Every few years, some kind of energy crisis comes along and swats us upside the head. California today, the disappearance of worldwide glaciers tomorrow. Are the answers -- solar, wind, fuel cells, and hydrogen power -- ever to remain the dreams of Earth Day celebrations, or can they provide opportunities for investors? We may not have to guess. There's one possible Rule Breaker poised to profit from the demand for high-efficiency, ultra-reliable power, whatever the source.
Supercool, no resistance
For a while in the 1990s, power use actually decreased, but then the Internet arose and with it an appetite for more and highly reliable juice. To satisfy demanding customers, current public utility infrastructure must upgrade to provide efficient power that is up virtually all the time. But where "five nines" of reliability ( 99.999% up time) means only minutes a year of downtime and is fine for home use, it won't cut it for today's businesses. According to the Huber Mills Power Report, companies such as Breaker holdings eBay (Nasdaq: EBAY) and Celera Genomics (NYSE: CRA) absolutely demand reliability starting at six nines (99.9999%), or 30 seconds of outage a year, in order to run their operations properly. Multiply them by server farms, semiconductor fabrication facilities -- not to mention hospitals and military installations -- and we're talking massive expensive upgrades that have public utilities quaking. Very deer in the headlights, actually.
At the same time, shifting paradigms across the U.S. have led to independent power sources, from hamsters and rubber bands (just kidding) to wind, solar, fuel cells, and others that can sell to the grid -- if they can connect with sufficient quality, frequency, and power density, as well as low cost. Huber and Mills put the independent power sources at 10% of current U.S. capacity.
Slip me the juice, Bruce
American Superconductor (Nasdaq: AMSC) is the top dog and first mover in high-efficiency, high-reliability storage and movement of all kinds of power. The company's mission is to place its products at the critical generation, delivery, and use points in the $12 billion power market, through its heavily-patented technologies:
- high temperature superconducting (HTS) wire, which provides 100 times the capacity of copper wire in as little as 1/20th the space;
- superconducting magnetic energy storage (SMES, or D-SMES), which detects minute fluctuations in power (low voltage problems, voltage stability) and delivers "clean" power; and
- high power switching, to allow quality, seamless transmission between different power-generating sources (from flywheels to diesel generators).
"AMSC is the only company with two core technologies -- high temperature superconducting wires and solid-state power converters -- that can revolutionize the power infrastructure," CEO Greg Yurek stated in a press release last fall. "These two technologies are the optical fibers and high-speed servers of the power revolution. They are at the heart of all our efforts to improve the capacity, quality and reliability of the grid." Whew! That's a claim worthy of any we heard last week from Celera's Venter or Human Genome Sciences (Nasdaq: HGSI) Haseltine. But Yurek is no slouch, a Massachusetts Institute of Technology (MIT) materials science professor who founded the company and shepherded the technology from MIT to the new company. (Let's all sing to the tune of the Mickey Mouse Club theme: "M-I-T, P-H-D, M-O-N-E-Y!")
Yurek's not jesting. His company's lofty goal is to retrofit every mile of transmission wire in the U.S., provide secure and reliable power storage for all substations, and put power modules selling between $5,000 and $15,000 between the grid and all alternative power sources. And as is not the case with many other Rule Breakers, it's actually possible to see how the company would accomplish its goal over a 20-year future. Its products are just now being built in for the first time. Wisconsin Public Service installed D-SMESs last summer in its 20-mile northern loop to manage the seasonal instability created when summer residents and tourists jam one very popular part of the state's outdoor paradise. Detroit Edison (NYSE: DTH) will deploy the first in-ground HTS wire cable this summer. On a recent earnings conference call, Yurek stated that the plan is "first, big urban centers, then suburbs around those centers. In 15-20 years, we go after the long-distance transmission."
That last little item is really important. The Washington Post reported Tuesday that there is a shortage of high-voltage transmission lines. You may have all the power you need and want to sell it to, say, California, but the lines won't handle it. Texas apparently has a surplus that they can't export. It's like when your mother told you to eat your [insert disgusting food here], because children were starving in Rongovia. As you gained sophistication, you joined the chorus of youth who responded, "But this food is not going to them." Exactly the same with power. What a waste.
And if you think it was hard to build a new generating plant in California (or Long Island -- remember Shoreham?), Mike Calimano, a vice president at the New York state power grid manager, told the Post that it's "easier to site a generation plant than to build a 20-mile transmission line through people's backyards."
Uh oh. If this is starting to remind you of bankrupt telecoms drastically slowing their old network retrofit with fiber optics, you're not alone. Where will American Superconductor's cash-strapped public utility customers find the money to buy the company's products and fund Rule Breaker returns? General Electric (NYSE: GE), which sells American Superconductor D-SMESs, is devising leasing arrangements to make it easier, but when CEO Yurek says that his company's potential customers have not budgeted for its products, it's sobering. Today sales are booming, and he insists that the company's revenue and cash are more than sufficient to make it to profitability in 2004.
Tom Jacobs (TMF Tom9) is powered by caffeine and fear of missing deadlines, not electricity. He owns shares of Celera Genomics and Human Genome Sciences. To see his other stock holdings (and run screaming), view his profile, and check out The Motley Fool's disclosure policy.