Smart Grid Investing: How Our Nation’s Future Energy Security Can Boost Your Portfolio
by David Fessler, Advisory Panelist
Monday, September 21, 2009: Issue #1098
The “Smart Grid.”
You may have heard the media toss the term around recently. But ask the next 10 people you meet to tell you something… anything… about it, and I’ll wager that you’ll get deafening silence.
The reason? All of us take electricity – and the system that generates and distributes it – for granted. And despite having spent my entire professional life as an electrical engineer, I’m guilty as charged, too.
So what is the Smart Grid? How will it work? And why is it important to our nation’s future energy security? Read on for details, including two companies working to boost the nation’s power capacity that you can add to your portfolio today…
Why Our Current Systems Are Maxed Out…
Flip a switch and the lights go on. Hit the “power” button and the microwave nukes our food. Switch on the oven and you can cook your food the “old-fashioned” way. The fridge… washer and dryer… dishwasher… the water heater. The list goes on.
All essential everyday facilities that demand electricity, which we use without even thinking about it. No wonder that when the power goes out, we freak out.
But there’s a big problem: The nearly 200,000 miles of transmission lines, millions of miles of distribution lines and myriad of control systems (collectively referred to as “the grid”) are maxed out. The grid is rapidly running up against capacity limits in the United States.
These capacity limits and security risks are real… and they’re growing more formidable every day. And the recognition of these concerns among power companies, business leaders and federal and state agencies has led to the concept of a wholesale modernization of the grid.
But as if upgrading the grid wasn’t daunting enough, it all has to be done “hot” (i.e., while the system is still running). And at full tilt, no less. Here’s the plan…
So What is the “Smart Grid” Anyway?
The Smart Grid is essentially the end result of what will be a decades-long project. The undertaking has been compared to the construction of the interstate highway system in the 1950s – and it’s just getting underway.
When it’s complete, it will work far more efficiently. For example:
- Reliability will increase orders of magnitudes from what it is today.
- Expansion will be much simpler and continue to be affordable.
- Our ability to compete globally will be greatly enhanced.
- Both traditional and renewable energy sources will be easily accommodated.
- Our carbon footprint will be reduced significantly.
To head up this nationwide effort, the Department of Energy created the Office of Electricity Delivery and Energy Reliability. Its function is to apply its cutting-edge research to develop new smart grid standards and to marry the agendas of numerous interested parties.
The Smart Grid: Both Obama & McCain Have Touted Its Virtues
During the presidential election last year, both Obama and McCain touted the virtues of the Smart Grid. And now, President Obama has put his money where his mouth is through the American Recovery and Reinvestment Act.
It makes $4.5 billion available to the nation’s power companies in the form of grants and loans in order to implement improvements and upgrades to the grid. But as you can see below, this is just the tip of the smart grid investment iceberg in terms of what’s needed…
- $60 billion in Department of Energy (DOE) loan guarantees for renewable energy projects.
- $16.8 billion to the DOE focused on renewable energy and energy efficiency. This includes grants for conservation and energy efficiency, state energy programs, the Weatherization Assistance program, alternative-fuel vehicle programs, and more.
- $6 billion to the DOE to cover the cost of guaranteeing loans through the new Innovative Technology Guarantee Program for supporting renewable energy and transmission technologies and to the existing Advanced Technology Vehicles Manufacturing Loan program.
- $3.4 billion earmarked for Carbon Capture, Fossil Fuel Energy R&D, Clean Coal Power Initiative, Energy Efficiency Competitive Grants and others.
- $1.6 billion to DOE Office of Science.
- $400 million to the Advanced Energy Projects Agency earmarked for energy.
- $3.25 billion in borrowing authority to both the Western Area Power Administration (WAPA) and the Bonneville Power Administration, and $10 million to the WAPA allocated for smart grid upgrades facilitating the integration of renewable energy sources.
- $6.1 billion to the DOE for uranium enrichment decontamination and decommissioning, environmental cleanup projects and money for the Office of the Inspector General.
- $300 million for the Department of Defense geared to the development and deployment of energy efficiency technology.
Another big incentive is the three-year extension of the income tax credit for renewable electricity production for qualified generation facilities.
So that’s the problem – and the solutions and money necessary to solve it. Question is, how do investors profit from it?
