By: Doug Fogel — April 21, 2020
Our Energy Grid Is Under Attack - Part 2
From our gas stoves… to the lights in our homes … to our air conditioning and heating systems… and every other modern convenience…
No one worries much about whether "juice" will be available the moment we need it.
But as we saw in last week's conversation, this country’s power grids face some very serious threats.
Everything from wildfires, floods and hurricanes... To terrorists and foreign hackers.
This last threat is particularly worrying.
On March 15, 2018, the US government released a report describing a massive Russian hacking campaign to infiltrate America’s “critical infrastructure” — things like power plants, nuclear generators and water facilities.
The day after the report was released, former energy secretary Rick Perry told lawmakers that cyberattacks like this happen hundreds of thousands of times every day.
So how do the Russians hack into our systems?
In the case of the March 2018 incident, they first attacked smaller, less secure companies — like those that make parts for generators or sell software that power plant companies use.
From there, they worked to gain access to their primary targets.
One way they did that was to send emails from a compromised account that the receiver trusted in order to get that person to reveal confidential information.
After acquiring the logins needed to fool computers into letting them in, the intruders then set up "local administrator accounts" and used them to place malware in the networks.
Once inside the computers of a power company, the attackers set up programs that collected information, like captured screenshots that recorded details about the computer, including information about its users.
The report doesn’t say the attackers were able to seize direct control of the power plants. Instead of disrupting power generation, the intruders watched and recorded information from computers that received the data from the energy generation systems.
Essentially, this attack gave Russia a peek at how US power plants work and report data.
The notorious Chinese state-sponsored hacking group APT10 is also suspected of having hacked into into US utility company computers.
In August of 2019, a California enterprise security company called Proofpoint disclosed that APT10 was the likely culprit behind a cyber campaign that targeted US utility companies a month before.
As was the case in some Russian hacking incidents, this was another campaign targeting company employees with emails purporting to be from a trusted source.
APT10 had also made headlines the previous June, when it was reported that the group had compromised the systems of at least 10 cellular carriers around the world to steal important data related to specific users linked to China.
Terrorist threats to our energy grid are also a source of concern.
These include potential biological attacks, radiological weapons or electromagnetic pulse (EMP) devises, which could cause significant infrastructure damage.
Some states are so concerned about these kinds of attacks, they are considering legislation to study the impacts on the nation’s energy infrastructure resulting from deliberate acts of terrorism.
The military is equally concerned.
That's why, to protect from major supply disruptions, they're building "micro grids" that can provide power for two weeks running.
Fascinating stuff... But it's not what interests us.
What we want to know is -- what are the best investment opportunities in the energy security space?
To begin, the best place to look is in three types of companies.
1. Those engaged in the field of cybersecurity...
2. Companies that provide the resources needed for utility grid upgrades...
3. And companies that make software that guards against malicious codes/attachments.
Right now, I recommend you consider companies that provide resources needed for utility grid upgrades, as I see that as our most pressing need.
Our current electricity grid dates back to about 1890. So even without the threat of cyberattacks, we need to upgrade.
And even though they've been updated piecemeal throughout the years, the US Department of Energy says nearly 70 percent of the transmission and distribution lines in the country are over 25 years old.
That’s why there’s been such a governmental push to implement what’s known as the “Smart Grid.”
At the heart of the smart grid is digital technology that allows for two-way communication between a utility and its customers.
Like the Internet, the Smart Grid consists of controls, computers, automation, and new technologies and equipment working together to facilitate that communication.
These technologies will enable utilities to react quickly to fast-changing electric demand as well as to power outages.
A blackout can produce a domino effect -- a series of failures that can cascade through the system and ultimately affect banking, communications, traffic, and security.
A smarter grid will add resiliency to our electric power system and make it better prepared to address emergencies caused by severe storms, earthquakes, large solar flares, and terrorist and foreign hacking attacks.
My recommendation for entering this space is to buy an ETF called the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID).
This ETF tracks an equity index called the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index.
The index is comprised of niche companies engaged in implementing smart grid technology.
As you can see from this weekly chart, GRID has been in a long-term uptrend.
(Click any image to enlarge)
This security lost 40.56% of its value at the peak of the market meltdown that began in March, but since then has rebounded significantly – a move I expect to continue.
Right now GRID trades near $44. If the ETF can get back to its former high near $62 we'll see a return of 41%.
GRID is pretty thinly traded, so there are no options on it.
So this would be a straight up ETF purchase.
That’s it for now.
Have a great day!
Editor, True Market Insiders