Comverge, Inc.: An efficient small cap
According to the Gridwise Alliance, a consortium of companies — including General Electric Company (NYSE: GE) and Constellation Energy Group, Inc. (NYSE: CEG) — that promotes smart grid technologies and works in partnership with the U.S. Department of Energy, the nation's electric grid will be strained by more than 60% by 2015. Because of increasing energy usage, aging power infrastructure and limitations on the ability to produce more electricity in some parts of the country, energy efficiency will undoubtedly become a key factor in addressing the problem.
The solution: smart grid technology. Simply put, it allows "smart" electric meters to communicate with utility providers and track power consumption by the hour, so customers can adjust usage habits to take advantage of lower, off-peak rates (for example, running a dishwasher in the middle of the night to pay $0.06 a kilowatt hour, instead of the $0.12 daytime rate). The technology doesn't only benefit the residential customer. Utilities can use smart grid technology to increase electric capacity during busy periods without having to buy energy at peak prices on the open market or build additional power plants (with the added benefit of helping them meet new federal power reliability standards). And Washington is pushing smart grids to help prevent brownouts and blackouts caused by overburdened grid systems and as a way to reduce total energy consumption, which in turn would help to curb carbon emissions and halt global warming.
New Jersey-based Comverge, Inc. (Nasdaq: COMV) specializes in utility efficiency technology, providing products and services for power grids. The company offers demand-management solutions to help utilities find ways to reduce electricity use when energy is in highest demand, decreasing energy consumption, which, in turn, increases available capacity. Emission-free and touted for its cost efficiency (it is 40% cheaper than building new generators or transmission lines), the smart grid can be run by utilities using the technology (paying Comverge a flat fee based on the number of devices installed), or the management process can be outsourced to Comverge, who charges a fee for each kilowatt hour saved.
Company sales and outsourcing revenues have grown exponentially in the past two years. And though Comverge's stock weathered some jolts due to rapid expansion and accelerating costs since its IPO in April 2007, overall it was a great year for the small cap. It struck a number of potentially lucrative demand-response deals with public utilities, including the likes of Connecticut Light and Power, Southern California Edison, Tampa Electric Company, Public Service Company of New Mexico and Gulf Power. The company also expanded its commercial and industrial customer base by acquiring Enerwise Global Technologies, and vastly expanded its energy capacity offerings by snapping up Public Energy Solutions, LLC.
The energy outfit also began making a name for itself with homeowners. It sold close to five million smart thermostats that can be programmed by customers to take advantage of the fluctuation of electric rates (such as setting the device slightly higher on summer days when electric rates hit a certain price and reducing the amount of time the air conditioner runs).
Comverge has emerged as a potential breakout company in the small but growing market for smart grid technology, which many pundits view as the most promising area in all cleantech. Upon selecting Comverge as one of the World’s Top 20 Sustainable Stocks of 2007, Rona Fried, editor of Progressive Investor and CEO of SustainableBusiness.com said: “Comverge has an extremely rosy future, helping utilities and industry make money by using less energy. Thirty percent of the world's energy demand could be met just through efficiency improvements."
As power companies struggle to save energy and deal with environmental repercussions, more are transitioning to smart grids and restructuring to include off-peak rates (now, most residential consumers pay a flat rate 24 hours a day). Comverge makes grids more reliable and enables utility companies to increase capacity during high-demand peak periods more cost-effectively than with conventional alternatives. (Experts estimate that installing one of Comverge's units costs $150 to $175, depending on installation and customer acquisition costs, while building power plants to provide the same amount of energy saved through cycling back costs about $250 per household.)
In the current investment and social climate, these clean energy solutions are attractive to consumers, politicians, environmentalists, and most of all, Wall Street. The majority of industry analysts are bullish on Comverge and savvy investors are keeping a sharp eye on the company. And with good reason. With a banner year of unprecedented growth under its belt, Comverge's (COMV) smart acquisitions, strategic partnerships and aggressive promotion of smart grid technology will likely fuel further growth in 2008.
Shares of Comverge closed at $29.88 on Thursday. Over the last 52 weeks, shares have ranged between $19.79 and $39.09.
