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Smart Grid Stocks

The Trillion Dollar Transmission Horse

Written by Nick Hodge
Posted October 21, 2009

You need to know about the grid.

It's the endless network of power plants, wires, towers, meters, and software that you've come to rely on, every time you flick a light switch.

And it's closer to failing than you think. . .

Consider this nugget from the American Society of Civil Engineer's (ASCE) most recent infrastructure report card:

The transmission and distribution system has become congested because growth in electricity demand and investment in new generation facilities have not been matched by investment in new transmission facilities. This congestion virtually prohibits outages required for proper maintenance and can lead to system wide failures in the event of unplanned outages.

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System-Wide Failures

Listen, 70 years ago. . . before microwaves, iPods, cell phones, laptops, plasmas, and LCDs. . . only 10% of our energy use went toward producing electricity.

By 1970, that number had grown to 25%.

And today — as I write this on my two-screened computer, with a cell phone in my pocket and a GPS in my bag — the production of electricity requires 40% of America's total energy use.

But capacity is not the problem. . .

As you read in the quote above, distribution is our real problem. We've invested billions in generation, but have lacked with respect to transmission and distribution.

How bad is the discrepancy? Back to the ASCE:

Electricity demand has increased by about 25% since 1990 while construction of transmission facilities decreased by about 30 percent.

If we continue on our current path. . . there will come a day when you flick the switch and the light does not turn on. But it won't be a case of a burned-out bulb — it'll be a system-wide failure.

The Trillion Dollar Horse

As you know, the past 40 years have been all about energy production. We've built nukes; we've built coal plants. We've built giant dams.

More recently, we've deployed thousands of megawatts of solar, wind, and geothermal in an effort to go green.

And all that stuff is great.

But it seems now that we may have been putting the energy horse in front of the distribution cart.

Think of it like this:

In the Midwest, there are dozens of wind farms turning out several gigawatts of electricity. But in New York City. . . there are no wind farms.

Which location uses more energy and has a much denser population?

If you can understand that. . . you can understand the problems facing our current grid. The large generation sources — wind farms, nuclear plants, coal plants — are mostly located far from where most of the energy is needed.

And it gets worse. . .

Not only do we have inadequate transmission capabilities for a growing nation. . . what we do have is nearing the end of its useful life.

Again, to the ASCE:

Because the existing transmission system was not designed to meet present demand, daily transmission constraints or "bottlenecks" increase electricity costs to consumers and increase the risk of blackouts. The need to expand the distribution infrastructure and install new distribution equipment to meet population and demand growth will require continued investment.

The man who designed our current grid is the same man who perfected the first light bulb. He couldn't have imagined — let alone designed a grid for — everything we'd need electricity for today.

How can we press into 2010, and all the gadgets that come with it, when we're relying on an electric grid that was planned when outhouses were still in use?

We can't.

It's going to take a massive overhaul of our grid to what is now known as the smart grid.

And Uncle Sam, along with dozens of specialized companies, is making it happen. The stimulus alone poured more than $6 billion into smart grid funding.

But it'll take much more than that. In fact, the ASCE concludes:

While annual investment in new transmission facilities has generally declined or been stagnant during the last 30 years, there has been an increase in investment during the past 5 years. Substantial investment in generation, transmission, and distribution are expected over the next two decades and it has been projected that electric utility investment needs could be as much as $1.5 to $2 trillion by 2030.

Read that again. . . $1.5 to $2 trillion by 2030.

Some smart grid stocks have already doubled as investors anticipate that level of spending. I've cashed out of a few myself.

But this is just the beginning of a two-decades-long profit event. The next three smart grid stocks I'm eyeing up could very well put my readers on the path to early retirement.

Read this report to get more details on our current grid problems. . . and the companies that will surge as they engineer solutions to fix them.

Call it like you see it,

Nick Hodge

Nick

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