Post date: Tuesday, 23rd April 2013

Guide for investors highlights stocks targeting energy efficiency

The benefits of energy efficiency

The benefits of energy efficiency, according to the Bank of America Merrill Lynch report.

The Bank of America and Merrill Lynch have made it easy for investors to back and invest in the companies that are going to reap the most benefits from investment in energy efficiency, which it regards as having "the greatest potential to lower both energy demand and carbon dioxide emissions" to meet the global energy crisis.

In a new report, Global Energy Efficiency Primer-less is more, they have produced a Global Energy Efficiency Stock list ranking stocks according to "the level and materiality of companies’ exposure to energy efficiency" across seven sectors.

The report finds that: "Global public policy is moving en masse in favour of efficiency," and that "energy efficiency is becoming the central plank of governmental energy policy – and new and emerging regulations will increasingly requires companies to improve their energy efficiency – creating significant investment opportunities across buildings, industry, IT, power and transport".

The report maps out the potential for carbon dioxide emissions savings via energy efficiency as totalling 40 gigatonnes of carbon dioxide by 2030, of which buildings for 25%, industry 32%, transport 29%, appliances 10% and lighting just 4%.

The most attractive stocks are those which already have energy-efficient products and services at the core of their business; and the most attractive single sector it sees as building.

Although not responsible for the largest amount of savings, buildings offer "the easiest and largest efficiency gains".

"We believe that improved energy efficiency in the building sector offers the greatest potential of any sector to make cost savings and reduce energy use, by 30% to 50% by 2030 to 50," the report says, quoting International Energy Agency figures.

It says that 80% of the economic potential of energy efficiency in buildings remains untapped.

The average payback for building technologies that save energy is only three years in terms of saving electricity and between nine and 14 years for fuels.

According to Pike Research, the global market for energy efficient building technologies will rise to $203.5bn in 2017.

As far as industry goes, the IEA estimates industry could improve its energy efficiency by almost a third and reduce carbon dioxide emissions by up to 32% by using the best available practices and technologies. Currently, it accounts for 28% of global energy consumption and 32% of carbon dioxide emissions.

Cost savings are significant, with paybacks estimated in three years in OECD countries and five years in non-OECD countries.

BoA/Merrill-Lynch sees significant opportunities for the greening of data centres, with the market having grown by over 200% between 2010 and 2012. It anticipates the market reaching between $45.4bn and $69.7bn by 2016 as a function of two large IT trends: virtualisation and cloud computing, which it says can help lower energy use and emissions by between 30 and 90%.

Switching lighting to LEDs is often seen as a quick way of achieving major energy savings, and the report finds that LEDs are finally emerging as the biggest growth opportunity in the medium to long term. It sees prices reducing and, "spurred on by regulation, LEDs could represent 45% of the global lighting market by 2015".

By 2020 they will represent 70% of the general light market. Considering that they use very little energy, last over 50,000 hours, and are arriving now in fixtures that can replace any conventional lamp, they are a "no-brainer" for investment.

The report concludes by saying that "irreversible climate change is becoming a reality," yet demand for energy is rising inexorably, with 90% of expected demand increases to occur in non-OECD countries.

With high prices here to stay, it sees energy efficiency as a hugely significant market opportunity for investors.

Story: David Thorpe, News Editor

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