Special Report: Four Stocks to Profit from When the Smart Grid Takes Over

The list of things technology can do without us now is getting longer every day.

Digital cameras now come with the ability to identify faces and adjust the screen lighting depending on how bright or dark it is. Some can even connect to social media and upload those pictures for you.

You may have a version of the smartphone that can connect to WiFi automatically and update itself when needed. And don't get me started on all the apps that run by themselves...

Your home may be smart-integrated. Smart thermostats can automatically adjust to the user's preferred temperature, smart lights and locks can be turned on and off with an app, or switch automatically at a time set by the user. Smart vacuums, like the Roomba, can also start and stop with an app, or sometimes on their own.

More and more smart devices are coming into the world: connected clothes, accessories, and cars are being developed and improved every minute.

And what's the next concern when all of these things are automated?

Powering them up, of course.

Power Grids in the Way

Once upon a time, not everything we touched had to be plugged in.

When the importance of electricity was just being discovered, there was no mass distribution system simply because we didn't need one.

Before the 1880s, electricity was produced and used in the same place. Direct current (DC) energy was set up in a loop: generator to user and back around to generator.

This design was limited — and was allowed to be because of the few things it needed to power. The energy couldn't be extended long distances, and couldn't be split to power numerous devices on a single line.

Later, the alternating current (AC) system was used instead. This allowed the energy to not only to be sent in both directions along a single line, but to be split and ramped up to long distances.

This has become essential to the way we power our world today.

With AC electricity run through transformers, high voltage energy can be produced at the source, sent a long distance over wires, and ramped down for personal use.

It's effective! It's efficient! It's...

...not enough for what the world wants to do tomorrow.

The world is growing, modernizing, and the need for electricity to power our lives is expanding all the time. It's not just small devices, but huge buildings and increasingly electric — rather than fossil fuel-powered — vehicles of all kinds.

You can see the steadily increasing global energy use below:

Enerdata Global Energy Consumption 2016And it's nowhere near stopping.

The power grid is long overdue for an upgrade, and smart grids are the way to go.

Look at it this way:

If nearly everything we use becomes connected to the Internet of Things, there's no reason why the electricity grid that powers them shouldn't be equally connected.

It's practically inevitable now, and for some of the same reasons that we've connected everything else...

Smarter Grids on the Way

First and foremost, the world needs energy efficiency.

In recent years, the fight between fossil fuels and renewable energy sources has come down to this question: Which can provide the energy we need?

It's a simple question with a complicated answer...

Consider the pros and cons of renewables. They're cleaner than fossil fuels, for sure. But they're intermittent, inconsistent, and sometimes downright unpredictable. The sun isn't always shining, the wind isn't always blowing, and even hydropower dams can be affected by too much or too little rain.

The main problem here is that you can't just ramp up the sun at peak times of the day when most people are using electricity.

Enter fossil fuels: tried-and-true coal, oil, and natural gas have been providing base-load energy — the minimum daily energy we need to keep things running — for decades.

What's more, power plants run on these fuels can be turned up when needed for peak energy use.

However, this process isn't always the best.

As a long-standing energy source, fossil fuels are burned in old power plants, which are connected to the old power grid.

That means power outages happen pretty often: the biggest cause of power outages in the U.S. is weather, which can interrupt the flow of electricity in any number of ways.

And with our old, unconnected grid in place, the power companies responsible for keeping service running can't do a thing about it. Often, they don't even know that something has gone wrong until the complaints start flowing in, and even then it takes time to identify the problem and fix it.

Too bad there's not an app for that... yet.

You see, that's exactly what the smart grid idea is: constantly connected powerlines, homes, and businesses that keep track of what's happening on the grid 24/7.

Utilities would have sensors that could tell them immediately what's gone wrong and where. Some are even considering using drones to fly out and identify the problem, reducing the time it would take to get a real person on the scene.

Plus, it's safer if fewer people are physicalling handling downed powerlines.

Consumers get a boost too: smart energy meters give people more control over how much energy their home or business is using, and when.

What's more, with the increased use of home solar systems, a connected grid would offer more information on exactly how much of that energy a home is using, and how much can be sold back to the utilities with a net metering option.

Remember the AC electricity design? With the ability to send electricity both ways, net metering contracts like this could be a breeze!

Plus, constant monitoring of energy use could help ease the integration of new renewable technologies onto the national power grid.

Of course, a few other things would need to be upgraded along with the grid to keep this all running...

Securing the Data

Our electric grid can be hacked. Right now.

That's a pretty scary thought. Imagine who could — not to mention who would — like to simply cut off power to large sections of America.

If we're to succeed in upgrading our dilapidated energy grid, we're going to need some major security upgrades.

One of the ideas to combat the effect of possible hacking is to use micro-grids. That's right: we're looking to head back to the original energy-on-site plan.

Only this time, we'll have more options for where we get that energy, what we do with it, and where it goes.

The idea behind these micro-grids is that each can be secured independently. If one goes out, it doesn't affect any others. This would also make it even easier for utilities to zero in on problems and get them fixed quickly.

And all of that new security is going to add to the other major issue here: data use and control.

