Clean Energy Shopping List: 5 Stocks with Technology to Improve Grid Reliability

Although the market has risen above where it was in early June, when I said "We're near the top," I'm still bearish. And I'm still making lists of stocks to buy when prices seem more favorable.

The Strong Grid

I recently wrote about our list of Smart Grid Stocks, and at least two readers were prompted to ask why wasn't (1) Beacon Power (BCON) on the list? "Smart grid" does not have a uniform definition; the one I use focuses on the "smart": making a more effective grid through the better use of information and communication. Beacon uses high speed flywheels, a form of Electricity Storage extremely well-suited to high power, low energy applications to sell frequency regulation services to the grid. Since this improves the effectiveness of the grid, but does not do it through the use of information, I think of Beacon as a "Strong" rather "Smart" grid technology, and it's listed in our Electricity Storage and Flywheel stock lists.

Frequency regulation is usually provided by keeping a natural gas turbine running at less than full capacity, although Lithium-ion and other battery manufacturers are also trying to enter this market. There are significant efficiency gains and carbon savings to be had by using flywheels or other electricity storage for frequency regulation, and allowing the turbine to run at an efficient constant speed. Because flywheels are cheap on a per-kW or power basis compared to batteries (even though they are expensive on a per-kWh or Energy basis,) I think they will have an advantage over batteries for this relatively overlooked, power-intensive application.

Beacon, however, still has relatively small revenues and is burning through cash quickly, with little on hand. They are raising money through an ongoing share purchase agreement with a fund at a 14% discount to the exchange traded share price. This ongoing dilution should keep the company afloat, but it is unlikely to do much for the share price.

Beacon has received a DOE loan guarantee for a 20MW frequency regulation plant in New York, but is looking for creative ways to provide their equity contribution to the project. This project creates a great upside opportunity for Beacon shareholders, since it will probably bring the company to profitability if completed, but the ongoing search for funds to pull it off may also create excellent buying opportunities along the way.

In addition to being a wind turbine designer and parts supplier, (2) American Superconductor Corporation (AMSC) is another company I'd call "Strong Grid." In addition to the eponymous high temperature superconducting cables, which both can carry 10 times more power than conventional cables and simultaneously suppress fault currents that can result in serious outages, and a China-focused wind turbine business, the company makes products which regulate power from wind farms, grid-scale surge protectors, and voltage stabilization systems. It's these latter products focused on grid stability that interest me much more than the superconducting cables, which I expect will only be cost effective in dense urban areas.

Although the company is not profitable yet, they have $2.50 cash per share in the bank, which is enough to fund their operating cash outflow for years to come. With a Beta of over 2, the company's stock price is highly sensitive to market moves, so a market downturn should provide an excellent buying opportunity in a company that Smart Grid expert Jesse Berst thinks is 'Poised for Super Results."

The Smart Grid

I previously stated I like all smart grid stocks because I see so much potential for the sector, and I have a hard time picking winners. But when I have to choose, in a competitive market with many new entrants, I tend to favor established companies that already have established business lines and experience working with customers in the space. (3) Echelon Corporation (ELON) fits this bill. The company's LonWorks building automation products are well established in the market; the move into smart grid is more the expansion of existing business lines than creating a new business. Over the last few years, I've lost count of the number of cities which have signed up to use the company's technology to save electricity by dimming street lights. This sort of thing is not nearly as sexy as home automation, but working with large municipal customers to save large quantities of energy seems like a much easier way to make money than dealing with millions of fickle homeowners.

The company is not yet profitable, but has sufficient cash not to need to raise new capital anytime soon.

Solidly profitable (4) Itron, Inc. (ITRI) is a leading supplier of electricity, gas, water, and heat meters worldwide. For Itron, smart meters are simply an extension of existing product lines, and their existing business relationships with utilities should give them an advantage when competing with start-up rivals for utility business.

Spanish company (5) Telvent Git S.A. (TLVT) is more than a smart grid company, it's also a smart water, smart transport, and smart pipeline company. In short, they sell software and services to make all sorts of networks operate more efficiently, and have established business relationships with a broad range of utilities. In addition to being profitable, I like the company's large exposure to transportation, because while making the electric grid smarter will do a lot to combat climate change, making our transportation system smarter will not only help with climate change, it will also help with peak oil.

