The Energy Information Administration (EIA) predicts that planet-wide energy consumption will increase by more than 50% over the next 25 years. With energy use set to explode over the coming decades, innovations in energy efficiency are taking center stage. Perhaps the most innovative and complex creation has been the implementation of the smart grid. However, while the United States continues to drag its heels with regards to the ambitious project, the rest of the world is moving forward. (For more information on other alternative energies and technologies, read Clean Or Green Technology Investing.)
TUTORIAL: Fundamental Analysis
A Global Presence
The creation of a smarter electrical grid has real promise in helping curb our energy addictions. This updated grid will ultimately enable consumers and utilities to communicate back and forth. This communication link can bring dynamic real-time pricing, outage information, demand response functions, as well as help utilities match consumption with demand. The U.S. allocated nearly $3.4 billion to various smart-grid projects through The Economic Recovery Act; however, the potential global spending in this area is staggering. Analysts predict that global investment in the sector could be as much as $1.5 to $2 trillion by 2030.
Motivated by Denmark's success in smart energy management, a variety of policy makers and utilities across Europe have been making serious strides with regards to the smart grid. Sweden recently became the first European nation to reach 100% smart meter saturation. Italy is taking the next step and rolling out new smart gas meters aimed at 100% industrial customers and 80% residential customers by 2016. Italian Utility, Enel SpA (OTCBB:ENLAY) has already installed 32 million residential smart electric meters. Both France and the U.K. have availed ambitious plans for smart metering and grid expansions. The U.K. government has called for all households to have both electricity and gas smart meters by 2020, while France has mandated that 95% of French homes will have smart meters by 2016. Overall, analysts estimate that the smart grid will become a $6.8 billion industry in Europe by 2016.
However, smart gird rollouts aren't just happening in the developed world. Understanding their long-term energy needs, many emerging market nations have undergone smart grid projects. Blending both renewable and traditional energy sources into its grid, China has been aggressive with its smart meter plans. Overall, the country's smart meter market grew by more than 25% in 2010. By 2020, emerging Asia will make up over half of all installed smart meters. A recent report by research firm Northeast Group showed similar bullish trends for South America with its smart grid market reaching over $25 billion by 2020.
Playing the World Build-out
For investors, the long-term potential of a smart grid build-out is great, both here and abroad. The First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (Nasdaq:GRID) follows a broad-basket of firms associated with the smart grid. However, it's not the only game in town. Here are a few picks:
Smart meters remain a key component in the intelligent grid and Itron (Nasdaq:ITRI) is the 800-pound gorilla in the room with regards to smart meters. The U.S. stimulus plan, as well as the various mandates in Europe, should help Itron pad its bottom line. In addition both Elster Group (NYSE:ELT) and Badger Meter (NYSE:BMI) have been adding "smart" technologies to their existing meters.
Demand Response firm EnerNOC (Nasdaq:ENOC) has recently made the leap overseas, partnering with UK Power Networks. If the project goes well, it could pave the way for the company to sell demand response to customers in the UK.
Finally, both Siemens (NYSE:SI) and Toshiba (OTCBB:TOSBF) subsidiary Landis+Gyr have been making strong inroads into China's smart grid. Toshiba recently won a contract from the State Grid Corp. of China to implement smart meters to industrial customers.
The Bottom Line
With energy use skyrocketing, a variety of policy makers have turned towards the smart grid as a way to control this demand. For investors, this global build-out could be one the largest opportunities in the next decade. The previous picks, along with Echelon (Nasdaq:ELON), are just some of the ways to play the trend. (With countries striving to be more energy efficient, there is a growing need to find alternative source of energy, for more see Top 10 Green Industries.)
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