One study published by Capgemini Consulting estimated that by 2017, smart home meters alone would be collecting as much as 280 petabytes of information per year for utilities; for scale, compare that to the tiny three petabytes of data that makes up the entire Library of Congress. 

Utilities are going to need more than just an app...

They're going to need entire data centers dedicated to taking in this information, processing it, and sending it back out to utilities and customers alike.

I don't know about you, but I'm seeing an important investment opportunity opening up here...

Playing on the Energy Grid

There are a few angles investors could look at when investing in the newly connected smart grid:

Let's start with utilities. Duke Energy (NYSE: DUK) is a well-known integrated energy producer and provider. The company's power plants have around 50,200 megawatts of energy production capacity, and Duke's 32,300 miles of powerlines connect directly to as many as 24 million customers and to some smaller utilities.

Duke already has smart technology integrated into its services. The company has advanced meters installed in customers' homes in several states for ease of access to energy usage data.

The company also has “outage reduction” technology installed on its powerlines, which alerts the company immediately to broken lines for quicker identification and repair.

Duke is also connecting with state initiatives to expand charging stations for the growing population of plug-in electric vehicles. This may prove to be one of the company's most profitable projects yet!

Duke Energy is an electric power holding company with utility operations in the U.S., Canada, and Puerto Rico. In addition to its grid-related operations, the company recently acquired Piedmont Natural Gas, creating its own gas production and sales branch. Currently, the company's market cap sits at $58 billion, and its ever-growing dividend reached $0.89 per share in the most recent quarter.

To invest a little more directly in smart grid technology, look no further than Itron Inc. (NASDAQ: ITRI). Its smart meters not only cover electricity, but water and natural gas monitoring as well.

Itron has rolled out out a smart grid project called Itron Total Services, which can be integrated into existing infrastructures. The service suite will offer data collection and analysys which can be shown at the individual, district, and system levels using Itron's already widely-used technologies.

The system is designed to put all the smart grid work on Itron: utilities will pay a subscription to have the company's monitors installed, and Itron will work with the data, reporting back to the utility with ways to improve efficiency and operations.

It's a simple way to get utilities to bring in more smart grid tech without having to make major business or infrastructure changes.

Itron's OpenWay Riva platform uses meters and communication chips to get information to the utilities in real time. Duke Energy's Coalition of the Willing initiative already uses this system. In 2017, Itron completed its acquisition of private company Comverge, further expanding its Internet of Things connectivity and smart utility customer base. Itron's partnership with Bsquare will further enhance OpenWay Riva's offering by making the system's integration that much smoother.

Itron itself is a smaller company, founded in 1977 to find more accurate ways to read energy meters. Now, the company has operations in over 100 countries including China, Australia, India, Japan, Germany, the U.S., the UK, and more. Its market cap at the time of writing is $2.8 billion. 

IBM (NYSE: IBM) is one of the biggest names in data management, and has a history of high performance that the energy data industry will need.

The company offers a suite of services to utilities that includes data storage and processing. IBM's service can even pull data from other sources, including information on the utility's assets and updates on the weather, which could help prep for any possible problems before they even happen!

And because IBM is so widely integrated into a number of industries, energy utilities are just the beginning.

Even staying within the confines of improving the grid, IBM can offer planning and prediction services for maintenance scheduling, energy distribution, and cost management. The company's cloud services offer data storage and analysis that can be used to improve the grid as a whole.

In fact, IBM's cloud is currently supporting the World Community Grid initiative, which offers anyone and everyone with a computer or Android device the ability to connect to the cloud, share their data, and contribute to the scientific discoveries behind smart grid technology.

It goes without saying that IBM is the largest company on this list. With a market cap of $137 billion and a fast-growing dividend payout currently at $1.50 per share, this tech behemoth is a must-have for smart grid investments.

Finally, to keep all that information safe, you'll want a company like FireEye Inc. (NASDAQ: FEYE). The company is a leader in cybersecurity, and offers FireEye as a Service, wherein FireEye is not just a separate entity, but an extension of its utility customers' teams.

This will give FireEye better access to its customers' data, offering those utilities tighter security options.

The company is already working with customers in the oil and gas industry, as more connected monitoring is being installed across all levels of the market.

FireEye has won some notoriety for its excellent cybersecurity services as well. In early April, 2016, it won SC Magazine's 2016 Trust Ward for Best Advanced Persistent Threat Protection. A year prior, it was the first cybersecurity company to get the U.S. Department of Homeland Security's SAFETY Act Certifications.

Though it's just about the size of Itron, with a market cap of $2.8 billion, this company could prove to be one of the most important in the push for smart grid technology.

These aren't by any stretch of the imagination the only ways to make money while improving the world's energy grids...

But they're a pretty strong start.


Energy and Capital, Copyright © 2017, Angel Publishing LLC. All rights reserved. 111 Market Place #720 Baltimore, MD 21202. The content of this site may not be redistributed without the express written consent of Angel Publishing. Individual editorials, articles and essays appearing on this site may be republished, but only with full attribution of both the author and Energy and Capital as well as a link to www.energyandcapital.com. Your privacy is important to us -- we will never rent or sell your e-mail or personal information. Please read our Privacy Policy. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Energy and Capital does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Angel Publishing may actively trade in the investments discussed in this publication. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question.