Two Ways to Profit from the Smart Grid Project

The “Smart Grid.”

You may have heard the media toss the term around recently. But ask the next 10 people you meet to tell you something… anything… about it, and I’ll wager that you’ll get deafening silence.

The reason? All of us take electricity – and the system that generates and distributes it – for granted. And despite having spent my entire professional life as an electrical engineer, I’m guilty as charged, too.

So what is the Smart Grid? How will it work? And why is it important to our nation’s future energy security? Read on for details, including two companies working to boost the nation’s power capacity that you can add to your portfolio today.

Why Our Current Systems Are Maxed Out

Flip a switch and the lights go on. Hit the “power” button and the microwave nukes our food. Switch on the oven and you can cook your food the “old-fashioned” way. The fridge… washer and dryer… dishwasher… the water heater. The list goes on.

All essential everyday facilities that demand electricity, which we use without even thinking about it. No wonder that when the power goes out, we freak out.

But there’s a big problem: The nearly 200,000 miles of transmission lines, millions of miles of distribution lines and myriad of control systems (collectively referred to as “the grid”) are maxed out. The grid is rapidly running up against capacity limits in the United States.

These capacity limits and security risks are real, and they’re growing more formidable every day. And the recognition of these concerns among power companies, business leaders and federal and state agencies has led to the concept of a wholesale modernization of the grid.

But as if upgrading the grid wasn’t daunting enough, it all has to be done “hot” (i.e., while the system is still running). And at full tilt, no less. Here’s the plan.

So What is the “Smart Grid” Anyway?

The Smart Grid is essentially the end result of what will be a decades-long project. The undertaking has been compared to the construction of the interstate highway system in the 1950s – and it’s just getting underway.

When it’s complete, it will work far more efficiently. For example:

• Reliability will increase orders of magnitudes from what it is today.
• Expansion will be much simpler and continue to be affordable.
• Our ability to compete globally will be greatly enhanced.
• Both traditional and renewable energy sources will be easily accommodated.
• Our carbon footprint will be reduced significantly.

To head up this nationwide effort, the Department of Energy created the Office of Electricity Delivery and Energy Reliability. Its function is to apply its cutting-edge research to develop new smart grid standards and to marry the agendas of numerous interested parties.

The Smart Grid: Both Obama & McCain Have Touted Its Virtues

During the presidential election last year, both Obama and McCain touted the virtues of the Smart Grid. And now, President Obama has put his money where his mouth is through the American Recovery and Reinvestment Act.

It makes $4.5 billion available to the nation’s power companies in the form of grants and loans in order to implement improvements and upgrades to the grid. But as you can see below, this is just the tip of the smart grid investment iceberg in terms of what’s needed…

• $60 billion in Department of Energy (DOE) loan guarantees for renewable energy projects.
• $16.8 billion to the DOE focused on renewable energy and energy efficiency. This includes grants for conservation and energy efficiency, state energy programs, the Weatherization Assistance program, alternative-fuel vehicle programs, and more.
• $6 billion to the DOE to cover the cost of guaranteeing loans through the new Innovative Technology Guarantee Program for supporting renewable energy and transmission technologies and to the existing Advanced Technology Vehicles Manufacturing Loan program.
• $3.4 billion earmarked for Carbon Capture, Fossil Fuel Energy R&D, Clean Coal Power Initiative, Energy Efficiency Competitive Grants and others.
• $1.6 billion to DOE Office of Science.
• $400 million to the Advanced Energy Projects Agency earmarked for energy.
• $3.25 billion in borrowing authority to both the Western Area Power Administration (WAPA) and the Bonneville Power Administration, and $10 million to the WAPA allocated for smart grid upgrades facilitating the integration of renewable energy sources.
• $6.1 billion to the DOE for uranium enrichment decontamination and decommissioning, environmental cleanup projects and money for the Office of the Inspector General.
• $300 million for the Department of Defense geared to the development and deployment of energy efficiency technology.

Another big incentive is the three-year extension of the income tax credit for renewable electricity production for qualified generation facilities.

So that’s the problem – and the solutions and money necessary to solve it. Question is, how do investors profit from it?

The Smart Grid Project: Two Smart Ways to Profit

• The first company is “Old Faithful” – General Electric (NYSE: GE), which has its hands in a huge array of sectors and industries.
• The second is ABB (NYSE: ABB).

Together, these two industry giants stand to sell many tens of billions of dollars worth of equipment to the global power industry for Smart Grid upgrades and enhancements. They’re the “Apple Computers” of the Smart Grid world.

Owning them presents very little risk to the downside, and the huge upside potential represented by the many billions of dollars needed for investment (detailed above) is just too good to ignore.

I’ll be discussing other Smart Grid companies in future installments.

Comments

[jarco:]

Electrical engineers had two options in college; electronics or power. Like 99% of your peers, you likely chose the former hence a chronic shortage of the latter.

Dumb grids are the products of old, relatively small and isolated power producers and distributors. Just like the 9-11 fire, police, FBI, etc. inability to communicate; share data bases. Each was technically behind its own needs further compounded by an inability to interface with beyond it sphere.

Power distribution, not unlike the old AT&T phone system prior to the 1968 US Supreme Court Carter Phone case, was non-competitive, antiquated, and forgotten. While foreign designed and produced digital phone systems rapidly out performed and replaced AT&T's analog relics, power continued technical stagnation. If this scenario sounds familiar as one examines our highway and auto transportation systems, GM, Ford, and Chrysler debacles ring soundly in our ears. Is there a common thread here let alone domestic investment opportunities?

Sep 22 11:10 AM