5 Best Power Grid Stocks and ETFs To Buy In 2022 (Invest in Building the Grid)

The climate transition and the aging infrastructure are exacting a heavy toll on the American power grid. The growth of renewable energy, power plant failures, and delayed repairs emphasize the need to upgrade the country’s infrastructure. Read on to learn about the companies addressing this problem and the ways to invest in this theme.

David Dierking   Updated May 22nd, 2022

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Why invest in power grid stocks and ETFs?

The US power grid includes roughly 7,300 power plans. Electricity generated by these plants travels across millions of miles of low and high-voltage power lines before it reaches the end consumer. Many of the transmission and distribution lines were built seven decades ago or even before that. Aging and lack of upgrades create outages when the electrification of everything, including battery-powered cars charged at home, is driving up demand.

Unsurprisingly, the state of the power grid is proving unsustainable. It hasn’t kept up with population growth or the electricity demand. Nor is the grid prepared for the transition to renewable energy over the coming decades. In 2000, there were roughly two dozen major power outages. In 2020, that number grew to 180. Wildfires in California, abnormally cold weather in Texas, or tornadoes in New Jersey have tested the grid’s resiliency in these states, leading to multiple outages.

To combat climate change, the U.S. government and some states have set goals to become carbon-neutral by 2050 or earlier. As utilities are getting more power from intermittent wind and solar and less from coal, nuclear, and natural gas, grids need to be updated and battery storage solutions developed. That puts a timeline for power companies to update old infrastructure to handle the coming changes.

The American Society of Civil Engineers estimates that by 2029 $200 billion in extra funding will be needed to meet climate goals and improve the grid. Utilities are spending more, ramping up demand for services from companies that can build out the grid.

What companies build the power grid?

There aren’t many pure-play companies that are building out the power grid, but they include Quanta Services and MYR Group. In addition to individual companies, you could consider ETFs that offer broader exposure to the theme.

Power grid stock and ETF list

  • Quanta Services (PWR)
  • MYR Group (MYRG)
  • First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF (GRID)
  • SPDR S&P Kensho Intelligent Structures ETF (SIMS)
  • iClima Distributed Smart Energy ETF (SHFT)

Read more about each option.

1. Qanta Services (PWR)

  • Market capitalization: $16.2 billion
  • 2022 return: 0%

Quanta Services (PWR) is a large company that builds and updates the power grid. It specializes in electric system modernization, renewable energy capacity expansion, and EV charging enhancements. PWR bought Blattner Holding Company in 2021 to improve its renewable infrastructure capacity. It’s one of the better pure plays on the infrastructure boom.

Like many infrastructure companies, PWR saw revenues dip during the pandemic. But in 2021, revenue grew by 16% and management expects 5-8% organic annual revenue growth over the next five years.

PWR’s core electric power infrastructure business continues to do well. The company raised its full-year 2022 revenue guidance, disclosing a project backlog of over $20 billion. Although PWR had to spend a lot on capital expenditures, it plans to generate around $750 million in free cash flow in 2022.

PWR has been doing well, which is reflected in the stock’s share price. It’s flat this year, a good outcome in a declining market. Since the beginning of 2020, PWR has gained 177% compared to a 53% return for the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF (GRID).

2. MYR Group (MYRG)

  • Market capitalization: $1.5 billion
  • 2022 return: -20%

MYRG provides electrical construction services through two primary business lines. ​​The Transmission and Distribution segment focuses on construction, maintenance, and repair for electric utilities. The Commercial and Industrial segment serves commercial facility owners, governmental agencies, and developers. The company derived roughly equal revenue from both segments in 2021.

MYRG achieved a record annual revenue of $2.5 billion in 2021, an 11% increase over the prior year. The company has been in growth mode over the past several years, acquiring the Heun Companies in 2018, CSI in 2019, and PowerLine Plus in 2022. These acquisitions have helped MYRG expand its offerings, which now include installation and repair services in transmission and distribution, solar panels, energy storage, hydroelectric plants, wind farms, and EV charging stations.