The Smart Grid Project: Two Smart Ways to Profit
- The first company is “Old Faithful” – General Electric (NYSE: GE), which has its hands in a huge array of sectors and industries.
- The second is ABB (NYSE: ABB).
Together, these two industry giants stand to sell many tens of billions of dollars worth of equipment to the global power industry for Smart Grid upgrades and enhancements. They’re the “Apple Computers” of the Smart Grid world.
Owning them presents very little risk to the downside, and the huge upside potential represented by the many billions of dollars needed for investment (detailed above) is just too good to ignore.
Good investing,
David Fessler
The Investment U News Tracker:
~ An SEC Crackdown – and Smackdown – For Credit Ratings Agencies:
Score two for the little guys. On Friday, the Securities & Exchange Commission announced that it will impose two new rules that should help investors make more informed decisions and level the playing field.
The first one is a crackdown on the three major credit ratings agencies – Standard & Poor’s, Moody’s and Fitch – who issue ratings on the credit-worthiness of public companies. The agencies are widely held responsible for the disaster in the U.S. real estate and financial markets by failing to recognize the extent of the mortgage problem and continuing to issue high credit ratings to subprime lenders.
The five-member SEC panel voted in favor of making the agencies disclose more information on their ratings. In addition, companies won’t be allowed to “fudge” better ratings through the agencies – they’ll now have to disclose any prior ratings from other agencies. The agencies will also have to disclose their ratings histories and reasons for issuing them, dating back to 2007.
~ Memo to Wall Street: No More Flashing, Please:
The second move is a proposal that would ban “flash trading” – the quirky setup that gives major financial institutions access to trading information milliseconds before the information is released to the public. While the orders are only seen for fractions of a second before they hit the market, it’s still enough time for advanced computerized trading systems to respond and act on them before the public has the opportunity to do the same.
If you think that sounds a bit shady, Senator Charles Schumer (D-NY) agrees. He called on the SEC to ban this in July in order to level the playing field and promote fairness at a time when skepticism over Wall Street practices is rampant. He’s threatened legislation if the SEC fails to abolish it – and the SEC has now proposed a ban.
Related Investment U Articles:
- America’s Electric Grid: Three Companies Upgrading This Aging Infrastructure
- Renewable Energy Overtakes Nuclear
- Investing in the Smart Grid: Debunking the Three Biggest Myths About This Energy Industry
- Recent Heatwaves Prove Energy Grid Storage Matters
- Going Big on the Texas Power Problem
5 Responses to “How Our Nation’s Future Energy Security Can Boost Your Portfolio”
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David Fessler is the energy and infrastructure expert for Investment U.
Last month I received a Oxford Club e-mail that said to sell GE and buy WIN. So on August 8th, I sold all of my GE stock. As I understand it, now I should buy it back again. Is this correct?
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I realize that Oxford Club and Investment U are seperate, but tied. Louis B in Oxford Club newsletters has railed against investing in GE at least twice this year. I am former GE employee and fially took his advice recently and sold all my holdings in GE. ABB was on the Oxford portfolio list prior to the 2008 collapse and has not reappeared.
I am just surprised to see them reappear like this.
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The stock’s highlighted in Investment U articles are intended only as investment ideas and are not associated with companies (or funds) held within Oxford Club portfolios. GE is not currently held in an Oxford Club portfolio. Nor is ABB.
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That’s not a terribly convincing reply, IU.
I still have your email of 29th January this year.
Quote – “Why GE’s stock will keeping sucking wind”
Quote – “GE – a dog at any price”
The words are Louis Basenese’s but they are nevertheless printed beneath your masthead.
If you were all publicly umming and aahing over GE, that would be fair enough but you’re not: you’re making strong statements on both sides of the same coin. From a credibility standpoint, it’s not a great look…
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Per Dave Fessler:
Long time readers know that Dave has been very positive on GE since he started writing and speaking about it almost two years ago. And he still is: “It’s going to be a big winner over the next few years based on its energy and infrastructure exposure. Non-performing divisions will be shuttered or sold off.”
A “Dog”? Hardly: it’s nearly TRIPLED in price since hitting its March lows. If that’s a dog sucking wind, then we’re missing something…
Thank you,
Investment U
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