Start-up Smart Grid Companies
2 Smart Grid Companies with IPO Implications
By now, everyone knows of the smart grid. But few know about the smart grid.
Essentially, the smart grid is the internet for energy — overlaying our complex electricity distribution system with an information system.
But what does that really mean? Who is involved? And how can investors profit?
Today, we'll take a look at four smart grid start-ups to understand a bit more about the sector and about the types of new solutions companies are coming up with.
As the smart grid evolves, it seems to be getting harder and harder to comprehend.
Because it doesn't encompass a single technology — like solar panels or wind turbines — there are multiple facets comprising the smart grid that need to be explored and understood.
As such, there are multiple companies that need to be explored for profit as well.
Right now, you only get to see your energy consumption data on a monthly basis. You get a complex bill every month telling you how many kilowatt-hours you used and how much you're being charged for them.
The smart grid aims to empower the consumer by offering energy data in real time.
One company aiming to do this is Silver Spring Networks, a good candidate for a 2010 initial public offering (IPO).
Silver Spring has both proprietary hardware and software for aggregating and analyzing energy use at homes and businesses.
In layman's terms, Silver Spring adds a communication component to your gas or electricity meter. The data is transmitted to various endpoints in the local area, called a mesh network.
These endpoints support two connections — one to the utility and one to the consumer, through a home area network (HAN).
Real-time energy usage data and analysis for both the utility and consumer.
Of course, that's the nutshell version. Silver Spring also offers demand response, electric vehicle integration, security, and other networking services.
And it seems the entire energy world is excited about their offerings.
For starters, the company has already raised $275 million worth of venture and preferred equity investments. And, like I said, there are rumors of an IPO this year.
They're customer list is also impressive for a young company. American Electric Power (NYSE: AEP), Florida Power & Light (NYSE: FPL), Pepco Holdings (NYSE: POM), and Pacific Gas & Electric (NYSE: PCG) have all formally committed to using Silver Spring's products.
Now, when it comes to smart grid data collection, there are a number of companies operating in the space.
Silver Spring may be the most sought-after start-up providing energy data aggregation tools, but there are plenty of established companies offering similar services.
Echelon (NASDAQ: ELON) and Itron Inc. (NASDAQ: ITRI) come to mind as pure plays, but companies like IBM (NYSE: IBM), Cisco (NASDAQ: CSCO), and Honeywell (NYSE: HON) are quickly trying to leverage their size to enter this market.
Putting the Information to Profitable Use
Once all the data is aggregated and able to be shared, the next step is figuring out what to do with it.
Similar to the Silver Spring story, there are some highly sought-after start-ups in this space as well.
Hara is the first that comes to mind. They bill their product as a "comprehensive environmental and energy management solution [that] gives organizations transparency and control of their organizational metabolism, so they can grow and profit while optimizing their natural resource consumption and minimizing their environmental impact."
Basically, they take all the data provided by a company like Silver Spring, analyze it, and come up with actionable solutions that can save a company time, resources, and money by increasing efficiency.
What they sell is called a software-as-a-service (SaaS) application that is configurable based on the customer's needs. But what they do always revolves around four steps (taken directly from their website):
Discover - Aggregate environmental record information from relevant data sources in order to provide a comprehensive view of resource consumption, greenhouse gas emissions, and environmental impact
Plan - Define strategies, optimize planning decisions, forecast reductions, identify objectives and metrics, and calculate timing and benefits for each initiative
Act - Manage the execution of environmental and energy programs, track results per initiative, and provide an audit trail for any current or future regulatory requirements
Innovate - Implement the Hara methodology and leverage best practices for continuous improvements and business transformation
So a grocery chain would hire Hara to not only track the energy use of its stores, but also to evaluate the efficiency and sustainability of its supply chain and overall operations before making actionable recommendations.
After totaling all the data, for example, Hara might recommend raising the temperature of all refrigerated cases by one degree. Or altering distribution routes to save a certain amount of fuel, and thereby dollars.
Soon, this won't be a hypothetical example. Safeway is already using Hara technology. So are Coca-Cola (NYSE: KO), News Corp. (NASDAQ: NWSA), Intuit (NASDAQ: INTU), and the City of San Jose.
With a list of clients like that, you can bet the smart grid is here in a real way. And the companies providing the solutions are in for a warm public welcome.
The $11 billion dedicated to the cause in the recent stimulus was more than enough to stir interest in the sector. But the real attention will come when companies (and consumers) start realizing the monetary benefits a smart grid can offer.
In anticipation, an exchange traded fund (ETF) has already been created to help investors reap returns. It's called the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Fund (NASDAQ: GRID) and it includes, among others, Echelon (NASDAQ: ELON) and Itron (NASDAQ: ITRI) as top holdings.
But you can bet Silver Spring and Hara will be a part of that fund as soon as they're publicly traded...
In the next few weeks, I'll continue to cover the evolution of the smart grid, the companies involved, and how you can profit.
Call it like you see it,
P.S. The ETF I just mentioned is a great way to gain broad exposure to the smart grid's coming dominance. But it can't give you same fast-paced, pure gains that come from investing in individual companies.
Last year, the Alternative Energy Speculator closed 11 profitable smart grid investments. More are expected this year. To get our exclusive investment report, Smart Profits from the Smart Grid, and join the thousands of other investors getting expert smart grid investment advice, click here.