Intelligent power grids, or smart grids, are based on the conventional power grids which transport electricity from large power plants to individual households. However, digital technology allows individual households or businesses to manage their electricity more efficiently, allowing them to receive, or deliver back to the grid, electricity from other sources like wind or solar power facilities, or even from batteries in electric cars.

According to studies, more than a billion tons of carbon dioxide (CO2) emissions could be abated with intelligent power networks by 2020. Smart Grids are essential for integrating renewable power sources into power networks and for ensuring stable power supplies from solar and wind energy.

Overall, the Smart Grid market has three primary components: Smart Metering (intelligent billing), Grid Intelligence (the grid infrastructure and its controls) and Utility IT (intelligent data management). Siemens is active in all three areas and is already the global market leader for grid intelligence.

Smart Grids have enormous growth potential worldwide. They are, for example, a prerequisite for reaching the EU’s 20-20-20 climate goals aimed at reducing CO2 emissions by 20% and increasing the share of renewable energies in the European grid by 20% by 2020. In addition, Smart Grids are included in many of the economic stimulus programs throughout the world.

The US government plans to invest around 3 billion Euros here in the coming years. Siemens expects to receive orders worth around 15 billion Euros from these programs by 2012. Out of these, 40% or roughly 6 billion Euros is likely to be for green technologies from the Siemens Environmental Portfolio.

A slew of companies across the globe are pushing to secure their share in this projected growth market, ranging from blue chips like Siemens, General Electric Co. (GE) and Cisco Systems Inc. (CSCO) to various start-ups offering related components and services.

Energy-efficient and flexible power grids are a key cornerstone for the launch of electric cars on a broader scale, as they can be designed to meet specific needs for the supply, demand and storage of electricity.

Volkswagen AG, Europe’s largest automaker by sales, said in July that it would launch an electric version of its upcoming New Small Family car in 2013. Other auto makers, including Nissan Motor Co. Ltd and General Motors Co., are also pressing ahead with developing fully electric cars for the mass market. 

Energy-efficient, resource-conserving Smart Grids are part of the Siemens Environmental Portfolio, which generated a quarter of its total sales in fiscal 2008.

Siemens is a German industrial conglomerate with interests in information services, automation and controls, medical equipment, power generation, transportation systems, automotive electronics, lighting and many other areas. With a focus on electronics and electrical engineering, the company is a major multinational with over 430,000 employees in more than 190 countries.

We currently have a Neutral recommendation on Siemens.

What is a Smart-Grid?

"Smart-grids" deliver electricity from suppliers to consumers using digital technology to save energy, reduce costs and increase reliability. Many global governments are promoting such a modernized electricity network as a means of increasing energy independence and reducing global warming issues.

An electricity grid is not a single entity but an aggregate of multiple networks and multiple power generation companies with multiple operators employing varying levels of communication and coordination, most of which are manually controlled.

Smart grids increase the connectivity, automation and coordination between suppliers, consumers and networks, which perform either long distance transmission or local distribution tasks. Transmission networks move electricity in bulk over medium-to-long distances, are actively managed, and generally operate from 400kV to 800kV over AC and DC lines.

Local networks traditionally moved power in one direction, "distributing" the bulk power to consumers and businesses via lines operating at 132kV and lower. This paradigm is changing as businesses and homes begin generating more wind and solar electricity, enabling them to sell surplus energy back to their utilities.

Efficiency Through Technology

Modernization is necessary for energy consumption efficiency; real-time management of power flows; and to provide the bi-directional metering needed to compensate local producers of power. Although transmission networks are already controlled in real-time, many in the US and European countries are antiquated by world standards, and unable to handle modern challenges such as those posed by the intermittent nature of alternative electricity generation, or continental scale bulk energy transmission.

According to Deloitte, in 2009, smart grid providers may represent one of the largest and fastest growing sectors within the "clean," green energy industry. Deloitte forecasts that electricity, as a percentage of total energy consumption, will increase from 9% in 1973 to 16% through 2009.

