Two Tech Stocks Ready to Profit from the Smart Grid Revolution

Includes: CSCO, HON
by: David Fessler

One of the key areas of focus at the Conference on Innovative Smart Grid Technologies was on how to foster seamless communication between the various devices on the Smart Grid.

That’s where Fred Baker comes in. He’s a Fellow at Cisco Systems (Nasdaq: CSCO) – one of the world’s leading manufacturers of Internet infrastructure technology, many of which are destined for Smart Grid applications.

Fred’s knowledge of Internet communications is exhaustive – and for good reason: he was instrumental in its design. So it’s not surprising that he has some strong opinions on how Smart Grid technology and communications should be set up.

I chatted with him at the conference – and here’s what he had to say…

Preventing Smart Grid Mistakes… And Locking Out Hackers

David Fessler: What do you see as the biggest challenges with regard to Smart Grid communications?

Fred Baker: As I said during my presentation, don’t reinvent the wheel. If you’re going to make mistakes, make new ones, not old ones. The good news is that by using the standards already in place for Internet communications, it will save a lot of time and avoid a lot of the mistakes made over the past 20 years.

David Fessler: Another critical issue is security – preventing attempts to hack the system. What are the risks here? Will the Smart Grid be able to be hacked as easily as the Internet?

Fred Baker: With something as vital as a national energy grid, the critical communications networks in the Smart Grid will be physically disconnected or “air-gapped” away from the public Internet. Hackers just won’t be able to get into them easily, if at all. And with those devices that are connected to a public network, proven measures already exist that eliminate most security risks.

For more on the basics of the infrastructure/business side of the project and to read what Dr. George Arnold had to say to me, read about the Smart Grid initiative.

But what does it all mean for the millions of Americans, who’ll eventually depend on the Smart Grid for their energy needs? For that, I turned to another influential figure at one of the other key corporate players…

How John Q. Public Stands to Benefit From the Smart Grid

As Dr. Arnold told me: “There are currently 130 major Smart Grid projects underway in 45 states. The grid will fundamentally change how energy is priced and how we think about and use energy, both at work and at home. But in the end, it’s the consumer who’s going to have to pay for the Smart Grid. Unless they see the benefits, they’re not going to spend money on it, or things to connect to it.”

And there’s no doubt that on the consumer side, energy efficiency will be a big focus, according to Dr. Tariq Samad, Corporate Fellow at Honeywell’s (NYSE: HON) Automation and Control Solutions division.

I discussed this with him in between presentations…

David Fessler: In layman’s terms, how would you define what the Smart Grid is – and what it’s attempting to do?

Dr. Samad: With the Smart Grid, we’re basically taking the existing electricity infrastructure and power grid, then overlaying the latest information technology and communications networks on it for the purpose of automation, control and energy management. Basically, we’re modernizing the system.

David Fessler: What area do you think will benefit the most from the Smart Grid?

Dr. Samad: The Smart Grid will be a huge enabler in the area of energy efficiency. Flattening out the demand-response-supply problem that utilities face every day will save billions of dollars annually and eliminate the need for additional power plants.

David Fessler: Tell me about Honeywell’s involvement in the Smart Grid.

Dr. Samad: About 60% of our business is focused on improving energy efficiency. Honeywell Automation manufactures industrial controls, building controls, thermostats, home energy management, security systems, sensors and similar products. All these products interface between the consumer and his environment and will potentially be connected to the Smart Grid.

So how can investors take advantage of this bold new energy initiative?

Getting Geared Up for The Grid

With the preliminary standards in place and roughly $18 billion in government stimulus money flowing into the energy and infrastructure sector, it’s a safe bet you’ll be hearing a lot more about the Smart Grid investing in the months ahead.

If you’re looking for a way to profit, big players like Cisco and Honeywell both stand to reap substantial rewards as the Smart Grid infrastructure gains traction.

Author's disclosure: none.