DISCLOSURE: Tom Konrad and/or his clients own AMSC, ELON, ITRI, and TLVT.

Comments

[A Barrel Full:]

.....This sort of thing is not nearly as sexy as home automation.......

In my humble opinion, the less sexy a green technology is, the more potential it generally has.

After all the cheapest alternative of all is efficiency, though you would never know it reading the press. Unfortunately it doesn't have a lobby group.

Jul 27 06:30 AM

[ginchinchili:]

I'm sure you get plenty of "why not..." stocks-you-forgot comments, but in looking over your list of energy storage stocks there is an egregious omission that you must have left out for a particular reason, because I know you wouldn't accidentally leave off EnerSys, which is one of the US's two largest battery companies, and certainly the most diversified. Care to make your case? Thanks.

Jul 27 09:05 AM

[quick:]

What about just improving the transmission capabilities of the grid? Look at ITC for this.

Jul 27 10:36 AM

[flywheel niche:]

D.O.E has chosen BCON from 100s of options.
BCON is a rare game changer in the making.
Batteries have many markets to go after but for fast response that will not wear out BCON is it.

Jul 27 11:28 AM

[John Lounsbury:]

Tom - - -

Itron has two European competitors who have footholds in the US and Canadian utility market. These are Landis + Gyr (Switzerland) and Elster (Germany). Both are privately held. I like Itron's prospects, but keeping track of how they fare against these two competitors will be important. At the present time, I am aware that Landis + Gyr is a supplier for TXU Energy and Landis + Gyr is doing business with Toronto Hydroelectric.

Jul 27 11:29 AM

[flywheel niche:]

Just read F.E.R.C and I.S.O documents to see the respect that BCON and their opinion is given regarding the grid improvements.

Jul 27 11:30 AM

[Tom Konrad:]

Barrell, that's precisely why I picked these smart grid stocks rather than the home automation ones.

I sometimes foget that some people think sexy is good... thanks for pointing this out.


On Jul 27 06:30 AM A Barrel Full wrote:

> .....This sort of thing is not nearly as sexy as home automation.......
>
>
> In my humble opinion, the less sexy a green technology is, the more
> potential it generally has.
>
> After all the cheapest alternative of all is efficiency, though you
> would never know it reading the press. Unfortunately it doesn't have
> a lobby group.

Jul 27 04:47 PM

[Tom Konrad:]

Grinchinchili -
Thanks... ENS was on our battery stock list, but I neglected to addd it to the Electricity Storage list (which should include batteries, flywheels, pubped hydro, etc.) It's now on the list.


On Jul 27 09:05 AM ginchinchili wrote:

> I'm sure you get plenty of "why not..." stocks-you-forgot comments,
> but in looking over your list of energy storage stocks there is an
> egregious omission that you must have left out for a particular reason,
> because I know you wouldn't accidentally leave off EnerSys, which
> is one of the US's two largest battery companies, and certainly the
> most diversified. Care to make your case? Thanks.

Jul 27 04:52 PM

[Tom Konrad:]

Quick,
I have a seperate list of five stocks all improving transmission:
www.altenergystocks.co...

I can't remember why I chose not to include ITC (I do own it) but I seem to recall that it was a close thing.


On Jul 27 10:36 AM quick wrote:

> What about just improving the transmission capabilities of the grid?
> Look at ITC for this.

Jul 27 04:55 PM

[Tom Konrad:]

Thanks for the added info, John. Maybe you could tell that I was running out of energy on this article towards the end.


On Jul 27 11:29 AM John Lounsbury wrote:

> Tom - - -
>
> Itron has two European competitors who have footholds in the US and
> Canadian utility market. These are Landis + Gyr (Switzerland) and
> Elster (Germany). Both are privately held. I like Itron's prospects,
> but keeping track of how they fare against these two competitors
> will be important. At the present time, I am aware that Landis +
> Gyr is a supplier for TXU Energy and Landis + Gyr is doing business
> with Toronto Hydroelectric.

Jul 27 04:57 PM

[wind4me:]

u know I am HIGH on (APWR) and its for the smart grid side of China, of course China does not even have ''grid'' totally hooked up and that is why APWR is such a great choice cause they can build smaller electric plants distributed right at the source of the use/need.

APWR with the added wind side and the small power plant build side is a sure play on power in China!

Jul 27 09:05 PM