Smart Grid: “Bigger Than The Internet”

Smart grid is hot, no doubt about it. Yesterday’s Wall Street Journal, in fact, carried not one but two smart grid articles on its front page. The first talks about the effect of stimulus money on the field. Note the quote from Cisco’s CEO:

Stimulus Funds Speed Transformation Toward ‘Smart Grid’

The federal grants are expected to speed transformation of the power grid from a largely electromechanical system into a digital network that gives utilities more efficient ways to send electricity to customers. That could help cut pollution and electric bills.

Smart meters, one component of a smart grid, allow utilities to monitor usage almost in real time, letting them charge variable prices based on demand, for example. Corporate and residential customers would acquire tools to manage their energy use. Residential customers could be given an in-home meter to see how much power they are using and what it is costing them.

Utilities often take years to make technological change, in part because they must justify large expenditures to utility commissions to recoup costs through rates. Utilities also fear that new equipment could degrade transmission reliability if it doesn’t perform flawlessly.

But now, utilities are being encouraged by state utility regulators to seek the federal stimulus funds. California regulators this month voted to expedite their review of smart-grid proposals to fit the U.S. Department of Energy’s timetable for smart-grid grants.

That has opened up a sizeable sales opportunity for a host of tech companies, ranging from giant Cisco Systems Inc. to closely held Tendril Networks Inc. Some tech companies are beefing up staffs to pursue smart-grid projects, while others are helping utilities apply for the grants, the first of which could be doled out as early as next month.
North American utilities are expected to spend $10.75 billion on computer hardware, software and services related to the smart grid this year, up from $7.56 billion in 2008, according to research company IDC Energy Insights.

The smart-grid market “may be bigger than the whole Internet,” said John Chambers, chief executive of networking giant Cisco.

The second article highlights the new smart grid-enabled appliances now coming to market:

New Appliances, in Sync With Meters, Shift to Energy-Saver Modes When Told

General Electric Co. says it will introduce its first smart water heaters in November. It also says it has created a smart version of each of its other appliance lines and is ready to put them to work in utility-company demonstration projects.
Whirlpool Corp. plans to announce Monday that it will produce one million smart clothes dryers for sale in 2011. It had previously committed to having smart products available by 2015.

Smart appliances can be controlled remotely by a power company to go into energy-saving mode or shut off during times when there is high demand for electricity. Consumers could override the feature but likely will pay more for power during these periods.

Over time, wide use of smart appliances could save consumers money and cut the number of power plants needed to satisfy electricity demand, reducing power-industry pollution. The appliances aren’t expected to be priced much higher than regular EnergyStar products.

For appliance makers — which have been suffering from the housing bust — smart products could be a sales opportunity. A record number of large appliances — 47 million — were sold in 2005, but sales have declined since then, sagging to 39.7 million in 2008. So far this year, sales are down 14%, according to the Association of Home Appliance Manufacturers.

Smart appliances could offer consumers a reason to replace appliances sooner. “What’s been missing from the smart grid is the ‘killer app’ that offers real benefits to consumers,” said Joseph McGuire, president of the Association of Home Appliance Manufacturers. “We think we’re ready to provide that.”

Not surprisingly, the stocks of the best smart grid companies have been huge winners. And this is just the first inning of a decade-long game. If the overall market gets the correction it seems to deserve, view it as a chance to increase exposure to this sector.