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Tickers in this Article: LMT, BA, PPA, RTN, SAI, EIX, AEP, PPL
With nearly $3.9 billion in grant money from the Economic Recovery Act to be handed out for smart grid advancements, the Department of Energy is stepping up its requirements for security. Pressures from top security experts conclude that many of the current intelligent grid plans do not incorporate enough cyber-attack or information-phishing protection into their strategies.

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Smart Grid Set-Up
The basic idea of the smart grid is to improve the energy efficiency and reliability of the electricity grid by lowering peak demand and reducing energy consumption, while monitoring its activity via meters connected to the internet. These smart meters give consumers information about their power usage, as well as control over that usage via the web. Communication is a two-way street, allowing power companies and consumers to participate in demand response actions to save power and prevent blackouts.

However, if unprotected, this highway could allow unscrupulous individuals access to functions such as shutting down whole portions of the grid or stealing personal information. With grants ranging from $300,000 to nearly $200 million, the Department of Energy is not taking any chances and will reject any proposal that does not factor in a security quotient. This offers investors an interesting and unconventional way to play the smart grid movement.

Get Defensive
Utilities are taking to heart the requirement of adding cyber-security to their smart grid plans. Several deals have already been placed with unlikely "green" candidates: defense contractors. The leap is natural for defense suppliers, as many have wireless security divisions already in place serving the U.S. and international governments. The trend is continuing, as the number of utilities wanting and needing the stimulus dollars grows. For example, Utility Southern California Edison's (NYSE:EIX) recent expansion into wind power has the company searching for a way to control and store that power. The utility expects to have about 4,500 megawatts of wind turbines by 2015. Partnering with battery maker A123, Edison is undertaking the largest lithium-ion battery cluster ever made, with 32 total megawatts of storage. The project could be worth nearly $120 million in grants. Combine that with an additional $70 million in a smaller regional smart-grid integration project including upgrades to smart appliances, home energy management systems and wireless communications, and there is some serious money at stake. Insuring that investment from attack is smart grid newcomer Boeing (NYSE: BA).

While Raytheon (NYSE: RTN) and Boeing are just beginning to venture into smart-grid security, the real leader in sheer number of smart grid security deals to this point has been Lockheed Martin (NYSE: LMT). The global defense firm is directly involved with eight utilities and their smart grid grants, and should receive the lion's share of the resulting revenue. These include a $150 million dollar project with American Electric Power (NYSE: AEP) and a $38 million smart-grid installation outside Harrisburg, Pennsylvania with PPL (NYSE: PPL). Lockheed is also providing micro-grid applications to several ventures, adding individual buildings to grid systems.

The ETF Way to Play
With exposure to the preceding three companies, as well as other players like SAIC (NYSE: SAI), the PowerShares Aerospace & Defense ETF (NYSE: PPA) gives investors a way to participate in smart grid security. Its 58 holdings run the gamut of global defense firms. Expenses for the ETF run 0.60% and fund yields 1.32%.

Bottom Line
With $3.9 billion available for utilities through the Recovery Act, our electric grid will finally get its much needed overhaul. However, this dramatic change will lead it vulnerable to cyber attack. The Department of Energy's recent added provisions for security are spot on. With these new rules come investment opportunities. The preceding defense contractors or their corresponding ETF, make a good unconventional green play. (For more, check out our Investopedia Special Feature: Green Investing.)

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