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Smart Grid

Smart Investing in the Smart Grid

Written by Nick Hodge
Posted June 11, 2008

We knew it was coming.

There is simply not enough electricity in New York to satisfy all of its over-heated citizens.

Yesterday was the second straight day New York set a record not only for high temperatures, but for electricity usage as well.

As the mercury rose, workers from Consolidated Edison, the local utility, scrambled to fix sporadic failures across many parts of the metropolis. Customers in the Bronx, Brooklyn and Queens were without power for parts of the day on Tuesday, affecting not only homes, but public transportation systems as well.

Temperatures peaked at 96 degrees Fahrenheit, but peak electricity use was much higher, topping 12,987 MW—a record for June and the fourth highest usage in Con Edison's history.

The rise in electricity demand is being attributed to many of Edison's 3.2 million customers who turned on their air conditioners for the first time to battle the intense heat.

Parts of Brooklyn, for example, saw a 45% jump in peak demand from this week to last. With that much demand being placed on the grid, many of the city's commercial users were forced to cut their usage per a program developed by the New York Power Authority.

Here are some examples of the steps being taken to quell demand:

  • some elevators and escalators were turned off

  • diesel back-up generators were used to power large buildings during peak hours

  • air vents in the Holland and Lincoln Tunnels ran at slower speeds

  • some air conditioners were turned up early in the day to precool buildings

Said the Port Authority's COO, Ernesto Butcher: "It's almost routine now when the weather is such that there is pressure on the grid. Everyone has the playbook and gets the message first thing in the morning."

But for all their efforts, the power authority only expects to reduce consumption by 61 MW, a mere 0.47% of total peak demand.

Of course, that wasn't nearly enough to alleviate the massive load being put on the grid, and many customers still lost power.

It's not always going to be like that though. Advancements in the smart grid sector are bringing our aging electricity infrastructure up to date and are quickly developing into billion dollar markets.

The Coming of the Smart Grid

Before we can understand the smart grid, we first need to gain a clear picture of how the grid currently operates.

First and foremost, we have to understand that the grid cannot supply more more power than is being supplied to it. So if the grid has a 12,500 MW capacity, being supplied by its various generation sources, than it certainly cannot fulfill the 12,987 MW being demanded during peak hours.

Another issue is that utilities still use big centralized power plants for densely populated areas, making it necessary to route the electricity through numerous substations, transformers and transmission lines.

And it's not only that. Once the electricity reaches the substation—many steps before its final destination—the utility, in the majority of cases, can no longer track or monitor it.

That means when the power goes out on a city block, the utility has no idea. They have to wait for enough calls to come in, and then they try to pinpoint on a map exactly where the problem was likely to have occurred.

They literally have to make an educated guess on where to send the crew to fix the problem. But this is rapidly changing thanks to many advances in smart grid technologies and power electronics.

It's difficult to define exactly, but a smart grid is basically overlaying the power system with an information system that allows the utility and consumers to constantly monitor and adjust electricity use.

The smart grid is a major step, as it allows adjusting load instead of the supply to solve high demand issues. So instead of building new power plants to increase capacity, it will be possible to actually reduce demand.

Smart Grid Technologies

Smart grid technologies consist of many devices. On the demand response (DR) side, companies like Comverge (NASDAQ: COM), EnerNoc (NASDAQ: ENOC) and Echelon (NASDAQ: ELON) are making devices and systems that let consumer monitor and adjust their electricity use in real time.

These are devices like smart thermostats and smart meters that allow commercial and residential customers to reduce their consumption and send the saved power back to the grid. In the case of Comverge and EnerNoc, the companies sign contracts with utilities and are paid based on how much they reduce demand.

EnerNoc, for example, has about 2,189 customer sites and has approximately 1,112 MW of demand response capacity under management—that's about 9% of New York City's peak demand on Tuesday, and certainly much better than the current conservation practices.

Companies are also working hard on the supply side to implement a smart grid. Firms like Fat Spaniel, GridPoint and PowerSecure International (NASDAQ: POWR) are providing products that are changing the way utilities deliver and monitor power.

Fat Spaniel, for example, offers services that:

  • Remotely monitor, diagnose, manage and control systems, without costly "truck rolls"

  • Receive alerts that serve as early warnings to equipment and system issues

  • Perform remote diagnostics, updates and resets to optimize performance

GridPoint and PowerSecure, for their parts, offer some of the same services as Fat Spaniel, but also offer power back-ups and storage that can incrementally introduce power to the grid during times of peak demand.

If you want to get in on this thing from the utility side—and take some dividends in the process—Xcel Energy (NYSE: XEL) is one of the first utilities in the nation to undertake implementing a smart grid for an entire city. They'll soon begin spending an estimated $100 million to fit 100,000 homes with smart grid technologies in Boulder, Colorado.

Of course, it's still early in the evolution of the smart grid. And there will undoubtedly be more opportunities as these new types of electricity management systems continue to emerge.

The Alternative Energy Speculator is already positioned with one smart grid-related play, and I'll be adding a few more in coming weeks. Sign up today to ensure you don't miss the next winning recommendation.

Call it like you see it,

nick hodge

Nick

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