Mr. Nasdeo: First of all, my firm does nothing but alternative energy, and I'm the Director of Research. So I'm involved with all of them. My specific area of coverage is energy storage and energy efficiency, which encompasses batteries, all the different battery chemistries and things like flywheels. On the efficiency side, green buildings, demand response, smart metering, things like that.
TWST: Looking specifically at companies in the electricity space, what trends
are you seeing in megawatts under management?
Mr. Nasdeo: Yes, that's pretty much the major metric for these types of
companies. And if you look at EnerNOC (ENOC) and Comverge (COMV), those are two
of my more interesting companies. Actually Comverge is my top pick right now,
but what they do is something called demand response. And essentially they are
contracting with utilities and companies to say that when there is a call for
electricity some place, the software moves it from some place that doesn't need
it at that particular time to some place that does. What that essentially does
is it allows the utilities to meet peak demand without actually having to go out
and build what's called "peaker plants," which are gas-fired power plants that
are very expensive and are only used to shave the peak off demand. So this is a
very young industry sector right now and is something that - I don't know that a
lot of people really understand how it works. And so I think there is a lot of
opportunity there as these companies get a little bit better known and this
concept of demand response gets a little better understood. I think you're going
to start seeing some really interesting investment opportunities in the space.
So that's what these two companies do. Now, the way they basically build their
business is by attracting these megawatts under management and they have -
basically, there are auctions that are held by utilities, and these companies
will go out and bid on a certain amount of megawatts that are being auctioned
off. And if they win that auction, then they are responsible for managing that
much power. And they tell the utilities, "Yeah, we can handle 10 megawatts, or
50 or 100 megawatts," and they bid on it and then the utility awards these bids.
And then the companies have to go out and attract that and put that together. So
again, it's not a really well-understood sector at this time; it's somewhat new.
But really it's an extremely good use of the electricity that's already being
produced, because I think it's not well understood that electricity is not
stored as electricity. You have to convert it to something, battery chemistries
or turn it into hydrogen or something like that to keep the energy content. So
what these companies do basically is utilize the electricity that is produced
but would never get used in the past. Electricity is going over to building X
and it's not needed, let's take it and divert it over to building Y, which has a
bigger demand for it right now instead of just making more electricity to supply
the demand over to building Y. So again, it's very intuitive when you think
about it, but it's not something that has been out there for a long time that
people have looked at and have a good understanding of. I think that will change
obviously going forward, but right now it's still something that's in its
infancy. And when you look at companies like EnerNOC and Comverge, the very
interesting thing about them is, yes, they are in the alternative energy sector,
but they're also what I consider to be high-tech plays because of the software
nature of their business - the network operation centers, NOCs. And basically,
it's a bunch of monitors and a bunch of guys at computer terminals that are
directing the flow of the electrons. And so there is a real tech exposure there,
too. I think that going forward, as the companies mature a little bit, get a
little bit more revenue runs to them, I think that will attract investors
outside of just the alternative energy and energy technology space, but into a
broader and a mainstream investor space.
Tickers included in this excerpt: ABB, AMSC, COMV, ENOC, GES, ITRI, SI
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