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.

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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.

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