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Protecting The Grid
Our current electricity transmission network is in need of a major overhaul. The current system is inefficient and dated, with major energy loss along the way. Based on technology first created in the 1960s, today's meshwork of 9,200 power plants and 300,000 high voltage transmission lines costs the American economy between $80 and $150 billion a year in lost productivity due to power interruptions and blackouts. Modernizing the grid will make it more reliable and efficient. New sources of renewable energy will be able to be added and jobs created. Opportunities in the space are vast with analysts estimating that these upgrades have the potential to cost nearly $1.5 trillion over the next decade. (To learn more about the utilities industry, check out The Industry Handbook: The Utilities Industry.)
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Don't Forget Security
Nevertheless, most investors looking at the future of smart grid neglect to focus on its security. As we move to a more complex digital system of electricity transmission with smart meters, wireless controls and data mining, the U.S. grid leaves itself open to various cyber threats. Experts worry that as we move more of the grids operations to the internet and similar networks, these threats can and will become quite real. Nonprofit research institute, the U.S. Cyber Consequences Unit research shows that attack programs search for openings in a network and then acquire the powers as a systems administrator.
These attacks can wreak much havoc. In 2000, a disgruntled employee created a computerized worm at a water-treatment plant in Australia. This virus released more than 200,000 gallons of sewage into parks, rivers and the grounds of a Hyatt hotel. Just last year, the Department of Homeland Security reported similar intrusions to various pieces of U.S. infrastructure.
Protecting the new grid is also turning into big business. According to the Wall Street Journal, Congress during the Bush administration approved nearly $17 billion in funds to protect government networks and the Pentagon has spent $100 million in the past six months repairing cyber damage. More recently, The Department of Energy (DOE) and Secretary Chu handed out more than $30 million for 10 projects that will address cybersecurity issues facing the nation's electric grid. The DOE also established the National Electric Sector Cybersecurity Organization (NESCO). This organization will bring together experts and software developers to research, test and evaluate new cybersecurity solutions.
A Dose of Portfolio Security
While investors have plenty of ways to participate in the smart grid build-out such as the broad First Trust Smart Grid Infrastructure (Nasdaq:GRID) or smart meter maker Itron (Nasdaq:ITRI), most of the popular choices are lacking in security measures. There are, however, plenty of ways to profit from the idea.
Defense contractors like Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) have been chomping at the bit, in order to get a piece of smart grid pie. As military spending continues to decline, many of these contractors are looking for new revenue streams and grid security provides that. The PowerShares Aerospace & Defense (NYSE:PPA) offers broad access to 57 different defense contractors. The ETF should do well as more of these firms move into this field or consolidation continues across the smart grid.
Finally, two renewable energy and smart grid blue chips are moving into the cybersecurity realm as recent winners of DOE grants. Honeywell International (NYSE:HON), which has already proven itself in the areas of building automation and energy efficiency, won a $2.2 million grant to research and develop systems architecture that limits operators access to the appropriate levels for job function. Siemens (NYSE:SI) won $3 million to develop real-time software and systems to protect against cyber-threats.
Bottom Line
As America updates its energy infrastructure, more focus will need to be placed on security measures. In moving to a digital system that will bring increased energy efficiency and reliability, threats from cyber attacks cannot be ignored. Investors have the opportunity to place their bets with one of the previously mentioned stocks or ETFs as a way to play the increased demand for cyber defense services relating to the grid.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 20 Tools For Building Up Your Portfolio
Don't Forget Security
Nevertheless, most investors looking at the future of smart grid neglect to focus on its security. As we move to a more complex digital system of electricity transmission with smart meters, wireless controls and data mining, the U.S. grid leaves itself open to various cyber threats. Experts worry that as we move more of the grids operations to the internet and similar networks, these threats can and will become quite real. Nonprofit research institute, the U.S. Cyber Consequences Unit research shows that attack programs search for openings in a network and then acquire the powers as a systems administrator.
These attacks can wreak much havoc. In 2000, a disgruntled employee created a computerized worm at a water-treatment plant in Australia. This virus released more than 200,000 gallons of sewage into parks, rivers and the grounds of a Hyatt hotel. Just last year, the Department of Homeland Security reported similar intrusions to various pieces of U.S. infrastructure.
Protecting the new grid is also turning into big business. According to the Wall Street Journal, Congress during the Bush administration approved nearly $17 billion in funds to protect government networks and the Pentagon has spent $100 million in the past six months repairing cyber damage. More recently, The Department of Energy (DOE) and Secretary Chu handed out more than $30 million for 10 projects that will address cybersecurity issues facing the nation's electric grid. The DOE also established the National Electric Sector Cybersecurity Organization (NESCO). This organization will bring together experts and software developers to research, test and evaluate new cybersecurity solutions.
While investors have plenty of ways to participate in the smart grid build-out such as the broad First Trust Smart Grid Infrastructure (Nasdaq:GRID) or smart meter maker Itron (Nasdaq:ITRI), most of the popular choices are lacking in security measures. There are, however, plenty of ways to profit from the idea.
Defense contractors like Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) have been chomping at the bit, in order to get a piece of smart grid pie. As military spending continues to decline, many of these contractors are looking for new revenue streams and grid security provides that. The PowerShares Aerospace & Defense (NYSE:PPA) offers broad access to 57 different defense contractors. The ETF should do well as more of these firms move into this field or consolidation continues across the smart grid.
Finally, two renewable energy and smart grid blue chips are moving into the cybersecurity realm as recent winners of DOE grants. Honeywell International (NYSE:HON), which has already proven itself in the areas of building automation and energy efficiency, won a $2.2 million grant to research and develop systems architecture that limits operators access to the appropriate levels for job function. Siemens (NYSE:SI) won $3 million to develop real-time software and systems to protect against cyber-threats.
Bottom Line
As America updates its energy infrastructure, more focus will need to be placed on security measures. In moving to a digital system that will bring increased energy efficiency and reliability, threats from cyber attacks cannot be ignored. Investors have the opportunity to place their bets with one of the previously mentioned stocks or ETFs as a way to play the increased demand for cyber defense services relating to the grid.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Aaron Levitt
Aaron Levitt is a SABEW investment journalist and analyst living in State College, Pennsylvania. His work appears in several high profile publications in both print and on the web. Aaron is a graduate of The Pennsylvania State University where he studied Economics and International Business and he is an advocate for long-term investing with a global framework. You can follow his picks and pans at @AaronLevitt
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