Clean Energy Stocks Shopping List: Smart Grid and Strong Grid
My five favorite stocks with technology to improve grid reliability.
Tom Konrad, Ph.D., CFA
Although the market has risen above where it was in early June, when I said "We're near the top," I'm still bearish. And I'm still making lists of stocks to buy when prices seem more favorable. Previous articles in this Clean Energy Stocks Shopping List series are listed at the end of this one.
The Strong Grid
I recently wrote about our list of Smart Grid Stocks, and at least two readers were prompted to ask why wasn't (1) Beacon Power (BCON) on the list? "Smart grid" does not have a uniform definition; the one I use focuses on the "smart:" making a more effective grid through the better use of information and communication. Beacon uses high speed flywheels, a form of Electricity Storage extremely well-suited to high power, low energy applications to sell frequency regulation services to the grid. Since this improves the effectiveness of the grid, but does not do it through the use of information, I think of Beacon as a "Strong" rather "Smart" grid technology, and it's listed in our Electricity Storage and Flywheel stock lists.
Frequency regulation is usually provided by keeping a natural gas turbine running at less than full capacity, although Lithium-ion and other battery manufacturers are also trying to enter this market. There are significant efficiency gains and carbon savings to be had by using flywheels or other electricity storage for frequency regulation, and allowing the turbine to run at an efficient constant speed. Because flywheels are cheap on a per-kW or power basis compared to batteries (even though they are expensive on a per-kWh or Energy basis,) I think they will have an advantage over batteries for this relatively overlooked, power-intensive application.
Beacon, however, still has relatively small revenues and is burning through cash quickly, with little on hand. They are raising money through an ongoing share purchase agreement with a fund at a 14% discount to the exchange traded share price. This ongoing dilution should keep the company afloat, but it is unlikely to do much for the share price.
Beacon has received a DOE loan guarantee for a 20MW frequency regulation plant in New York, but are looking for creative ways to provide their equity contribution to the project. This project creates a great upside opportunity for Beacon shareholders, since it will probably bring the company to profitability if completed, but the ongoing search for funds to pull it off may also create excellent buying opportunities along the way.
In addition to being a wind turbine designer and parts supplier, (2) American Superconductor Corporation (AMSC) is another company I'd call "Strong Grid." In addition to the eponymous high temperature superconducting cables, which both can carry 10 times more power than conventional cables and simultaneously suppress fault currents that can result in serious outages, and a China-focused wind turbine business, the company makes products which regulate power from wind farms, grid-scale surge protectors, and voltage stabilization systems. It's these later products focused on grid stability that interest me much more than the superconducting cables, which I expect will only be cost effective in dense urban areas.
Although the company is not profitable yet, they have $2.50 cash per share in the bank, which is enough to fund their operating cash outflow for years to come. With a Beta of over 2, the company's stock price is highly sensitive to market moves, so a market downturn should provide an excellent buying opportunity in a company that Smart Grid expert Jesse Berst thinks is 'Poised for Super Results."
The Smart Grid
I previously stated I like all smart grid stocks because I see so much potential for the sector, and I have a hard time picking winners. But when I have to choose, in a competitive market with many new entrants, I tend to favor established companies that already have established business lines and experience working with customers in the space. (3) Echelon Corporation (ELON) fits this bill. The company's LonWorks building automation products are well established in the market; the move into smart grid is more the expansion of existing business lines than creating a new business. Over the last few years, I've lost count of the number of cities which have signed up to use the company's technology to save electricity by dimming street lights. This sort of thing is not nearly as sexy as home automation, but working with large municipal customers to save large quantities of energy seems like a much easier way to make money than dealing with millions of fickle homeowners.
The company is not yet profitable, but has sufficient cash not to need to raise new capital anytime soon.
Solidly profitable (4) Itron, Inc. (ITRI) is a leading supplier of electricity, gas, water, and heat meters worldwide. For Itron, smart meters are simply an extension of existing product lines, and their existing business relationships with utilities should give them an advantage when competing with start-up rivals for utility business.
Spanish company (5) Telvent Git S.A. (TLVT) is more than a smart grid company, it's also a smart water, smart transport, and smart pipeline company. In short, they sell software and services to make all sorts of networks operate more efficiently, and have established business relationships with a broad range of utilities. In addition to being profitable, I like the company's large exposure to transportation, because while making the electric grid smarter will do a lot to combat climate change, making our transportation system smarter will not only help with climate change, it will also help with peak oil.
Other articles in this series:
- Five clean transport stocks,
- I looked at why it makes sense to wait for better prices,
- Five Energy Efficiency stocks (always my favorite sector), and
- Five Electric Transmission Stocks.
- Two Landfill Gas and Three Geothermal Stocks
- Five Solar Stocks
DISCLOSURE: Tom Konrad and/or his clients own AMSC, ELON, ITRI,
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.