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ABB (ABB) - 21.09 ↑ 0.12

Canadian Solar (CSIQ) - 29.26 -1.59

Chipotle Mexican Grill (CMG) - 608.99 ↑ 1.44

Daqo New Energy (DQ) - 38.85 -4.62

First Solar (FSLR) - 54.75 -1.60

General Electric (GE) - 25.19 -0.26

Hannon Armstrong (HASI) - 14.14 -0.07

Hanwha SolarOne (HSOL) - 2.03 -0.05

iPatch DJ-UBS Coffee (JO) - 36.05 -1.62

iPath Pure Beta Coffee (CAFE) - 23.85 -0.82

JA Solar (JASO) - 7.87 -0.40

Maxwell Technologies (MXWL) - 9.26 -0.47

NRG, Inc. (NRG) - 29.18 ↑ 0.57

NRG Yield, Inc. (NYLD) - 46.49 ↑ 0.44

Ormat (ORA) - 28.18 -0.40

Pattern Energy Group (PEGI) - 28.29 -0.41

SolarCity (SCTY) - 53.92 -1.81

SunEdison (SUNE) - 18.23 -0.82

SunPower (SPWR) - 30.49 -1.27

TerraForm Power (TERP) - 26.98 -0.16

Tesla (TSLA) - 231.10 -4.24

TransAlta Renewables (RNW) - 11.34 ↑ 0.00

Trina Solar (TSL) - 9.95 -0.61

U.S. Geothermal (HTM) - 0.50 -0.03

Whole Foods Market (WFM) - 37.66 -0.29

Yingli Green Energy (YGE) - 2.83 -0.20

Stimulus Funds Array of Smart Grid Technologies

The Smart Grid Deconstructed

By Nick Hodge   

My heart sank three weeks ago when I read that Maryland's Public Service Commission (PSC) rejected the state utility's proposal to adopt the smart grid.

Baltimore Gas & Electric — a unit of Constellation Energy (NYSE: CEG) submitted an $835 million plan to install 1.36 million smart electric meters and over 700,000 advanced gas meters in the state.

At stake was a $200 million federal stimulus grant, the adoption of the smart grid in my home state, and a near-$1 billion kick-off party to the kind of smart grid investment about to sweep the nation and world.

But the PSC said two points in the plan mandatory real-time pricing and a surcharge to reduce some of the cost were asking ratepayers “to take significant financial and technological risks and adapt to categorical changes in rate designs, all in exchange for savings that are largely indirect, highly contingent, and a long way off.”

BGE said the project “appears dead.” The DoE said the grant program was oversubscribed anyway, and they'd be glad to give the $200 million to another state.

But $200 million is a lot of coin for a state to let slip away, especially when dealing with federal funds that would put it on the forefront of grid modernization.


The biggest piece of pie

$200 million is the absolute maximum a state can be awarded from the stimulus for smart grid development.

And even though $4.5 billion has been allocated for the sector, only six projects were awarded the full amount.

Here are the others:

  • CenterPoint Energy (NYSE: CNP), Houston, TX

  • Duke Energy (NYSE: DUK), Charlotte, NC

  • NextEra Energy (NYSE: NEE) (formally Florida Power& Light, note the implication of the new name), Miami, FL

  • Progress Energy (NYSE: PGN), Raleigh, NC

  • PECO (an Exelon (NYSE: EXC) company), Philadelphia, PA

Point is, this was a monumental opportunity, and BGE wasn't going to have it taken away from them.

So this week, a new plan was submitted to the PSC, fixing the sticking points from the previous version.

Instead of adding a surcharge to cover all costs not paid by the grant, the new plan calls for it to cover just 25% of the cost with the rest offset by rate-increases over time. And real-time pricing will be optional rather than mandatory.

The bottom line here, before we get into how this will make us all money, is that the project is expected to cost $835 million.

But the 15-year return would be $2.6 billion.

The average annual expense works out to only $3.60 per customer, with a return of nearly $100 per customer per year.

Unless you hate saving money and energy, this project is a no-brainer.

So is investing in the smart grid

Compared to solar, wind, and geothermal, deploying smart grid technology has much lower capital costs. That makes smart grid projects more attractive not only to utilities and consumers, but to governments and lenders as well.

The Maryland project described above would pay for itself three times over in the next 15 years.

