There is one surefire way to know the smart grid has arrived: when you become a part of it.

And become a part of it I just did.

I’d been seeing a lot of television ads for a program called “Peak Rewards” being offered by my local utility, BGE, for some time. Last week, I decided to take the plunge.

After calling the number, I quickly learned that Peak Rewards is a demand management program — they’ve been discussed in these pages before.

Basically, a utility customer can voluntarily give back some of the peak electricity they would typically take from the grid.

In this case, BGE offered me one of two devices that they would provide for free, so they can communicate wirelessly with my home.

Smart Grid: Save Money

Once you call to enroll, you are given the choice of getting either a digital programmable thermostat or a wireless communication switch that is installed on your air conditioner.

These devices communicate wirelessly with the utility, allowing them to cycle your air conditioner during peak usage time. That basically means they prevent your air conditioner from using its compressor for a given amount of time — air will still flow, but it won’t be conditioned.

As a BGE customer, you can choose to cycle 50%, 75%, or 100% of the time during a peak event, which I’m told there are only a handful of during the summer.

So when BGE needs excess capacity on extremely hot days, they’ll “cycle” your air conditioner if you’re a part of this program. I chose the 75% option, so they’ll cycle my air conditioner 75% of the time during a peak event.

For that service, which won’t affect the temperature in my home, I will get an ~$18 per month credit on my utility bill during summer months. I’ll also get a sign-up bonus of $75.

Your credit and bonus are higher or lower depending on the cycle option you choose.

The way I see it, I’m getting a discount on my electricity bill for doing essentially nothing — there will be no noticeable difference in my home’s temperature during a peak event.

But as I’ve been saying for a while now, there is also a way to profit from the evolution of the smart grid, well in addition to any energy savings it will offer.

Smart Grid: Make Money

I told you that when you sign-up for peak rewards you’re given either a digital thermostat or a wireless switch.

In the case of BGE, these devices are being supplied by Honeywell (NYSE: HON). So it looks like they have some smart grid exposure.

But a select group of companies are focusing exclusively on smart grid technologies, which will allow to save and make money with the smart grid.

Companies like Comverge (NASDAQ: COMV), EnerNOC (NASDAQ: ENOC), and Itron (NASDAQ: ITRI) are all providing solutions for today’s grid problems.

From smart meters to wireless switches and proprietary software, these companies are revolutionizing the way power is distributed and monitored, giving authority and adaptability back to the consumer.

Check to see if your utility offers a similar program. You don’t want to leave any smart grid money on the table.

To green energy and green profits,

–Chris
Clean Energy Sector

NREL
 has
 estimated
 that
 62% 
of
 the
 power
 generated 
in
 the
 U.S. 
is
 lost,
 either 
via
 the transmission
 process 
or 
by 
poorly
 optimized 
appliances, 
lights
 and 
other
 devices.

More or less, only a bit more than a third of the energy we create is put to use in a productive way.

This is the cumulative effect of many small causes. Old light bulbs waste energy by giving off heat. If you’ve noticed, the compact fluorescent bulbs don’t get nearly as hot.

And it’s estimated that we lose about 7% of the power we produce just by transmitting it to its final point of use due to complicated effects like Joule heating, resistive losses, and corona discharge.

More comprehensible sources of energy loss are drafty windows or inefficient furnaces.

As we enter a period of great concern for energy, this waste will prove to be unacceptable whereas in the past, cheap coal and loose emission restrictions meant abundant guilt-free energy for all.

But as utilities are forced to clean up their act and coal grows evermore expensive, reducing energy grid waste will be one of the last, and cheapest, ways to delay the eventual widespread adoption of clean energy production assets.

This falls under the broad categories of smart grid and energy efficiency. It’s renewable energy’s sister market. And there’s a lot of money to be made here as well.

Profiting from Grid Waste

You know a business is going to be special when the big boys come running.

By now you’ve seen the smart grid ads hitting the airwaves from GE (NYSE: GE) and IBM (NYSE: IBM). And while their technological contribution to a sector that will ensure future energy security will be extremely beneficial, its contribution to their bottom line will be a small percentage.

Should you invest long-term in GE and IBM? Yes, and I’m kicking myself now for not picking up some GE when it fell below $8.00 or so. But their exposure to smart grid shouldn’t be the prime reason you invest in them.

But you should follow their lead.

Steve Fludder, VP of Ecomagination at GE, has said, “We can probably improve the efficiency of the grid by 5 percent.” While that may sound unimpressive, a 5% efficiency gain translates into 41,000 MW of capacity — enough to power over 27 million homes.

That’s why the big boys are entering this game. The sheer volume of projects and devices will ensure they can turn a profit.

But to harness the profitability of improving grid efficiency for your portfolio, you must find companies that get most of their income from these activities, and whose balance sheets will impacted to a larger degree when grid improvements really take off.

I like two companies here. One is American Superconductor (NASDAQ: AMSC).

They make superconductor technology that allows the transportation of electricity without significant energy loss.

This relates to the physics-related problems covered earlier like Joule heating and resistive losses. AMSC also has great exposure to the international wind industry.

It’s come back nicely over the past few weeks, so don’t chase it. Under $16.00 is a pretty good price.

To green energy and green profits,

Chris
Clean Energy Sector

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