The Energy Smart Grid: Opportunities and Risks

There is no uniform definition of "smart grid" but the term generally conveys the notion of integrating information technologies with current energy infrastructure.  The need to decrease fossil fuel consumption has led to strong public and private initiatives to develop energy-efficient technologies and to extend the useful life of aging infrastructure.  The smart grid initiative got a boost with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA), which includes over $4.3 billion of funding for smart grid technology investment, including energy storage systems.  SEC filers that have reported grants under ARRA in support of smart grid initiatives include Black Hills Power, Inc. (SEC file no. 1-7978), FirstEnergy Corp. (333-21011), Progress Energy, Inc. (1-15929), and Southern Co. (1-3526).  

Elster Group SE, which offers integrated metering products and solutions to the gas, electricity and water industries, is seeking to list on the NYSE.  The European public limited liability company headquartered in Germany filed the Form F-1 Registration Statement for its initial public offering on September 13 (333-169347).  In 2009, smart grid-related products, components and services accounted for approximately 26% of Elster Group revenues, compared to 19% in 2008.

Elster discusses several risk factors that have a bearing on the emerging smart grid industry, including  the prospect that some utilities and utility contractors may continue to defer investment due to economic uncertainty or financing difficulties.  The company notes that success of new smart grid technology and products will require acceptance by the energy industry, regulators and end-users alike.  The industry is also exposed to the risk of, and public concern about, the increased threat of "cyber attacks" on power infrastructure as smart grid technologies become more prevalent.  

Bruker Energy & Supercon Technologies Inc., another company targeting high growth markets that are still evolving, filed its Form S-1 IPO registration on September 3 (333-169178).  Bruker is developing inductive superconducting fault current limiters, or iSFCLs, for use in the electrical grid, including for smart grid applications.  Bruker states that the markets it is targeting rely on the availability and size of government subsidies and economic incentives, including tax credits, to promote industry development.

Clean energy company Comverge Inc.has invested over $14 million in R&D costs associated with its smart grid products between 2001 and 2009.  In the past, Comverge has incurred significant costs to develop a specific product for large commercial and industrial customers that has found limited market acceptance.  Continued losses may make it difficult for the company to obtain additional financing.  Moreover, an existing loan agreement contains restrictions on Comverge's ability to incur additional indebtedness which, if not waived, could prevent the company from obtaining needed capital.