And according to the Energy Information Administration, an upfront $520 billion smart grid investment in the United States would translate to $1.2 trillion in gross energy savings by 2020.

Investing in the smart grid now means utilities and by default, you won't have to spend even more money building new power plants later.

That's why utilities (even southern-based, coal country utilities) are quickly adopting the smart grid and other efficiency practices. And it's why they acted even faster to secure stimulus funds to help them do it.

How can we profit? Let me count the ways...

There are six categories of the smart grid being funded by the stimulus. Below you'll find them listed along with a brief definition. A more thorough guide can be found here.

  1. Advanced Metering Infrastructure - the installation of smart meters that can measure, store, send and receive real-time energy data

  2. Customer Systems - energy management systems for buildings, facilities, appliances, and equipment

  3. Electric Distribution Systems - devices, equipment, and/or software applications including substations, transformer banks, feeder lines, pole top transformers, and customer interconnection and communications systems

  4. Electric Transmission Systems - devices, equipment, and/or software applications such as phasor measurement units, phasor data concentrators, and visualization tools that use phasor or other data in bulk power markets

  5. Equipment Manufacturing - the manufacturing of all these smart grid components

  6. Integrated and Crosscutting Systems - projects that cover two or more of the above categories

And as I said, utilities of all stripes were jumping at the chance to execute these projects.

In total, $4.5 billion will be doled out. You can see the full list of awardees here, but to show the range and scope of these projects, here are the biggest grants in each category, in the same order as above:

  1. Advanced Metering Infrastructure - $200 million for Baltimore Gas & Electric to install nearly 2 million smart meters

  2. Customer Systems - $11.4 million for Honeywell International (NYSE: HON) to provide automated peak pricing response to 700 commercial and industrial customers

  3. Electric Distribution Systems - $136.1 million for Consolidated Edison (NYSE: ED) to deploy automation, monitoring, and two-way communication systems to enable the introduction of more renewable resources in New York

  4. Electric Transmission Systems - $53.9 million for the Western Electricity Coordinating Council to install 250 phasor measurement units across the Western Interconnection in 14 states

  5. Equipment Manufacturing - $19.3 million for the Whirlpool Corporation (NYSE: WHR) to manufacture smart appliances and accelerate their commercialization

  6. Integrated and Crosscutting Systems - these are the $200 million projects listed above; $200 million each for Duke Energy, NextEra Energy, Progress Energy, and PECO Energy

It's not hard to see why I love the smart grid.

It's the future unfolding right before our eyes and it's a pure economic win. So it doesn't get as tangled in the nonsense associated with clean energy sources.

It helps that the CEO of GE (NYSE: GE) has called in the biggest investment of the next 50 years. And that Cisco says it'll be “100 to 1,000 times bigger than the Internet.”

A Bank of America (NYSE: BAC) analyst recently told me they expect 80-140 million meters to be installed in the next 10 years. And they expect total smart grid investment of $215 billion in the next four to five years.

Needless to say, this is going to be huge.

But we're still way ahead of the curve...

So far, only 25% of the utilities in the U.S. have made a smart grid vendor decision. And according to a recent survey, 70% of Americans haven't even heard of the smart grid.

The time to invest is now.

Just yesterday, GE announced a new $200 million push into the sector. But you'll want to invest in pure plays to profit.

Echelon (NASDAQ: ELON) is looking ever more attractive as it makes strategic partnerships, taking a soup-to-nuts approach to smart metering and energy management. And on the utility side, MasTec (NYSE: MTZ) is looking like a good play on the transmission and distribution build-out.

Of course, being so early in this transition, you could buy the newly introduced NASDAQ Clean Edge Smart Grid ETF (NASDAQ: GRID) as a long-term bet.

And for even more information about the smart grid, its development, and other investment ideas, you can check out the whitepaper located here.

Call it like you see it,

Nick Hodge

Nick

P.S. In addition to smart meters and transmission systems, efficiency is going to be a huge part of the smart grid. Banning incandescent lights and replacing them with LEDs is an immediate, cost-effective way to drive down energy demand. And Jeff has found a $1.20 company with LED technology so exciting Forbes says it “has the capability to radically alter the entire energy landscape.”

The U.S. Navy, McDonald's, and Wal-Mart have already signed on to use it. You'll want to read about this company before the next big contract is announced.

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