In the world of electricity, there is a thing called "demand response." This is not a pushy bill-collection strategy. It's a critical component of the electric grid of the future, and it's an area where we should expect steady growth over the coming years. Long-term investors should get in now before everyone else does. We'll take a look at four stocks that could interest you.
I've been running a series of articles related to the investment opportunities in smart grid development. If you're not fully up to speed on the basics, start with our smart grid primer. Then mosey on back here.
Demand response defined
Demand response is a mechanism in electric grids that allows customers to reduce their consumption at critical times or in response to market prices. In practical terms, it allows you to, say, set your dishwasher to run only when power is cheaper, or dim lights and adjust your thermostat if brownouts are threatened.
Demand response helps to reduce peak load pressures on the grid. The electric grid is designed to accommodate a certain base demand for electricity, but it can be challenged to respond to significant demand spikes. Predictable spikes occur every afternoon and evening. Less predictable spikes happen when the temperature soars and everyone cranks the air conditioning, fires up the blender, and camps out in front of the Wii with a pina colada until it's all over.
On the flip side, demand response can use periods of low electricity demand to, for instance, drop the temperature in your freezer by a few degrees, allowing the temperature to rise back up to freezing again during peak load while using less energy to sustain that temperature. Studies find that demand response produces a "conservation effect" among customers that lowers overall electricity consumption anywhere from 3% to 7%.
Demand response enables greater renewable energy adoption. Many renewables are variable, meaning that electricity is not generated at a constant rate. Think about solar at night, or wind on a still day. Demand response's feature of preserving peak load power for later use is the perfect complement to renewable energy, in that it can smooth the peaks and valleys of generation loads.
Show me the players
CPower -- a part of Constellation Energy, which is in turn a part of Exelon
Demand response is not going away. Indeed, as we continue to try to wring every last watt out of an increasingly overworked power grid, this technology will be an important tool in electricity management for years to come. Investors interested in playing this space should get in now while no one is paying attention, then sit back and let that investment play out over the long term.
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Fool contributor Sara E. Wright owns none of the stocks in this article, but does appreciate a good response to her demands. The Motley Fool owns shares of EnerNOC. Motley Fool newsletter services have recommended buying shares of and creating a write covered straddle position in Exelon, and writing puts on EnerNOC. The Motley Fool has a disclosure policy.