By Jeff St. John
Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), Raytheon (NYSE:RTN), BAE Systems (OTCPK:BAESY) – are all big defense contractors that are making pushes into smart grid and renewable energy. What's the rush?
According to the head of Boeing's defense business unit, it's simple – the defense contracting business is facing a big shortfall over the coming years.
At least, that's what Boeing defense chief Dennis Mullenberg told Bloomberg to explain the aerospace giant's new push into the potentially $20 billion smart grid market.
"We know that we have to reposition our business, and that repositioning is something we are very aggressively doing," Mullenberg told Bloomberg.
That's a big market to tap – but not so big compared to the potential drops in defense projects Boeing and other contractors are facing.
President Barack Obama has said the United States 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.
It's not the only defense contractor facing a decline in business as the Obama Administration seeks to shift defense spending from large complex weapon systems toward more support for troops in Afghanistan and Iraq. That shift could lead to a 27 percent drop in U.S. military R&D and purchasing spending over the next three years, Macquarie Equity Research reported Monday.
Enter the smart grid. Mullenberg told Bloomberg that Boeing's networking and integration expertise in missile defense and army combat systems could be applied to "adjacencies" such as smart grid systems.
Boeing is already a partner in smart grid projects being proposed by Southern California Edison and Consolidated Edison 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).
Lockheed Martin said in September that it was working with eight utilities seeking DOE smart grid grants for projects including a $150 million project planned by American Electric Power Co. (NYSE:AEP) in Ohio and a $38 million proposal from PPL Electric Utilities in Pennsylvania (see Defense Contractors Pursue the Smart Grid).
And British defense contractor BAE Systems' 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.
Its first project would be a microgrid at the University of California at San Diego, if San Diego Gas & Electric is awarded a $100 million Department of Energy smart grid grant (see Balance Energy Wants to Build Microgrids, Starting With San Diego).
Of course, these projects and hundreds of others are collectively seeking much more money than DOE has available to give out, meaning that some may be delayed or shelved if they don't get the grants they're seeking (see Green Light post).
Security for the digital communications and control systems these smart grid projects will put in place has emerged as a top priority for the federal government, which is now developing standards for smart grid deployments (see Smart Grid Standards Roadmap Unveiled).
Defense contractors are well versed in securing and managing complex military systems, which could give them a leg up in their smart grid efforts.
Of course, these defense contractors will be competing against such giants as IBM, Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) and others in providing smart grid integration and security expertise (see Microsoft to Play Utility Technology Matchmaker and IBM, Cisco Look to Tie Up Smart Grid Partners).