The Clean Energy Grid

The old (well, only by a few years) adage still holds true: The cheapest unit of energy to produce is the unit of energy not consumed.

That’s proverbial stuff, but it’s valuable information, especially when dealing with energy efficiency stocks.

While clean energy sources have come a long way, they’re still relatively expensive, and they require raw materials, manufacturing and installation.

Don’t get me wrong, I love clean energy stocks.

But, going forward, I see a trend emerging in which it is just as vital to reduce energy consumption as it is to increase energy production.

A Brave New Energy Grid

You may have heard many of the mainstream energy efficiency ideas by now.

Most of them center around the deployment of the smart grid.

And while that entire concept can be hard to wrap your head around, it basically boils down to the real-time monitoring and adjustment of energy by both utilities and consumers.

As an example, think about being able to monitor an HVAC unit’s energy use in real-time, and make adjustments based on current grid energy costs and demand in your area.

It’s pretty snazzy stuff.

For another example, consider the ability of a utility to reduce the power consumption of all HVAC units in a particular grid quadrant on days when excess capacity is needed. This, too, will soon be a reality.

And the companies making it happen stand to earn a fortune, especially as carbon market mechanisms are developed and deployed here in the States.

Energy Efficiency Companies

When I think about this particular clean energy sector, three companies immediately come to mind. I’m sure this is the case with several analysts.

Here they are:

• Echelon (NASDAQ: ELON)
• EnerNOC (NASDAQ: ENOC) and
• Comverge (NASDAQ: COMV)

I like all three. And I personally own COMV.

Earlier this year, this type of stocks in a huge rough patch when rumors started flying that there were no easily accessible revenue streams for energy efficiency companies.

Of course, this is not the case. Energy efficiency companies can generate revenue in numerous way, from time-specific contracts, to pay-per-kilowatt saved contracts, to lucrative deals in the aggregating and monetizing of carbon and renewable energy credits.

Now, with an incoming administration keen on energy efficiency and the rapid deployment of a cap-and-trade system, these stocks are enjoying renewed interest.

That’s exactly why it’s time to be buying them.

Here’s that list of stocks again, this time with my ‘buy under’ price:

• Echelon, under $6.00
• EnerNOC, under $7.75
• Comverge, under $5.00

At those prices, I see no problem taking 100% profit in less than two years. This industry is really going to take off.

Clean Energy Intelligence: More than Demand Reduction

Of course, there are hundreds of opportunities in this sector, but they don’t all specialize in grid management.

Instead, the other side of energy efficiency, what I call energy intelligence, is focused on doing the same things with less energy.

This means waste heat recovery, light emitting diodes, and building control systems.

And while this topic really required a dedicated article of its own (I’ll get to it, eventually), for now here is a list of companies worth watching:

• Capstone Turbine (NASDAQ: CPST)
• Cree (NASDAQ: CREE)
• Diodes Inc. (NASDAQ: DIOD)
• ESCO Tech (NYSE: ESE)
• Itron (NASDAQ: ITRI)
• Nexxus Lightin (NASDAQ: NEXS)

Of those, I’d have to say CREE and ITRI offer the best upside at this time.

Look for more on this topic in the future.

To green energy, and green profits,

Chris
Clean Energy Sector