Most people have heard of the term “smart grid” before, but not too many know exactly what that means or, better yet, what investment opportunities this technology brings to the everyday retail investor.
What exactly is it that makes a smart grid “smart”? And what are the smartest ways for an investor to take stake in this technology today? We’ll look to address these questions below, as we take a look at the future of electricity distribution in the U.S. and abroad.
What is the Smart Grid?
Much in the same way a “smart” phone means a phone with a computer inside it, the smart grid means computerizing the electric utility grid.
As for what exactly makes up the “grid,” we’re talking about the vast and often complicated networks that carry electricity from power plants to consumers. The infrastructure of this grid includes wires, substations, transformers, switches, and many other unique pieces of technology.
For the last 100 years or so, utility companies have had to manually gather much of the data from these many different pieces of equipment that make up the grid. Workers, for example, have needed to read meters, locate broken equipment, and measure voltage in the field. The process has long been inefficient, which is why computers are being employed to modernize the electricity industry today.
It’s not much of a surprise then that revenue projections for smart grid technologies over the next decade are overwhelmingly positive, with some agencies forecasting annual figures as high as $72 billion. Within this broad “smart grid” category, there are a number of sub-sectors that look especially promising.
Where to Invest
According to a recent report from Navigant Research, worldwide revenues for smart grid IT (information technology) software and services are expected to grow from $8.5 billion annually in 2014 to $17.1 billion in 2024.
Over the past few years we’ve seen IT giants like Oracle, IBM, SAS, Teradata, EMC, and SAP dip their toes into smart grid IT. Big grid firms such as General Electric, Siemens, ABB, Schneider Electric, and Toshiba are also jumping into the big data fray. You can look to these firms to benefit specifically from the push towards “Big Data” electricity.
According to IHS, smart grid sensors are also poised for rapid growth. This sub-sector is expected to dominate the global market over the next five years, with annual sales reaching $350 million by 2021 — a nearly 10-fold increase from 2014.
As for storage, annual revenues for smart grid batteries are expected to grow from $231.9 million in 2016 to $3.6 billion by 2025. This means the battery energy storage market is forecast to have CAGR of 35.8% over the next decade. At the same time, energy capacity is expected to grow from 1.4 GWh to 42.7 GWh, a CAGR of 45.6%.
Growth in storage is poised to greatly benefit a number of publicly traded companies. This includes sodium battery manufacturers like General Electric (NYSE: GE), super-capacitor manufacturers like Maxwell Technologies (NASDAQ: MXWL), Lead-acid battery manufacturers like EnerSys (NYSE: ENS), and Lead-carbon battery manufacturers like Axion Power (NASADAQ: AXPW).
Perhaps one of the more familiar aspects of the smart grid is the smart meter. Many utility companies have already begun deploying these devices into the field, with some even penalizing customers who do not facilitate the upgrade.
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While more familiar, the growth in smart meters is less substantial than storage, sensors, and IT. According to research agency MarketsandMarkets, smart meter revenue is expected to reach $18.2 billion by 2019. With 2014 revenues at $11.1 million, the CAGR is respectable, but considerably smaller at 10.2%.
Nonetheless, there are a number of smart meter stocks worth considering if you’re feeling bullish on this technology. This includes companies such as Itron, Inc. (NASDAQ: ITRI), Roper Technologies (NYSE: ROP), Echelon Corporation (NADSAQ: ELON), Digi International (NASDAQ: DGII), and even Badger Meter (NYSE: BMI), which produces meters for water distribution.
Of course, there’s always a much easier hands-off method of investing in the smart grid — a simple way to diversify without putting in much effort: the smart grid ETF.
If you’re looking to invest in the smart grid without having to put in much effort, your best option is the Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID), which tracks companies that are primarily engaged and involved in “electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector.”
You can view the ETF’s full portfolio distribution here.
Until next time,
Jason Stutman
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