Recent power outages across the East Coast, some lasting more than a week during the height of a debilitating heat wave, have exposed the soft underbelly of the North American electrical grid. Old Gray Mare, she ain't what she used to be, and it's going to take oodles of money to give her a much-needed facelift and get her back in fighting shape. Follow that money, and you should find some compelling investment opportunities. One of these is "the cloud," nerd-speak for cloud computing technology.

Harsh reality
The Electricity Advisory Committee for the U.S. Department of Energy warned in 2009 that "...the current electric power infrastructure ... will be unable to ensure a reliable, cost-effective, secure, and environmentally sustainable supply of electricity for the next two decades ... much of the electricity supply and delivery infrastructure is nearing the end of its useful life." Say what? That's alarming!

Now, there are many elements contributing to this state of affairs, and the overall solution most likely lies in the "smart grid." I've been running a series of articles related to the investment opportunities in smart grid development. If you're not fully up to speed on the basics, start with our smart grid primer. Come on back here when you're done.

Head in the cloud
As advanced smart grid infrastructure becomes ubiquitous, it creates a new problem for utility operators: Smart grid systems generate vast quantities of data. Utilities need to crunch and share this data, as well as transfer and store it. This requires a tremendous amount of computing power that many utilities don't have. Cloud computing is a dynamic offering whereby hardware, software, and IT services are provided through the Internet. This is an elegant solution to the data problem, particularly for smaller municipal and cooperative utilities with fewer resources.

A key concept here is "elasticity," which refers to the capacity of the cloud to expand and contract in response to demand. This notion represents Shangri-la in the electrical grid world. The traditional response to lumpy demand for energy has been to build excess capacity into grid systems, and the same has been done with data storage servers. This is wasteful and expensive. The cloud uses capacity much more efficiently, and allows users to add significant amounts of storage space almost instantaneously.

Space for your rack
Rackspace Hosting (NYSE: RAX) is doing all kinds of interesting things on the cloud computing front. The company's chief technology officer, John Engates, came by The Motley Fool last week to tell us all about it.

The move to cloud computing represents a monumental transition in the way that every industry manages its data. Still, I couldn't help remembering the old days of the VHS-Betamax wars. Rackspace is betting its chips on open-source coding, whereas other major players -- chiefly Amazon.com (Nasdaq: AMZN) -- are angling for proprietary platforms. The case for open source seems obvious: It allows clients more flexibility and agility in their engagement with the cloud. Still, this is not the first time that we've seen an upstart extol the virtues of the open-source revolution, which has yet to see the universal adoption that once seemed so inevitable. (One word on that: Linux.)

Still, Rackspace's proposition is compelling. The company differentiates itself in the marketplace by way of its "fanatical support" approach to client relationships. Rackspace discovered in the course of its development that the business of data hosting is actually service-heavy, and that its customers respond most favorably to an intensively engaged relationship. Rackspace's devotion to meeting this need distinguishes the company in a space that might otherwise seem vulnerable to upstarts and interlopers.

Rackspace is about to make a big move on August 1 with the launch of its new OpenStack platform. This will be the company's most significant cloud offering to date, and should greatly increase the share of its cloud business. Rackspace is still predominantly a traditional host today, but that is about to change. The OpenStack advantage is that it will preclude what Rackspace is calling cloud lock-in, which refers to the constraints of committing to proprietary platforms. That's a shot across Amazon's bow, and time will tell if the market bites. Earlier this year, Rackspace was soaring high above the S&P 500, but it has since dropped below the index. It's still not cheap with a 68.15 P/E ratio, but this company looks like a game-changer with massive upside potential.

The river runs through it
Riverbed Technology (Nasdaq: RVBD) is another skilled navigator of the confluence of cloud computing and the smart grid. Riverbed identifies and resolves the underlying, inter-related obstacles to the smooth flow of data over networks. Its products are directly applicable to the challenges utilities face in managing the increased data load associated with smart grid development. Not only does Riverbed help utilities to improve efficiency and reduce costs, but the company also places a strong emphasis on disaster recovery. Massive power outages during dangerous heat waves qualify as disasters, and Riverbed can help utilities to mitigate the effects.

While Riverbed has spent the last few months trading disappointingly close to its 52-week low, the share price had popped nearly 9% at the time of writing. The water may be rising on this stock.

Hopefully you haven't had your fill of technology stocks, because there is another fascinating name that you shouldn't miss. Better still, we want to tell you about it for nothing. Check out our special free report, "The Next Trillion Dollar Revolution."