Three Cheers for the Smart Grid

You can often get a pretty good pulse on emerging cleantech themes by reading the pages of the Green Chip Review.

Going over my articles from the past two months, I noticed a clear trend: water and smart grid are the themes of the day.

And it's not hard to see why.

The American Southwest and Southeast are three years into the worst drought in decades. As river flows dwindle and reservoirs dry-up, mass media is beginning to cover a story we've been on top of for years.

Expect both those trends to continue: more coverage on and profits from the water sector, and Green Chip's continually beating the evening news to the punch.

The other hot theme of late ― and the one I'll expand on today ― is the inception of the smart grid.

If you're not up to speed on smart grid basics. But we're essentially talking about a complete overhaul of how electricity is delivered and monitored.

The best way to think of it is as an internet for electricity, a system that will let you see electricity use and price data in real time, rather than 30 days later.

Buzz around this sector is booming, and some related top stocks for 2010 have doubled in the past few months. Billions were allocated to the cause in the recent stimulus, but there's reason for a lot more optimism since then.

Here are three recent cheers for the smart grid.

Smart Grid Cheer #1: DoE Funding

Among the $4.5 billion set aside for smart grid development in the recent American Recovery and Reinvestment Act were grants capped at $20 million apiece.

But deploying the smart grid ― and all the efficiency advantages that come with it ― is proving to be so critical, and the projects so large, that the DoE recently raised the grant cap to $200 million.

That's a 900% increase in the cap for DoE smart grid grants so giants like IBM, GE, and even Google can dip into them to execute large projects.

Smart Grid Cheer #2: Google It (or IBM It, or GE It)

Another promising trend in smart grid development is the eagerness of the big boys to participate.

Google (NASDAQ: GOOG) has already spent millions funding smart grid start-ups like Silver Spring Networks and providing software for smart grid projects in partnership with GE (NYSE: GE).

The search giant is also forging ahead with its own smart grid project using its PowerMeter software. They've partnered with eight major utilities in the U.S., Canada, and India (more to come) that will install smart meters at their customers' homes and business. Those customers will then be able to monitor their energy use and costs in real time on a customized Google page using customized Google software.

Itron (NASDAQ: ITRI) is the first announced smart meter partner in that foray. That best stock got a nice bump when the news came out last week.

IBM (NYSE: IBM) has "committed $2 billion to fund start-ups and utilities working on smart-grid and green technology projects." And that's on top of the multi-million dollar smart grid projects they're directly involved in via component manufacturing ― not to mention their recent PR blitz about it all.

GE is in. You've seen the scarecrow commercials, right?

And Cisco's (NASDAQ: CSCO) in, too. The tech giant is trying to take a lead in networking standards for the smart grid because it sees a smart grid market worth $100 billion in the near future.

Smart grid validation couldn't be any more apparent.

Smart Grid Cheer #3: Making It Law

The House Energy and Commerce Committee passed a much-awaited energy and climate bill last week, paving the way for the committee to pass a full vote later this year.

In addition to requiring a 15% renewable target, that bill also requires a 5% energy efficiency gain by 2020.

If states can't meet the 15%/5% by 2020, they can opt for a 12% renewables mix with an 8% efficiency gain.

Either way, energy efficiency is now law. By default, so is the establishment of the smart grid.

In addition to being a $100 billion market, Cisco also thinks the smart grid will be "100 or 1,000 times larger than the Internet."

Stay tuned to Green Chip as that plays out.