Profit from the Death of Your Electric Company

Profit from the Death of Your Electric Company

By Jeff Siegel | Wednesday, July 31st, 2013

The annual market for distributed generation will reach $12.7 billion in about three years.

This figure is based on a recent Pike Research report on microgrids, and has since been shown to be a sound estimate.

In fact, Fitch Ratings recently chimed in with its own data on distributed generation and found that it’s not only expected to grow rapidly throughout the rest of this decade, but it’s also ultimately going to pressure margins for utilities and slow investment in new transmission projects.

This is a big deal, folks. And it will offer tremendous opportunities for us.

You see, according to Glen Grabelsky, Fitch’s managing director of utilities, power and gas, utilities in stagnant or low-growth markets in the Midwest and Northeast face the biggest losses, as more businesses and homeowners install their own generation systems and upgrade to more efficient appliances.

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Grabelsky went on to say:

Utility revenue is increasingly threatened by technology that’s reducing demand for electricity from the grid, including solar panels, smart meters and software that shuts down operations when power prices spike…

Loss of demand from customers that go solar or reduce consumption in other ways will shift more and more grid costs onto customers that do nothing. Power supplied by U.S. utilities declined 3.4% last year, largely from energy efficiency and on-site solar generation, which reduces demand for electricity from the grid.

Unless utility rate structures change, that will reduce utilities’ abilities to invest in major new projects and upgrade their transmission systems. It will have a negative impact on their ability to raise capital. Regulators will ask, “Do you really need all that new transmission when there’s no demand growth?” There’s the potential for stranding assets.

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Although I’m a big believer in distributed generation, even I was a bit surprised to see how rapidly this could put the heat on the major utilities…

But I suppose that’s how things are these days. Nothing moves slowly any more. And if you don’t pay attention, you could miss out on some very big opportunities.

Tesla (NASDAQ: TSLA) is the perfect example.

In 2008, I referred to this electric car superstar as “a small, but aggressive operation that could one day actually give the likes of GM and Toyota a run for their money.”

Oh, the emails I got after that one…

So many non-believers. So many folks who simply refused to believe that such a thing would be possible.

Yet here we are today — roughly five years later — and this “small, but aggressive operation” has outsold every major automaker in the electric vehicle space while making early investors insanely rich. I do hope you were one of them, as I’ve been championing this company since before it even went public.

But in all honesty, I can understand how some people may have found my early analysis of Tesla to be a bit overzealous and optimistic. It was seen as a pretty big long shot. And quite frankly, it was.

But there’s one undeniable truth about Tesla: It was — and still is — being run by one of the smartest and most successful forward-thinking human beings on the planet, Elon Musk. Musk’s vision and tenacity are what made Tesla a superstar.

Because let’s face it; while Tesla has crushed it, dozens of other electric vehicle manufacturers have gone gently (or violently) into that good night.

I see the distributed generation space as something similar to the electric vehicle space.

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Mimic the Success of Tesla

Five years ago, it was nearly impossible to get mainstream analysts behind the electric vehicle movement…

Today, they’re all chiming in about Tesla.

And five years ago, most major carmakers refused to back electric vehicles…

Today, nearly every major automaker on the planet has an electric vehicle either on the road — or in production.

Five years ago, distributed generation was really just something for excitable tree huggers and survivalists…

Today, Fitch tells us that in five years, distributed generation is going to start disrupting the utilities.

Folks, this is a massively huge deal. One that, if played right, can make us a lot of money.

Although it’s still early in the game, I remain bullish on SolarCity (NASDAQ: SCTY) as a way to play the rapid growth of distributed generation, especially with its move to add battery storage to its installations. Talk about fast-tracking distributed generation!

And of course, it should come as no surprise that Elon Musk has a piece of this action, too. He’s the chairman of SolarCity.

I’m not saying SolarCity will mimic the success of Tesla over the next few years. But if it doesn’t, it’s going to come pretty damn close.

And while there’s likely to be a few bumps in the road this year, I’ll be looking to add to my position on any major dips.

To a new way of life and a new generation of wealth…

Jeff Siegel

@JeffSiegel on Twitter

Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor’spage.

 

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