By Michael Kanellos
Think of it as utility industrial contracts.
Lockheed Martin (NYSE:LMT), which has been expanding into smart grid and alternative energy for the past year, said Wednesday that it will work with a series of utilities – including PPL Electric Utilities (NYSE:PPL), Rappahannock Electric Cooperative and Northern Virginia Electric Cooperative – on implementing security solutions for the grid.
The company, for instance, will work with American Electric Power Co. to develop an advanced cyber security operations center to enhance the real-time monitoring and operations. Lockheed will also work with three utilities on smart grid consulting services and deployments.
The announcement marks the latest foray into the new energy markets by defense contractors. In a lot of ways, it's a perfect fall romance. Utilities want to implement smart grid technologies, and are being incented to do so by the Federal Government. Utilities, though, are far more concerned about reliability and quality of service than price or even upgrade-ability. It is not like selling IT equipment to internet startups.
Enter defense contractors, who've spent years preparing for worst-case scenarios and undertaking massive construction projects.
Cybersecurity is Lockheed's "A-plus-plus-plus product" when it comes to utility customers, Ken Van Meter, a principal in Lockheed's enterprise integration group, told us in September.
Given the decades-old technology of today's grid, "almost everything in the conventional networks right now is manual" control, he said. "It's pretty hard to cause widespread damage, and it's almost impossible to cause remote damage."
Boeing (NYSE:BA) is already a partner in smart grid projects being proposed by Southern California Edison and Consolidated Edison (NYSE:ED) in New York, both of which are seeking funding from the Department of Energy's $3.9 billion smart grid stimulus grant program (see SoCal Edison Wants A123's Biggest Grid Battery Ever).
Fellow defense contractor Raytheon (NYSE:RTN) plans to help Tucson Electric Power get a $25 million grant to link solar panels and in-home energy management systems.
Lockheed Martin said in September that it was working with eight utilities seeking DOE smart grid grants for projects. The projects include a $150 million project planned by American Electric Power Co. in Ohio and a $38 million proposal from PPL Electric Utilities in Pennsylvania (see Defense Contractors Pursue the Smart Grid). It is also working with construction firm Black & Veatch on smart grid projects and partnering with Ocean Power Technologies (NASDAQ:OPTT) to help the New Jersey-based company build wave power buoy projects.
And British defense contractor BAE Systems' (OTCPK:BAESY) U.S. subsidiary has created a company called Balance Energy that is seeking to commercialize microgrids, or renewable energy, electricity storage and smart grid systems serving office parks, campuses and other self-contained areas.
These deals, though, can be fragile. Lockheed signed, and then cancelled, a deal to build a 290-megawatt solar farm in Arizona after the market dynamics changed.
Despite the ongoing conflicts in Afghanistan and Iraq, big contracts appear to be dwindling. President Barack Obama has said the U.S. will scrap a $5 billion missile defense system in Eastern Europe, which Boeing was set to build. And the U.S. Army's Future Combat Systems program, which Boeing leads, is also facing cuts, MarketWatch reports.
A shift to conventional weapons systems, and away from complex ones, for the two ongoing wards could lead to a 27% drop in U.S. military R&D and purchasing spending over the next three years, Macquarie Equity Research has said.