Smart Energy Plays: Smart-Meter Makers

Editor's note: This column was submitted by Stockpickr member Winston Kotzan.

As global power grids face a capacity crunch, a new bull market is emerging in a nascent industry, called demand response.

This new field of demand response systems is still a maturing market, and the definite leaders have yet to be determined. A few of these pure-play companies may prosper, but it is also likely that some will sink and disappear. If you want to play these stocks from a speculative standpoint, I suggest taking small positions in each as a basket of stocks.

Smart-meter systems are similar to the electricity gauges found in most home basements, but more sophisticated. They have the ability to communicate with the utility, providing reports and automation that the customers can use to manage energy during peak hours, when electricity is most expensive.

Eventually, smart meters will allow tiered pricing plans under which utilities can adjust energy prices according to real-time grid demand, and the meters will respond to such changes in costs.

Energy reduction programs take preventive steps to prevent rolling blackouts. During peak energy usage times, building administrators have agreements with the utility company to reduce energy usage in return for payments or discounts on electricity. Smart meters are often used to facilitate such programs.

Demand Response's Stock Beneficiaries

Driven by volatile energy prices, demand response programs have taken off in Europe and Asia. The U.S. is also launching pilot programs, which, according to IDC's Energy Insights, a research-based consulting firm, could result in the installation of as many as 51 million electric and gas meters. Energy Insights asserts that this industry can grow from $2.3 billion to $5.5 billion by 2011, with 22% growth in hardware sales.

Here are a few stocks that stand to benefit from this industry's growth: