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The Silicon Valley solar installer SolarCity Corp. (SCTY - Snapshot Report) is diversifying into storage with its new offering. The company has plans to launch a battery storage device – DemandLogic – for commercial customers.

DemandLogic incorporating Tesla Motors Inc.’s (TSLA - Analyst Report) battery technology is capable of providing backup power lasting up to two hours during peak electricity usage or blackouts. The company’s storage systems will be available by the middle of next year in parts of California that includes the territories of PG&E Corp. (PCG - Analyst Report) and Southern California Edison, along with certain areas of Connecticut and Massachusetts.

The company has been working with Tesla on these batteries for more than three years. SolarCity is also testing these batteries on approximately 300 of its residential customers in California in a pilot program.

This battery storage system will help businesses to cut their utility bills during peak demand seasons. Large commercial clients including big hotels, data centers as well as other industrial customers have to pay high demand charges to the utilities.

The usual electric bills for commercial clients usually consist of two components – energy charges and demand charges. While energy charges are derived from the entire amount of energy consumed during a one-month billing cycle, demand charges are based on the peak electricity usage during a billing period. So companies utilizing less electricity can even incur high demand fees, which help utilities to recover its investments in power generation and transmission equipment.

Hence, the combination of solar with storage could prove to be an effective solution to both lower fees and increase green power usage. SolarCity is cleverly targeting markets where the utilities collect high demand fees.

The batteries will be installed at no upfront cost to the business owners signing 10-year service agreements. SolarCity expects the demand charge to go down by around 20%. SolarCity will not charge customers for the battery. Instead the company plans to offer it as a service for a monthly fee.

SolarCity’s commercial customers bring about 20% to 30% of its business. Well-known names among its client base include Wal-Mart Stores Inc. (WMT - Analyst Report), Walgreen Co. , eBay Inc. (EBAY - Analyst Report) and Intel Corp (INTC - Analyst Report).

Backed by Tesla Motors founder Elon Musk, the SolarCity stock has rallied almost 342.5% since its first appearance in the stock market. The company has a market cap of $4.34 billion. Elon Musk owns about 73% of SolarCity's 78 million shares outstanding, while a relatively small proportion is entitled for the public.

SolarCity presently retains a Zacks Rank #3 (Hold).