Additionally, they estimate that modern smart-grids offer approximately twice the efficiency, at 60%, as the average efficiency of the world's legacy electricity grids at  approximately 33%.

Finally, Deloitte estimates that the annual cost  of power outages and power quality disturbances in the U.S. approximates $180 billion.

Likewise, a recent study by the U.S. Department of Energy study estimates that smart-grid modernization of U.S. electricity grids with would save between $46 to $117 billion over the next 20 years.

Among other conclusions, Deloitte deduces through its smart-grid analysis that "[M]ajor manufacturers and utilities should explore partnerships with, and consider acquisitions of, smart energy companies."  Such is the case we now see with Duke Energy and Cisco.

Both Companies Known as Trail-Blazers

At the risk of over-stating the significance of this relationship, particularly for the traditionally staid, 100+ year old electricity industry, both Duke Energy and Cisco rank as consensus innovative leaders in their respective industries. Under terms of the agreement, Cisco seeks to develop and deliver to Duke Energy a state-of-the-art, industry-leading, end-to-end, power plant-to-customer, smart-grid network communications infrastructure.

Empirically speaking, U.S. support for smart-grid technology became federal policy with passage of the Energy Independence and Security Act of 2007. Subsequently, smart-grids received additional support with the passage of the American Recovery and Reinvestment Act of 2009, which appropriated $11 billion for the creation of a smart-grid.

Support from the Federal Government

As recently as January 2009, in his National Address, President Obama requested Congress to pass legislation including the development of new electricity "smart-grids."  On March 19, 2009, The Federal Energy Regulatory Commission (FERC) issued a proposed policy statement and action plan for standards governing the development of a smart-grid. Successful progress toward national implementation of smart-grids continues.

Upon completion, the new, "internet protocol-based open standards" architecture will replace Duke's existing, antiquated analog electric grid with a long-overdue, secure digital backbone infrastructure.

The resultant smart-grid, widely thought to be replicated by other leading energy utilities, will modernize some the most outdated infrastructure in the U.S. - electricity delivery systems - with secure, reliable and efficient data, networks and communications.

The collaboration project will ultimately update the delivery to, and use of electricity by, Duke's 11 million customers served in five states: Ohio, Indiana, North Carolina, South Carolina and Kentucky. Throughout the term of the project, and in subsequent years, Duke will install large-scale new smart-grid technology, including millions of electric and natural gas "smart meters," in addition to hardware and software for distribution.

"Smart meters" replace analog mechanical meters with digital meters which record energy usage in real-time. Smart meters provide a communications pathway extending from generation plants to electrical outlets and other smart grid-enabled devices.

Manifold benefits await Duke Energy and its customers.

The proposed modernized electric grid will:

• Build an 'Energy Internet', which will enable decentralized power generation, so that customers may be both energy clients and suppliers; allow supplier selection of power consumption to offer flexibility to energy consumers;
• Integrate solar and other renewable energy sources into the electric grid;
• Encourage consumers to actively participate in operations of the grid; improve electricity delivery, improve systems efficiency and reliability, increase energy independence, decrease environmental impact, and help customers reduce their energy consumption, strengthen grid security and resist attack;
• Provide higher quality power that will save money wasted from outages;
• Incorporate two-way digital communication to detect power outages and be readily inter-operable, upgradeable and scalable to new emerging technologies.

Going forward, Cisco plans to continue to deliver products and services to support this initiative serving a growing smart grid communications infrastructure market projected by Cisco to reach $20 billion annually over the next five years.

Duke Energy maintains a Street analyst consensus recommendation with a Buy-rated bias; an average long-term EPS growth rate of 4.2%, within a range of 2.0% to 6.0%, and a target price of $15.48 per share, within a range of $14.00 to $20.00 per share.

Cisco Systems boasts a Street analyst consensus Buy rating with an average estimated long-term EPS growth rate of 10.9, within a range of 2.0% to 20.0% and an average target price of $22.38 per share, within a range of $15.00 to $30.00 per share.

But for investors with "a clear head and a keen eye for opportunity" boldness can pay big dividends.

