Grid Reliability Companies

[Saluki]

After reading a couple of books about how bad our electrical grid is, and realizing that clean, but intermittent distributed power like solar and wind will be a challenge, it's pretty obvious that our grid will need upgrades and overhauls.  Who will benefit from that?  I found this ETF which invests in companies that are poised to benefit from these trends.   

 

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) Holdings - Yahoo Finance

 

However, some of them are huge conglomerates (over $100bln) so I don't think this will move the needle much, and some of them seem already pretty expensive (50x earnings)  for a cheapskate like me.

 

Is anyone looking at any smaller companies, say less the $5bln market cap that will directly benefit from this trend?  I know people have been pumping Internet of Things (IOT) stocks with unbelievable total addressable markets but no sales for years, so I'm not talking about that. Just actual companies with real world use cases making actual sales. I've owned ATEX for 3 years now and it's not done much, but they aren't losing money and have actual customers. Companies like Motorola, Nokia and Quallcom are developing devices for these kind of use cases, but it will be a division for them, not a main profit driver.  I came across one yesterday, but it's such a small cap that my Merrill account won't let me trade it, even with a limit order and two factor authentication that it makes me use for other illiquid trades, so it's probably not for me, but I'm still looking and wondering if anyone has come across anything that looks promising that they'd like to share in this area of the market?   

[KJP]

If the theme you are looking at is increased electrification and dealing with it effects, IES Holdings and Acorn Energy (remote generator monitoring and control with new demand response offering) may interest you.  Here is a thread on IES Holdings:

 

[brobro777]

All I know about this kind of stuff is Charlie Munger talking about time shifting of energy that would require massive battery storage, and BYD possibly having a role in that in the future

 

But small companies, I dunno - sounds like a lot of annoying reading involved 

[Saluki]

@KJP it looks like IESC has tripled this year, so I wish I started looking for this stuff sooner.  I still don't know exactly how to play it, but the growth in residential solar and other types of green energy like wind means that the grid is going to get traffic from places and times that it wasn't designed for.  Since people keep adding solar, the transformers will be working not just stepping down power to the home, but stepping it up from the home to the grid.  I think that means that these already older transformers that people don't upgrade until they fail, because they don't want to pay for it, may get worn out quicker. And they already getting harder to source. 

 

https://www.energy.gov/oe/articles/doe-and-industry-team-keep-lights-america

The lead times for transformer orders, particularly distribution transformers, increased from three to six months in 2019 to 12 to 30 months in 2023.

 

So I don't have a great idea yet for how to play this, but it seems like there is going to be a way to get in some of the niches where there isn't competition.  Or possibly a small company that makes an important part of a larger item, where a price increase would be very profitable to the small company, but not even noticed by the total price of the project. I don't know what that is yet, but I'm looking for it and I hope I'll know it when I see it. 

[Eng12345]

I've been meaning to respond to this.

 

I think you are a bit behind the 8 ball on this one - a lot of the run up has already occurred and potential been realized by the market. 

 

One of my best ideas and biggest mistakes of the past few years has been ETN. I got in at $128 in '22 on essentially the same premise you have here. I later sold for nearly breakeven as I typically don't like pure macro plays. 

[Saluki]

12 hours ago, Eng12345 said:

I've been meaning to respond to this.

 

I think you are a bit behind the 8 ball on this one - a lot of the run up has already occurred and potential been realized by the market. 

 

One of my best ideas and biggest mistakes of the past few years has been ETN. I got in at $128 in '22 on essentially the same premise you have here. I later sold for nearly breakeven as I typically don't like pure macro plays. 

 

Thanks.  Yes, when I looked at a few companies in this area it seems the ship has sailed already.  I'll mentally file away the idea in case something changes so that I don't miss the opportunity if it presents itself again. 

[Saluki]

By the time last week's hurricane made it to the Carolina's it was only a category one hurricane, but it still wreaked havoc and there are still people without power and internet down there.  The hours of rainfall before the hurricane hit were soaked up by the ground and by the time the actual hurricane hit, there was massive flooding. 

 

When hurricane Andrew devastated Florida, it changed a lot of thigs for people down there.  Now every new build house I see is concrete and rebar, not 2x4s and wood. The people in the Carolinas are experiencing some of the same rookie mistakes that Floridians used to make.  Most of them don't have backup generators, and if they need supplies, they need gas and the gas pumps (or credit card machines) don't work with electricity and internet.  

 

In red states, they weirdly look down on renewables, regardless of the value proposition because it has become something that is viewed through the lens of political dogma.  However, these prepper types, or even normal people, who think you need a truck gun, but don't think you need a backup generator, may be changing how they do things after being without electricity and drinkable water for more than a week. 

 

I have two 1% positions in my portfolio that I've been thinking about in terms of people reacting to this scenario.  Enphase makes solar panels, and you can get a power wall backup.  Politics aside, people are going to want solar. The people with backup generators ran out of fuel after a day and they still had to find a gas station that was open to supply it with fuel. With solar, even if the power lines are down, you are still okay and the battery backup will keep you going at night.  

 

Anterix licenses their bandwidth for use in private LTE for utilities.  Combined with IoT sensors, when a line breaks, it can get an alert and turn the power off before the wire hits the ground. They are profitable, but have been slow to get utilities signed on.  This might be a catalyst that speeds up adoption.   I've owned this for four years though, and it's not done a lot in that time, so my patience is wearing thin. 

 

I'm sure there are companies that do stuff like flood control and may get new business, but I have no idea who those are.  

[LC]

Talking my book here but Aecon recently bought into US utility repairs (Michigan/Detroit):

 

https://www.aecon.com/press-room/news/2024/07/02/aecon-utilities-xtreme-powerline

 

Their Utilities division does work in the US in terms of building out electrical distribution, broadband/telecom distribution, that type of stuff.