In a large skillet over medium heat, cook bacon until it begins to crisp, about 9 minutes, flipping halfway through cooking time. Remove bacon to a paper towel lined plate, but leave the bacon juices in the skillet.
Turn heat to medium-high and add peppers, onions, Old Bay, and lemon juice. Saute until peppers and onions are softened, about 7 minutes. Add garlic and saute for another minute. Remove from pan place in bowl.
In same skillet, add sausage and cook, stirring occasionally, until outsides are browned. Remove from skillet and set aside.
Reduce heat to medium. Add butter to skillet and let melt. Then, add water and salt. Slowly, whisk in flour.
Stir in cayenne pepper, garlic powder, Worcestershire and Tabasco. Let simmer for about 5 minutes, or until sauce begins to thicken.
Once sauce begins to thicken, stir in bacon, peppers and onion, and sausage.
Serve sausage mixture over grits. Sprinkle with green peppers and additional Tabasco sauce if desired.