3 Ways to Invest in a Smarter Grid

There are a few undeniable facts about our electrical grid. It is old, outdated, inflexible, and a regulatory nightmare. All these facts leave the grid completely unprepared to handle alternative energy sources, any sort of real "smart" upgrade, or increasing demand in current form.

Most of these shortfalls have been covered up over the past two years as demand dropped a significant amount. But as the economy begins to strengthen and power usage returns, there are a few ways investors can invest in growing grid demand.

Building the grid
If we're going to upgrade the grid, the first thing we need is a construction crew to build transmission lines and other upgrades. MYR Group (Nasdaq: MYRG) and Quanta Services (NYSE: PWR) are two of the larger contractors building transmission and distribution lines throughout the country. Both were hit hard when demand fell and utilities put projects on hold, but they have been roaring back with a vengeance in recent months. Now that it looks like demand is returning, both should be hard at work adding power lines to wind and solar power plants in the middle of nowhere.

Making the grid smarter
Demand response is one of the easiest and most effective ways to control energy demand, and utilities around the world are starting to use it on a larger scale. Comverge (Nasdaq: COMV) and EnerNOC (Nasdaq: ENOC) provide the backbone for that response, acting as middlemen between electrical supply and demand. The problem for both companies so far has been the huge losses they've posted as they built out networks. That's starting to turn around at EnerNOC, where the company will post its first annual profit this year, and analysts expect more than double the earnings per share next year. EnerNOC is a favorite of our Rule Breakers team and is the best way to invest in the growing demand response business.

Own the grid
Of course if you want to invest in the grid, why not just buy the whole thing? National Grid (NYSE: NGG) owns and operates transmission networks in England, Wales, Scotland and the northeastern U.S. Owning the grid might not be an exciting business, but a 4.8% dividend yield and price/earnings ratio of 10 should give value investors a reason to take another look.

All of these companies should stay busy as we update our electrical grid, make it "smarter" and prepare for the transition to new fuel sources. Which company is your favorite? Leave your thoughts in the comments section below.

Interested in reading more about EnerNOC? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.