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Smart Grid Reaching Critical Mass

Written By Nick Hodge

Posted July 21, 2010

If going green is the expensive energy option, why has Kohl’s (NYSE: KSS) saved $50 million by converting 500 of its stores to Energy Star buildings?

It’s because while clean energy was once the expensive energy, it gets cheaper and cheaper every day. So every day you wait to invest in the sector means profits left on the table.

In Kohl’s quest to green its operations, it’s disproved almost every clean energy myth out there.

It’s the second-largest purchaser of renewable energy in the country, using it for 100% of its electricity needs. And it’s saving money.

It’s the largest retail host of solar power on the continent with 88 installations. And it’s saving money.

It’s built 45 Leadership in Energy and Environmental Design (LEED) certified green buildings, and has committed to building all new stores this way. And it’s saving money.

It’s retrofitted all stores with building automation systems that control interior and exterior lighting, and has replaced all 75 watt incandescents with 24 watt metal halide bulbs. And it’s saving money.

If clean options are so expensive and job-killing and GDP-damning and economy-crushing… Why has a retail chain with a $14 billion market cap that has to answer to shareholders thoroughly embraced it?

Because as it turns out, it’s not expensive. It actually reduces operating costs and creates an economic edge over the competition.

And it can create and economic edge for you as well.

They save it; you make it

While companies and countries across the globe save billions by reducing energy costs, you can profit by investing in the companies providing the energy-saving solutions.

Let’s just take a look at the fourth step in Kohl’s plan: efficiency.

By implementing building control systems and retrofitting all its lights, Kohl’s has adopted the smart grid.

And they aren’t alone in their endeavor…

Already a dozen and a half U.S. utilities have ushered in the smart grid, installing smart meters in 16 million households.

South Korea will invest $24 billion over the next 20 years to fully adopt the smart grid by 2030. LG and Hyundai are already lining up deals.

China has a three-step plan to adopt by 2020, to be carried out by the State Grid Corporation. The company has said it will invest $37 billion this year to build a nationwide smart grid network. It’s also in talks with Duke (NYSE: DUK) to upgrade transmission lines here in the States.

China plans to spend $600 billion on the smart grid in the next decade.

The U.S. committed $4.5 billion to the space in the stimulus. And its impact is already being felt.

Demand response. Building automation. Smart appliances. Lighting. Efficient transmission.

Hundreds of billions are being poured into these technologies to save both energy and money.

Here are some ideas on how to profit from the rollout.

Smart grid investment themes

You can’t talk about smart grid investment without talking about smart meters.

Bank of America (NYSE: BAC) says contracts for 79 million smart meters have already been announced, and 140 million will be installed by 2020.

The best play here is Itron (NASDAQ: ITRI), which already has significant market share thanks to contracts with Southern California Edison, San Diego Gas & Electric, CenterPoint (NYSE: CNP), and others.

You can get exposure from GE (NYSE: GE), Cisco (NASDAQ: CSCO), Siemens (NYSE: SI), and Honeywell (NYSE: HON), but it’s only a fraction of their business.

(You should know that GE just launched a $200 million fund to foster smart grid technology and its CEO was quoted last week saying “the market is still in its infancy.”)

Demand response also deserves investment attention. This is when a company gets paid to reduce a community’s electricity usage by the utility.

So instead of adding megawatts of production with solar, wind, coal, or nat gas, the utility pays a company to reduce demand by the same amount.

EnerNOC (NASDAQ: ENOC) and Comverge (NASDAQ: COMV) and the leaders here, and are guaranteed to see increased business in the future.

There are also straight-up efficiency plays.

Echelon (NASDAQ: ELON) provides turnkey systems that can make entire neighborhoods (or parts of them, like street lights) more efficient by employing various monitoring and automating products.

Companies like Whirlpool (NYSE: WHR) are making smart appliances capable of communicating wirelessly with the homeowner and the utility via a smart meter. Whirlpool has received $20 million in stimulus funds to do this, just beat earnings estimates last week, and is up 60% in the past year.

And lighting companies like Cree (NASDAQ: CREE) and Veeco (NASDAQ: VECO) — each of which have more than doubled in the past year — are making smart investors rich as they provide efficient lights to customers like Kohl’s. Though I think this lighting company will deliver even better returns.

But the real Holy Grail of the smart grid is energy storage. It’s the glue that makes everything stick.

Storage makes the sun shine at night; it makes the wind blow when it isn’t.

And it can make the grid much smarter and efficient by not having to deal with intermittent sources of renewable energy.

We’re on the verge of some serious storage breakthroughs with molten salt, flywheels, magnets, and ultracapacitors.

But right now the profits are in batteries — specifically, lithium batteries.

A new lithium ETF is scheduled to launch this week, but I’ve found a much better way to play the boom…

It’s a small Chinese outfit that is using its batteries not only for smart grid applications, but to build the fastest growing car company in the world.

Buffett is already in, and you can read about how to stake your early claim here.

Call it like you see it,

Nick Hodge


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