This Deal Shows How the Electricity Grid Is Changing and What Stocks Can Benefit

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As the electricity grid becomes more complex and the power-generation business evolves, companies are organizing themselves to meet new demands.

The latest example came on Thursday, when the new energy company Uplight said it was acquiring AutoGrid. The deal, like the electricity grid itself, requires a little explanation.

Uplight and AutoGrid are privately held, but the electrical equipment company Schneider Electric SU 0.92% is the majority owner of AutoGrid and an investor in Uplight. After the deal closes, Schneider will be the largest investor in UpLight.

Terms of the deal weren’t disclosed. Uplight and Schneider declined to comment on pricing or the ownership stake until the acquisition was complete.

Investors can think of Uplight as an operating system for the electricity grid. Its platform connects homes, businesses, and utilities and helps manage energy efficiency, the response to electricity demand on hot days, and rate plans, among other things. Uplight has dozens of utility partners that reach more than 100 million homes.

AutoGrid sells software for DROMS, DERMS, and VPPs—three products whose acronyms also need a little explanation.

DROMS is short for demand response optimization and management systems. Some of those systems can change the thermostats in houses to manage electricity demand when the grid is under strain.

DERMS is short for distributed energy resource management systems. That software orchestrates assets out in the marketplace that might not be part of the traditional utility network.

VPP is short for virtual power plants. AutoGrid, for example, will aggregate megawatts of generating assets—the power from solar panels on top of a Walmart WMT -1.26%, for example—and sell that electricity to a utility.

The businesses have a lot of overlap. They both are software providers working to improve energy efficiency while connecting and managing the expanding number of ways Americans generate electricity.

In 2002, almost 90% of U.S. electricity was generated by coal, natural gas, and nuclear assets. In 2022, their share had fallen below 80%. The share of renewable power-generating assets held grew to about 22% from 8% over the same span.

“The grid is at a critical inflection point that demands integrated, effective digital solutions to accelerate electrification, efficiency, and decarbonization,” said Uplight CEO Luis D’Acosta in a news release. “Our new platform will combine Uplight’s deep customer engagement capabilities and AutoGrid’s leading renewables and flexible capacity management solutions.”

Schneider Electric stock was up 1.7% in overseas trading Thursday. That, however, doesn’t appear to be the result of the deal.

Instead, the Federal Reserve deserves the credit. Schneider’s U.S.-listed American depositary receipts rose 1.4% Wednesday after the Fed indicated that it may have finished raising interest rates as inflation comes down. The S&P 500 SPX 0.37% and Dow Jones Industrial Average DJIA 0.24% jumped 1.3% and 1.4%, respectively.

Coming into Thursday trading, Schneider’s ADRs were up 31% over the past 12 months. Shares of peer Eaton ETN -0.13% were up about 47%.

Investors have come to realize that the grid is growing, becoming more complex, and that Schneider and Eaton have the products to manage that.

Source Barrons.

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