when they first invested in the sector.  They wanted Facebooks and Googles.  Instead they got First Solars and Suntechs: big manufacturing giants that didn’t exist a decade ago but that are now scraping by on minuscule margins.

The paradoxical situation of suffering solar market players who are treading water in the midst of a boom market is a good lesson for battery manufacturers to study.  The industry once featured brilliant MIT professors building future manufacturing giants around darling chemistries.  Now, its news cycle is dominated bankruptcy hearings and empty factories.  The last time that happened was when the solar industry appeared to have finally exhausted its ninth life, back in 2005.  What happened next was a decade-long super expansion that saw the solar industry grow by about five orders of magnitude.

Curving Downward

That could still happen with the battery industry.  But it won’t as long as investors and battery company executives still buy into the concept of a miracle technology.  In the energy field, miracles don’t happen very often.  But new energy industries do rise up from seemingly nowhere and disrupt existing players.  It happened with wind power.  It happened with solar power.  It happened with natural gas.  And it can happen in energy storage too.

But it won’t happen with expensive, high-margin battery cells.  For energy storage on the grid and in electric vehicles to reach the inflection point, the batteries themselves must get significantly cheaper.  We expect that to happen: According to an upcoming Pike Research report on automotive batteries, current lithium ion cells have already reached the $400/kWh cost level, and that cost should drop over the next decade.  Additionally, balance-of-system parts for battery packs—from the inverters to the insulation to the busbars—are on a similarly declining price curve.

When the glory days of batteries for grid storage and electric vehicles arrive, it will means that the batteries themselves have gotten cheap enough to allow buyers to afford them.  This also means that the battery manufacturers will endure an inglorious business environment—much like the current lead acid industry players that pull in enormous revenues and very little profit.  In other words, the future of cleantech energy storage companies looks more like East Penn or Exide than Facebook.  But, as the solar industry has taught us, just surviving in the energy industry can, in itself, be a worthwhile endeavor.