Report: Energy technology to become $50 billion industry

Energy technology could be a $50 billion industry within the next 5 years and could grow to $100 billion by 2010, representing a substantial new investment opportunity, say Banc of America Securities analysts in a broad new examination of the electric power industry.


Energy technology could be a $50 billion industry within the next 5 years and could grow to $100 billion by 2010, representing a substantial new investment opportunity, say Banc of America Securities analysts in a broad new examination of the electric power industry.

The market has recently embraced fuel cell stocks, but Banc of America analysts say they expect energy technology investment potential to reach much further into other forms of distributed generation, power quality, and a wide range of applications and services. Moreover, says analyst James P. LoGerfo, the high growth potential for energy technology is not dependent on deregulation of the electric power markets. Rather, demand will be driven by an internet-based economy that will increasingly require levels of power quality and reliability that are unavailable today.

Other studies estimate US companies lost $50 million in 1999 because of power quality breakdowns, including a blackout at the Chicago Board of Trade and brownouts in New York City that resulted in the loss of medical research by Columbia University.

Power outages
"We believe the potential of power outages to disrupt the networks that provide e-procurement systems�and possibly undo its benefits�will serve as a strong incentive for intensive investment in power quality and reliability equipment over the next several years," says LoGerfo. "...This is the fundamental driver behind what we view as the long-term investment opportunity that will ultimately result in a complete overhaul of the way the entire worldwide electric grid is structured."

Banc of America estimates internet power demand will grow 17%/year between now and 2010, when one-half of US electric consumption is projected to be related to the internet in some way. By definition, internet power is available 99.9999% of the time over a year, with just 30 sec of outages.

The US grid operates at 99.9%/year�equal to about 8 hr of outages�a segment of the market some experts expect to shrink as differentiation takes place. Banc of America analyst Hugh Anderson expects price points will develop for 99.9%/year power, 99.9999%/year, and so on.

"As a result, the common utility providing commodity power will face two toxic trends: a declining demand curve and a subsequent declining price curve," he writes.

At the forefront of demand for internet power will be data center markets that provide internet data-server hosting services in the business-to-business marketplace, worth an estimated $35-50 billion today and projected to increase to $70-100 billion by 2005, according to Banc of America.

Data storage
Demand for data storage is also growing. Some experts project it will rise to $31.1 billion in 2002, up from $18.8 billion in 1999.

The internet economy is propelling the growth in demand for data storage. Other industries with an interest in clean, reliable power are cell phone, PCS, and radio tower operators, and the optical components business, Banc of America says.

For a variety of reasons, Anderson says, the US power grid is not only insufficiently reliable to power the internet economy, but the situation is likely to worsen. This inaction puts the focus on grid-enhanced internet power and equipment suppliers, including so-called uninterruptible power supply (UPS) systems, he says.

These systems sit between the grid power supply and the end-user equipment and monitor the power supply for voltage interruptions. During grid disruptions, backup batteries followed by backup generators begin operating to avoid sags.

However, Banc of America expects disadvantages of UPS systems will lead to increased interest in flywheel energy storage equipment and superconducting magnetic energy storage. However, UPS will likely be the technology of choice to insure reliability and quality until other distributed generation technologies become competitive, says Anderson.

LoGerfo suggests the investment cycle will be led by companies providing power quality and reliability, that are generally profitable today, followed by companies focused on distributed generation that have products still in development.

"We believe energy technology that improves fuel efficiency or otherwise reduces the all-in cost to produce power will be the ultimate driver of lower prices, not deregulation in and of itself," LoGerfo says. Deregulation's contribution is that it is allowing private capital to answer the demand for energy technology investment, he says. Banc of America believes the $300 billion power industry is roughly at the same stage of investment development as the telecommunications industry in 1984.

"In other words, we believe the energy technology play is a long-term play, and that the ultimate reconfiguration of the power grid could take 20 years," says Anderson.

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