Taipan Daily editor Justice Litle says there are five proven strategies for building wealth... regardless of whether the bulls or the bears are in charge. 

Strategy #1: Superior Information

One of the oldest and most successful wealth-building strategies hinges on superior information -- learning something important before everyone else.

In today's hyper-connected and heavily regulated markets, it is much harder to come by superior information (without a keen willingness to break the law). But back in the 18th and 19th centuries, no one played the superior information game better than the Rothschilds.

The Rothschilds were known for maintaining an extensive (and secretive) information network, connected by financial hubs in five European cities: London, Paris, Vienna, Naples and Frankfurt. Nathan Rothschild, a bullion dealer on the London Stock Exchange, made legendary use of this information network during the Napoleonic wars. This network laid the foundations of the Rothschild fortune.

Richard Bookstaber recounts the backstory in his book, A Demon of Our Own Design:

By the end of the final hour of the battle of Waterloo on June 17, 1815, just 10 hours after first contact, a quarter of the Duke of Wellington's troops lay dead. The French losses numbered nearly 30,000. Within the space of half a day, Waterloo claimed more casualties than any other battle in history.

Given the communications limitations of the period, Great Britain could not immediately know about the carnage of Waterloo or the swift victory... Wellington's Envoy, Major Henry Percy, was dispatched to send the news of the victory to the War Office in London, but he and his horse were affected by the physical toll of the battle.

Even with his best efforts, he did not arrive until late on the night of June 21. Until that time, all of Britain waited in suspense -- all of Britain but one man, Nathan Rothschild.

Because the Rothschilds were known for having superior information -- and because he had made a show of stopping by the prime minister's house on the way -- all eyes were on Nathan Rothschild as he took up his usual post at the London Exchange.

England's victory was a hugely bullish event. Nathan Rothschild knew this full well. But rather than buy British consols (the main trading vehicle of the day), Nathan began to sell.

The heavy selling was a very loud -- and very false -- signal. Rothschild's bearish actions fairly shouted, “Britain has lost! Napoleon has won! Abandon all hope...”

Of course, it was the exact opposite that had actually happened. So once everyone had panicked out of their positions, and the market hit rock bottom, Nathan Rothschild turned around and began to buy. And the family made a spectacular killing. Nathan Rothschild’s masterstroke was twofold: He knew how to acquire superior information, and he knew precisely how to use it.

Strategy #2: By Hook or by Crook

For a thousand years -- from roughly 800 AD to 1800 AD -- the Rhine River in Europe served as a revenue source for the Holy Roman Emperor and his minions. Cargo ships were required to pay tolls at various points along the Rhine, providing a sort of interstate tax revenue on traded goods.

The Raubritters, or robber barons, were originally renegade feudal lords who levied unjust tolls on these passing ships (to the great annoyance of the emperor and the church). The term “robber baron” was later resurrected in 19th-century United States and applied to the financiers and captains of industry who had amassed huge sums by ruthless means.

Few of the latter-day robber barrons were as successful, or as hated, as Jay Gould.

In the aftermath of a failed gold corner, which in turn led to the Panic of 1869, Gould was dubbed “the Mephistopheles of Wall Street.” In addition to being a railroad titan, Gould was known for being one of the most manipulative, cunning and creative financiers in history. His strategic maneuvering included bribery, bankruptcies, lawsuits, insider trading, stock manipulation and much more.

One of Gould's favorite techniques was the “bear raid,” in which a company's shares would be hammered into the ground with strategic selling. This allowed Gould to then step in at rock-bottom prices (precisely when the selling onslaught stopped), wrest control from the board, and establish himself as chairman or president. Many of the maneuvers Gould pioneered would inspire the formation of the Securities and Exchange Commission (SEC), created some 40-odd years after his death.

In his book Dark Genius of Wall Street, Edward Renahan describes how it was done:

Jay Gould would transact virtually all of his Wall Street business for the balance of his short life through a series of special partnerships with a variety of brokerage firms. This device allowed him the luxury of trading anonymously whenever he cared to, and of trading on both sides of a speculation through different brokers. Eventually, Jay would spread his business over so large a network of Wall Street houses that he became something of a phantom; ever present, but frequently invisible and always inscrutable.

