It's been called the "World's Largest Machine". Our power grid is a patchwork of 9,200 power plants and 300,000 high voltage transmission lines. This system provides nearly one million megawatts worth of power to 300 million Americans each day. Alas, the grid is old technology, still functioning the same way Thomas Edison and George Westinghouse first conceived it.

Today's grid is still based on 1960s technology and the meter on the side of your house has not changed its basic design since the 1920s. The grid is an antique, nearly 100 years old in places. While it functions 99.97% of time, it's far from perfect. Power interruptions and blackouts cost the American economy between $80 and $150 billion a year in lost productivity.

IN PICTURES: 5 "New" Rules For Safe Investing

Need of an Upgrade
The electrical grid is in serious need of an upgrade due to increasing power consumption. Since the 1980s and the adoption of cell phones, iPads, computers and other "modern" conveniences, peak power demand has exceeded transmission growth by 25% each year. Demand is expected to double over the 20 years. This exponential demand has the grid failing more and more, with three major blackouts within the last decade. Our new electric grid needs to be bigger, smarter and more efficient in order to help cope with the fresh stresses of modern living.

Research conducted by the Electric Power Research Institute concluded that programs utilizing grid modernization could reduce the annual growth rate of U.S. energy consumption in the next two decades by 22%. The annual energy savings could total 236 billion KW by 2030. The Energy Information Administration reports an upfront $520 billion grid investment would translate to $1.2 trillion in gross energy savings by 2020.

A Big Expense
In order to build up our smart grid, substantial investment in generation, transmission and distribution are expected over the next two decades. Analysts predict that investment in the sector could be as much as $1.5 to $2 trillion by 2030. Investors have plenty of choice to play the grid build-out. From frequency regulations stocks such as Beacon Power Corporation (Nasdaq:BCON) to new smart metering technologies with Itron (Nasdaq:ITRI), there will be plenty of winners in the space. However, one of the more "low tech" ways to play the build-out is through the addition of transmission lines.

Transmission Plays
As one of the world's largest manufacturers of both high and low voltage cable, General Cable Corp. (NYSE:BGC) will benefit as new transmission lines are introduced to the grid. General Cable is also benefiting from growth in emerging markets as places like Brazil and China begin to build up basic infrastructure.

Both Pike Electric (NYSE:PIKE) and MasTec (NYSE:MTZ) are smaller heavy construction firms dedicated to energy transmission and substations. The two companies design, build and maintain transmission lines for utilities. Investors may find that these two small companies could be a better choice to play the build up as both are potential takeover targets and pure players in the industry.

Power-One (Nasdaq:PWER), Satcon Technology (Nasdaq:SATC) and Advanced Energy Industries (Nasdaq:AEIS) all make power inverters that allow wind and solar energy to connect to the grid. These inverters convert DC power into the AC power used by most of our appliances. They are instrumental in the transmission of alternative energies into the new grid.

Bottom Line
Our current electrical grid is in need of a vast makeover; it's old, inefficient and prone to failure. As energy demand is increasing, a new smarter grid will need to be built. Investors wanting to play this vital piece of infrastructure should first focus their attention on the new transmission lines that will be required. The previous companies or First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (Nasdaq:GRID) make ideal portfolio components for long-term investors. (Learn about investing in infrastructure in Build Your Portfolio With Infrastructure Investments.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  7. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center