The company is seeing growth in projects of all sizes and has built a $2.5 billion backlog of business. While its core business is still servicing the existing electrical grid, its capabilities in renewable energy technology position the company well for the future.

3. First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF (GRID)

  • Market capitalization: $593 million
  • 2022 return: -19%

GRID invests in companies that are primarily involved in the electric grid, electric meters and networks, energy storage, and enabling software used by the smart grid infrastructure sector. After applying minimum liquidity screens, components are market cap-weighted. Pure play companies account for 80% of the portfolio.

GRID is a global portfolio with roughly half invested in the United States and half internationally. The foreign component is mostly concentrated in Europe. Italy, Switzerland, and France each account for 8% of the fund.

Despite holding nearly 80 stocks, the concentration risk in GRID is high. The top five names account for 37% of the fund; the top ten are nearly 60%. About 50% of the portfolio is invested in industrial stocks. Another 25% is allocated to technology names.

Launched in 2009, GRID has the longest history among the grid infrastructure ETFs. It has over half a billion in assets, making it more liquid and tradeable. The 0.63% expense is about average for this group.

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4. SPDR S&P Kensho Intelligent Structures ETF (SIMS)

  • Market capitalization: $37 million
  • 2022 return: -22%

SIMS invests in companies whose products and services drive the innovation behind intelligent infrastructure. That includes smart building infrastructure, smart power grids, intelligent transportation infrastructure, and intelligent water infrastructure. The portfolio is initially equal-weighted but then tilted towards “core” companies. The “core” definition is based on involvement in innovative infrastructure.

This ETF is much more North America-centric. 83% of total assets come from either the United States or Canada. The United Kingdom is the largest foreign country with 7% of assets. Like GRID, SIMS also has about half of the fund in industrial stocks and one-quarter invested in technology.

The equal-weight methodology helps diversify away individual stock risk but ends up giving greater weight to riskier small- and mid-cap stocks. Just 42% of assets are in large caps.

SIMS has a cost advantage, charging 0.45% annually, but it has only $37 million in assets. That makes liquidity low and trading costs higher than average. SIMS debuted in late 2017.

5. iClima Distributed Smart Energy ETF (SHFT)

  • Market capitalization: $2 million
  • 2022 return: -25%

SHFT is a new ETF from iClima, a climate-focused financial firm based in the U.K.

SHFT invests in companies focused on distributed power sources, distributed energy storage, electric vehicle charging, smart grids, and similar services. Components are screened for environmental, social, and governance (ESG) factors. The final portfolio is equal-weighted.

SHFT is well-diversified globally. It has 61% of its assets invested in the United States, 27% in Europe, 8% in Asia, and 4% elsewhere. China, Germany, and Switzerland are the largest foreign holdings with 5-7% of assets. 88% of the fund invests in the combination of industrials and technology.

Like SIMS, SHFT’s equal-weighting strategy gives it a 61% allocation to small- and mid-cap stocks. The top ten holdings of the fund account for 26% of assets.

Although we like the climate angle, SHFT is too new and too small to compete with the ETFs already mentioned. Its 0.65% expense ratio is reasonable, but it has just $2 million in assets. This fund is less than one year old and costly to trade due to its illiquidity.

MYR and Quanta are both well-run businesses that are growing quickly in anticipation of the renewable infrastructure boom. Both have been performing well and represent pure plays on this theme. The only ETF that looks investable is GRID, but its high concentration risk raises some concerns.

🔔 Energy storage is a critical component of the energy transition. Learn how to invest in energy storage through energy storage ETFs or stocks.

Author: David Dierking, CFA

David Dierking has been writing about investment strategies using ETFs and mutual funds since 2007. He has extensively contributed to The Street, Investopedia, Seeking Alpha, ETFdb.com, ETF Trends, and ETF Daily News. David received his BA in finance from Michigan State University. He has also been a CFA Charterholder since 2004.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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