One of the biggest bonanzas in the market right now is for grid storage.
Lux Research estimates that grid storage should be a $10.4 billion market in 2018, as utilities adapt to a new mix of inputs that includes renewable energy, and as the demand for “clean” well-regulated power from computers increases.
The current market is highly diversified, with 877 organizations and 945 strategic partnerships making up a web of suppliers and buyers, according to Lux. But as all markets grow, they tend to consolidate, and the storage market should not be different.
Right now most off-grid electrical storage is found at data centers, which find it as important to filter what they get from the electric company as you do to filter the water that comes to you through your tap. Making sure that power meets the specifications of computers is key to keeping the Internet running.
But this need is now growing in the general grid, thanks to the rise of renewable energy. Wind energy is strong at night, weak during the day. Solar energy is the reverse. Then there are the variables of clouds to contend with.
The result is a growing need for storage. FERC Order 890 makes it easy for those who install storage to get paid for that storage, so the race is on to provide it.
The easiest way to provide storage is with batteries. Batteries can be turned on when the grid they’re linked to is deficient, and can be turned off, even set to recharge, when the grid is delivering more power than needed.
There are two leaders in this space, ABB Ltd (ADR) (NYSE:ABB) and General Electric Company (NYSE:GE). Neither is a pure play, but both stand to profit handsomely from the grid storage bonanza.
ABB
ABB Ltd (ADR) (NYSE:ABB) is a Swiss-company whose specialty is power management. This puts it in the sweet spot to take advantage of the coming boom in grid storage.
The company’s finances exhibit the same seasonality as many tech companies, with revenues peaking in the fourth quarter and troughing in the first. Bullish investors will look to the $9.7 billion in first quarter 2013 revenue as almost 10% higher than the $8.9 billion recorded in the same period a year ago, rather than 10% below the $11 billion of the fourth quarter of 2012. On average, one dollar in ten of revenue drops down to the bottom line, although some quarters see better performance, others worse.
The balance sheet shows over $7 billion in cash, with just slightly more debt. The company is financially strong, despite troubles in its home market of Europe.
The Lux Report indicates, however, that ABB Ltd (ADR) (NYSE:ABB)’s presence in Europe will prove an advantage in coming years, as that market is more immature than the U.S., and more likely to grow, given Europe’s higher use of alternative energy. The difference lies in regulation – the EU has yet to pass anything like FERC 890 – but that is probably just a matter of time.
ABB carries a full range of grid storage products, supporting flywheels, pumps and power frequency converters as well as batteries. The company places power products and systems first in discussing its business.
Over the last 12 months the shares are up 37%, but still offer a solid dividend and yield 3.18%. That dividend has been rising steadily over the last few years, from $0.44 per share per quarter to the current $0.70.
This is a well-managed company that knows its business, and is well-positioned for the growth to come.
GE
GE has become heavily involved in grid storage due to its extensive investments in wind energy. Its latest turbines come with storage integrated into them.
What makes General Electric Company (NYSE:GE) interesting is its research arm. The company has decided to make Atlanta the center for its “smart grid” work, working in conjunction with Georgia Tech on a range of grid solutions. This puts it in an excellent position to take advantage of changes in storage technology.
The problem, for investors, is that GE is already so large that the grid storage boom may not make much of an impact on its bottom line. The company already brings in $33 billion in revenue each quarter, so if grid storage is a $2.5 billion per quarter business in 2018, as Lux Research believes, it will be incremental to GE’s larger results.
Despite this, I keep General Electric Company (NYSE:GE) as a core holding. It’s a big cap stock with a strong dividend. It’s unlikely to let you down from here.
The Foolish bottom line: You have time
Based on this analysis, my own portfolio is mismanaged – maybe I should fire me. I hold some shares in GE, but none in ABB Ltd (ADR) (NYSE:ABB).
This is a mistake I will correct in the next few weeks. The good part of this opportunity is that you have plenty of time to take advantage of it.
The article The $10 Billion Opportunity in Grid Storage originally appeared on Fool.com and is written by Dana Blankenhorn.
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