Buried Message in NERC Report Hints at Investor Opportunity

Recent electricity reliability report points to potential opportunities for long-term investors.

Jul 8, 2014 at 7:47AM

The North American Electric Reliability Corporation's (NERC) report on their 2014 Summer Reliability Assessment  indicates that all regions of the U.S. should be able to meet peak electricity demands for the summer season. However, two regions, including portions of Texas and the Midwest, have reserve margins that are just above the recommended minimum margins to meet demand and could face reliability issues if problems occur. For example, NERC reports that if summer demand peaks early in the Texas region then the Electric Reliability Council of Texas (ERCOT) may need to take emergency actions such as conservation alerts or shedding load.

But overall, the report is good news for the various regions. However, buried in the report are references that indicate potential opportunity for investors. When these references are combined with information in other reports, a clearer picture emerges.

Texas hits new peak wind output
Just this March, Texas set an all-time peak wind generation high of 10,296 megawatts (MW).

Texas Hourly Wind Generation

Source: U.S. Energy Information Administration, based on the Electric Reliability Council of Texas (ERCOT)

This is great news for fans of renewable energy but not necessarily great news for the daily demand cycle. Wind generation is fickle and depends on when and where the wind blows. Unless it blows as you need it, the power will not coincide with demand.

California sets new peak solar output
Like Texas, California set a new record of its own. In June, the California Independent System Operator (CAISO) reported that the state set a record peak of 4,767 megawatts of solar electricity delivered to the grid.

California Solar Production

Source: CAISO Daily Renewables Watch

Once again, this is great news for renewables, but solar power does not produce when the sun don't shine. Although California's solar peak output better corresponds to a common daily demand cycle, it is not exact and not guaranteed.

Renewables are growing
Furthermore, the U.S. Energy Information Administration's (EIA) reports that the U.S nonhydropower renewable generation capacity is growing rapidly, with wind producing the lion's share of the power.

Nonhydro Renewable

Source: U.S. Energy Information Administration, Electric Power Monthly (February 2014).

Investor opportunity
The EIA synopsis of the NERC report contains three gold nuggets for the long-term investor:

Reserve margins highlight one fundamental requirement of modern electricity systems—always have more capacity available to ensure the reliability of the grid. Due to the lack of large scale, cost effective electricity storage, supply must be able to meet demand at all times. This can be challenging when demand is high or when generators or transmission lines have unexpected outages.

Meeting demand can be accomplished through a combination of sufficient generating capacity, a robust transmission system, and demand-side management programs.

At the other extreme, reserve margins significantly in excess of target levels, although helpful for reliability, may be an indication of underutilized or unused generation capacity.

Taken together, these reports highlight the need for smart grid build out and corresponding energy storage capacity. The EIA synopsis directly points to the need for large-scale storage and the NERC report shows that excess capacity to charge that storage is readily available. For Texas, excess capacity is potentially available from the plains regions just to the north, and NERC reports that California already has excess capacity available, but without large-scale storage it is underutilized.

This author has already reported about grid storage companies such as General Electric (NYSE:GE) and NRG Energy (NYSE:NRG). You can find more details in the article Solar and Smart Grid Success Depend on Grid Storage. In addition, Accenture Ltd. (NYSE:ACN), the consulting giant, has a smart grid group that has strong expertise in the smart grid and energy storage arena. In April it announced a joint venture with Siemens AG to form the OMNETRIC group to bring together Siemens' smart grid products with Accenture's consulting expertise.  

Another opportunity lies with AES Energy Storage. A subsidiary of AES Corp. (NYSE:AES), AES Energy Storage reports that it has over 1.5 million megawatt hours (MWh) of battery storage in production in locations such as Ohio,Virginia and the country of Chile. Parent company AES, by itself, is a ready market for its energy storage solutions as it provides utility service in over 20 countries.

In order for renewables to be an effective power solution and for the efficient utilization of traditional fossil fuel and hydro generation, the smart grid, along with cost effective energy storage, will need to be implemented. Long-term investment opportunities are ripe for this sector.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jonathan Cook has no position in any stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers