Larry Fisher spends all his time lately designing new ways to conserve electricity.
As the research director of NextGen - the division of private, New York City-based ABI Research that tracks smart grids worldwide - Fisher has more and more on his plate these days. That's because the wave of new investment in this emerging sector is just beginning.
NextGen also serves as an incubator for brand-new approaches in electronics and smart-grid technology. Over the past several years, the groundwork for smart grids has emerged in a number of countries, Fisher says. For that reason, the rates of both investment and implementation are increasing.
In a brand new report, Fisher's research team estimates that we will spend some $45 billion worldwide between now and 2015 on smart-grid-related transmission-and-distribution (T&D) infrastructure, implementation of related components at the level of utility companies distributing the power to consumers, and smart meters. (These last ingredients allow you to measure usage and redistribute power on your own.)
When compared to the trillions spent on generation and transmission, $45 billion may seem like a pittance.
But it certainly does indicate that a change is approaching. And for certain companies that find themselves in the middle of this significant energy revolution, it's going to mean lots of profits.
Let's take a closer look...
New energy buzzword
Smart grids are an advancement I have been hawking for several years now.
The move into new possibilities in alternative-energy sources is steadily accelerating. And as we set about considering what the emerging power grid will look like, the intelligent use of electricity becomes a mandatory area of focus. These new systems will have to develop ways to:
- Reduce the amount of electricity lost in transmission.
- Curb its often-wasteful use.
- Overcome electricity's ephemeral nature by finding ways to store it.
- And "smooth out" the pronounced "load" disparities between different times of day.
This all demands a much more efficient system. And that's where the "smart" part of the grid enters the equation.
A smart grid is a fully integrated power generation, transmission, and distribution system. Basic to its design is a two-way communication channel that allows for greater evaluation, control, and direction - by both the utility and the consumer. The system is "smart" because it allows for real-time monitoring of an entire network's operational status, while providing a quick - often automatic - response to changes in conditions and usage.
Current versions of residential smart meters can reduce household electricity usage by more than 40%. Those in development will perform even better - because they will be hooked up to improved systems for the generation and distribution of electricity.
The real advantage, however, may be much broader than simple energy conservation.
"Smart" here means "efficient." These grids save electricity and save people money at the same time. By automating usage patterns and allowing for the transfer of power as needed, a smart grid provides for a genuine redistribution of electricity loads. That makes more effective use of electricity during the low-peak (and less-expensive) periods of the day and reduces the draw on the system during times of high usage.
Smart grids are going to revolutionize how we live our lives.
They will afford us greater personal control over our residences and workplaces; provide power to our electric cars during low-cost overnight hours; compensate for heating and cooling in buildings based on actual needs (rather than on the limitations of older systems); and even allow us to sell power we don't use back to the grid.
As efficiency becomes the buzzword in the next wave of energy conservation, there will be a huge need for smart systems. Most of the global power infrastructure is decades old - with some of it dating back 80 years or more.
Replacing it with the new systems will take time and money.
But it is going to happen.
Three companies to watch - Plus a 'bonus' ETF
Major infrastructure applications will remain the province of the big boys - the likes of General Electric Co., Koninklijke Philips Electronics NV, and Siemens AG, which was the focus of a recent "Buy, Sell or Hold" feature here in Money Morning .
Yet there will also be an explosion in demand for secondary providers, service companies, and equipment manufacturers. In addition, these intermediaries will introduce a range of applications for alternative and renewable energy sources, as well as increasing the overall efficiency of the electricity produced. That will position these firms front and center in the midst of a significant energy revolution.
It is with the new generation of companies that the typical retail investor can get in early.
Now, this does require a considerable amount of care. Those technological advances of greatest benefit to the end user are likely to arise from R&D-phase companies - which tend to be thinly capitalized, with suspect management, despite their great ideas.
Well, we are going to separate the wheat from the chaff, in two ways - via an exchange-traded fund (ETF), and through several individual stocks.
The ETF - the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID, Stock Forum) - was introduced in November. Eight months later, it has finally reached sufficient liquidity to begin serving as our barometer for the smart energy sector as a whole. The holdings cut across the main segments in grid-system needs and also include some of the foreign players likely to have early impact. Breakthroughs in smart technology are hardly a U.S. monopoly; neither are developments in electricity production from the renewables - such as solar power (Japanese) or wind power (Danish) - that are certain to figure into approaches to the new grid.
There are a growing number of companies in this realm. That means retail investors can buy the shares of the individual companies that already have established a successful track record in smart technology or smart applications. Here I would suggest those providers of focused applications in areas needed to advance the smart grid as a whole.
On my initial list would be three separate companies:
- Prysmian S.P.A. Milano (OTO: PRYMF, Stock Forum), an Italian cable-maker with inroads into smart applications for wind power farms.
- Quanta Services Inc. (NYSE: PWR, Stock Forum), a Houston-based power-transmission-and-distribution engineering service specializing in high-power transmission line smart applications.
- And EnerNOC Inc. (NASDAQ: ENOC, Stock Forum), a leading provider of smart-energy-management applications and services.
Just note that these companies can be subject to thin trading. In such a rapidly developing sector, that can heighten stock-price volatility.
Disclosure: The author does not hold positions in any of stocks mentioned