The California Public Utilities Commission (CPUC) made news last fall when it became the first public utility commission in the U.S. to mandate energy storage. The commission is requiring the top three California utilities to install a respectable  1.3 gigawatts of energy storage by 2020.

The move was an important first step toward sending market signals that energy storage demand will be there, should investment and production scale. California has an ambitious 33 percent by 2020 renewable energy mandate, and many believe the state could hit closer to 40 percent. All that renewable energy introduces significant intermittency of power generation into the equation and the commission’s moves are one hedge against future grid instability.

But it’s not just utility grids in the U.S. where energy storage will initially find demand. The question of how to properly time the emerging energy storage market is a key issue as many companies figure out how to get to market early while having enough of a market to support growth. Some startups like Aquion are already in the market with a manufacturing plant and a product. While others, like Ambri, which is funded by Bill Gates and which just raised an additional $35 million in April, continue to put money into R&D as the company develops its products.

I caught up with Aquion Energy’s VP of Corporate Strategy Ted Wiley recently to discuss the evolution of the energy storage market. Aquion employs aqueous hybrid ion batteries that promise 3,000 life cycles with less than 20 percent capacity fade even as the company is charging ahead with attempts to lengthen that life cycle even further. The sweet spot for many grid storage applications linked to renewables is a 20 year lifespan which will require at least 7,000 cycles if daily discharges occur. The company has found some big name investors, including Bill Gates and Kleiner Perkins.

Wiley is optimistic that the CPUC mandates will help send the right signals to the market. But in the meantime, Aquion is going after other markets. For starters, remote islands reliant on diesel power generation are prime. With the cost of diesel in some difficult to reach islands approaching $8/gallon, Aquion’s batteries paired with solar become price competitive.

These locations typically have good solar radiation and are helping to drive a burgeoning microgrid market where not just utilities but any corporation or sizable organization can decide to generate its own power. This trend is less familiar in the North American market, but in places like India there is a long history of big corporations being grid independent, choosing to generate their own power for greater energy security.

At the grid level, Wiley does see the introduction of renewable energy as a driver of battery storage along with poor transmission lines where a solar plus battery solution becomes cheaper than paying to extend energy transmission to a source that needs power. On the utility level, proposals in Hawaii and Ontario along with European projects are popping up as early signs of a global move toward energy storage.

Still, as with all of renewable energy the price of the competition—fossil fuels—often dictates the attractiveness of a market. This has been a particularly acute issue over the past five years with the low cost of natural gas. Wiley noted, “I think we’re most optimistic about markets where the price of electricity is being set by the price of diesel. The thing we find really attractive about those locations is that battery plus solar typically offers a really good value proposition.”

What Aquion and other battery storage startups have on their side is the long term trend of increasing fossil fuel prices over decades and the continued decline of battery pricing, which would be aided by mandates, scaling manufacturing, and new technologies. In the meantime, picking off the markets where electricity is most expensive is one way to grow and iterate a technology as the larger utility scale global market comes into play.