Smart Grid - The Next Big Investment Avenue

Multi-layered Smart Grid Architecture Provides Ample Opportunity for Investment in Technology-focused Companies

The growing list of shortcomings of the existing grid infrastructure is impelling the development of a more efficient grid that can plug all the gaps of the current grid. This need for smarter grids has been heightened by climate change concerns, political pressures, pollution, and higher levels of consumer awareness. The concept of a smart grid attempts to address the deficiencies of the current grid through digital communications. These modernization operations represent multi-billion dollar opportunities for private investors. Technology-focused companies will be particularly interested in investing in these initiatives as they offer lower valuations with higher returns.

There were a wave of investments in smart grids in 2008 and 2009, particularly due to generous grants provided by the government to encourage companies engaged in smart grid technologies. Investments in smart grid were the highest in Q3 2008 due to the new government's policies and in preparation for the stimulus package that was to be announced later in 2008. Immediately after the package was announced, several companies raised follow-on rounds of financing. In fact, many companies even experienced multiple rounds of financing in a single year. "In early 2009, the House of Representatives announced a stimulus package of $825.00 billion, out of which, allocation to smart grids was around $11.00 billion," says the analyst of this research. "In June 2009, the Energy Secretary announced that $3.90 billion is to be channeled toward smart grid for making power transmission more agile." By far, the stimulus grants by the U.S. Government have been the strongest driver for the North American smart grid market. These considerable funds have hiked investors' confidence and interest in smart grid-focused companies.

However, investors will be wary of the challenges of the modernization of century-old infrastructure. Smart grids require billions of dollars of investment from the government, utilities, and customers as well as the integration of several technologies. Translating the idealistic concept to reality will involve securing funds and ensuring the implementation. Despite these multiple-level challenges, smart grid initiatives have taken off in cities such as Boulder, Worcester, Miami, Austin, and Chicago. "With the stimulus fund boosting investments in smart grids, it is expected that smart grid projects, in conjunction with established utilities, are likely to be taken up in many more cities," notes the analyst. "Each of these multi-million/billion dollar projects represents significant business prospects for companies in the smart grid market."

Market Sectors

Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:

• Wireless communications
• Information technology
• Smart appliances
• Communication technologies