In light of his larger-than-life reputation as a heartless crook (still stoked by books and news articles to this day!), Gould never really received credit for the positive things he achieved. Dirty dealings aside, Gould's business acumen greatly aided the expansion and development of America's railroads, thus aiding the dramatic long-term expansion that followed.

Even Mephistopheles had some good in him it seems...

“Free Money” From the Government? Follow the detailed instructions outlined in this letter and you’ll learn how to add $4,570 to $11,450 to your bank account every month, courtesy of the U.S. government. Sound too good to be true?Read on and learn how you can boost your bank account every month …

Strategy #3: Looking to the Future

Claude Shannon, the brilliant scientist of Bell Labs fame, was perhaps best known as the father of “information theory”... an idea so big it is almost impossible to overstate its influence. Wikipedia captures some of the magnitude:

[Information Theory] is at the crossroads of mathematics, statistics, computer science, physics, neurobiology, and electrical engineering. Its impact has been crucial to success of the Voyager missions to deep space, the invention of the CD, the feasibility of mobile phones, the development of the Internet, the study of linguistics and of human perception, the understanding of black holes, and numerous other fields.

As if being the father of information theory were not enough, Shannon did still more. In the late 1930s -- a decade before revealing his famous theory -- Shannon hit on the idea of the digital computer, using Boolean algebra to prove that any problem could be solved with electrical circuits. This led to the 1s and 0s system of binary computing in use today.

Shannon's discoveries meshed together beautifully. The 0s and 1s made digital computing possible, while information theory enabled the means of sending digital information across great distances without garbling the transmission.

As far as digital technology goes, Claude Shannon basically cracked the philosopher's stone. In terms of brilliance and influence, many rank Shannon above Einstein for this reason (plus the follow-on impact of Shannon's ideas on the everyday world).

Just as a great scientist should be, Shannon was deeply playful. He loved to tinker with Erector Sets and odd materials, and was known to juggle in the halls of Bell Labs while riding around on a unicycle. (He invented one of the first computer chess programs and one of the first artificial intelligence devices, among other things.)

One of his quirkier inventions was a cigar-shaped box with nothing but a switch on one side. On flipping the switch, a mechanical hand would come out, flip the switch off, and retreat back into the box again.

We mention Shannon here, though, because he was a wildly successful investor. In his book Fortune's Formula, William Poundstone recounts Claude Shannon's view of markets. “You know the economists talk about the efficient market where everything is equalized out and nobody can make any money really, it's all luck and so on,” Shannon once said. “I don't believe that's true at all.” (Hear, hear! Neither do we.)

Given his track record, Shannon had good reason to doubt the academics. Poundstone notes that Shannon’s performance even stacked up against the Oracle of Omaha’s:

When Warren Buffett bought Berkshire Hathaway in 1965, it was trading at $18 a share. By 1995 each share was worth $24,000. Over thirty years, that represents a return of 27 percent. From the late 1950s through 1986, Shannon's return on his stock portfolio was about 28 percent.

As of record books in the early ‘80s (just before the great equity bull market took off), Claude Shannon had the majority of his investment account in one stock, Teledyne, that he had purchased for just $1 per share. In 1981, this $1 stock was worth $194.38 per share... a nearly 200-fold return.

Even more impressive from an ROI (Return on Investment) standpoint were Shannon's returns on Hewlett Packard (HPQ) ... a stock he had purchased at just 13 cents per share. The Shannons had a 63,000% return on Hewlett Packard as of 1981. Given Shannon's deep aversion to selling companies he believed in, that return no doubt grew even more impressive in the years that followed.

Claude Shannon not only invented the future, he and Betty (his wife) invested heavily in it.

But rather than take a cerebral, formula-laden approach, as one might expect, the brainy Shannons were the type of common-sense investors who would, say, sample a piece of Kentucky Fried Chicken before buying stock in the company. (They actually did that.) The Shannons looked to the future, bought companies they believed in... and held on tight.