This article is part of our Rising Star portfolio series.

Today, I'm going to tell you about PowerSecure International (Nasdaq: POWR), possibly the most exciting and innovative small company in America.

PowerSecure's business is the smart and efficient use of energy. Its product solutions make the electric grid more efficient, and with energy prices sky-high, this is of critical importance to business and society. I've scoured the country for smart-grid investments over the past two years, and aside from ESCO Technologies (NYSE: ESE) I haven't found anything that comes close to PowerSecure in terms of innovation and talent. I consider PowerSecure to be the leading smart grid authority in the country.

What sets PowerSecure apart is its people. PowerSecure employees understand energy -- how it is generated, transmitted, and used. They understand how to make its use more efficient, solving problems utility customers didn't know they had or thought were unsolvable. They are creative, entrepreneurial, innovative, and probably the best minds working in this space today. For electric utilities around the country, PowerSecure is a present that keeps on giving.

An energy visionary
This winning hand was shrewdly built by an unrecognized visionary in the smart energy space, Sidney Hinton. A former Southern Co. (NYSE: SO) executive but an entrepreneur at heart, he has tirelessly built out a winning team since joining the company in 2000 and becoming CEO in 2007. Assisted by his CFO Chris Hutter, what Hinton and PowerSecure have achieved in these few short years is nothing short of exceptional -- the transformation of a sleepy company into the dynamic force of electric grid transformation and energy savings it is today.

The business and new products
PowerSecure generated $98 million in sales in 2010 from three business areas: distributed power generation, utility infrastructure, and energy efficient lighting.

At over 50% of sales, distributed power generation is the largest business. Here, PowerSecure supplies Caterpillar (NYSE: CAT) diesel generators to businesses to provide (1) backup power and (2) generate electricity cost savings. These are highly sophisticated systems built with components from Eaton (NYSE: ETN), General Electric, Square D, and others. The cost savings come from running the generator during times of peak demand, a practice called "peak shaving." This is highly effective because power prices spike at times of peak demand, so running a generator even a few times a year could result in a 15%-25% lower total electric bill for the year. Payback is measured in just a few years, making these backup systems extremely compelling, as customers such as Cargill and Publix can attest.

The other two businesses split the other 50% of sales. The first is utility infrastructure, and here PowerSecure simply makes its utility customers very happy. It maintains transmission lines, puts systems back up after storms, and conducts design and engineering studies. This is a wonderful business, but the excitement is around two new products: SmartStation and MicroGrid. The SmartStation is a brand new electrical substation -- smaller, more efficient, and more reliable. The MicroGrid is a small electric grid operating system that can be deployed in the field to connect, distribute, and regulate various sources of power. The value of these products is very compelling for utilities and in the case of MicroGrid, the military. Moreover, the potential for these products is enormous relative to PowerSecure's size.

The final business is energy efficient lighting. In just a few years, PowerSecure has built a strong competence in LED, or light-emitting diode, lighting. Its competence is not in the manufacture of chips like supplier Cree (Nasdaq: CREE), but in the integration of those chips into lighting fixtures, and it is now the go-to source for design and engineering expertise in this market. 

Lighting is an enormous market -- the streetlight market is $30 billion, and the refrigerated case retrofit market about $1 billion. PowerSecure's products deliver lower energy usage, often 70% lower, and lower maintenance costs, which equate to immense paybacks for customers such as Walgreen (NYSE: WAG) and utilities and municipalities. Indeed, a foreign city is thinking of retrofitting all its street lights with PowerSecure lights.

Why I'm excited
I'm excited about PowerSecure now because growth is just starting to pick up. Over the past four years, the company has focused on investment: hiring the best minds in the business, investing in research and development, and building out its customer relationships. This year, it is focused on translating those investments into marketplace success, and we should see those investments pay off in 2011 and 2012.  

PowerSecure is also catching the eye of big players. It has a joint venture with Schneider Electric, the $25 billion electrical power company. And two weeks ago a top executive at another major company told me he wanted to partner with PowerSecure because "they understand energy." This high praise shows PowerSecure is getting noticed.  

This is an incredibly innovative company just beginning to blossom, but at $7.70 per share and a market capitalization of only $140 million, the market still hasn't realized the success bubbling under the surface. I peg PowerSecure's value at $300 million, or more than $15 per share. PowerSecure might be America's most exciting small company; but it also might not be a small company for much longer.

This article is part of our Rising Star portfolio series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).