Energy Efficiency Stocks
People think I'm crazy when I tell them my thermostat is programmed to 62 degrees in the winter.
I may kick it up temporarily to 64 right when I wake up or before I go to bed.
What's not crazy is the resultant utility savings...
My November bill was $84.11. That's electricity and natural gas for a two-story, four-bedroom house with a basement. It's less than that when the weather is mild, and only slightly more during the extremes of July and January.
I like to think that's a pretty good savings over my neighbors — for minimal effort.
And it's a principle that's starting to gain traction in the marketplace.
The energy that wasn't
When I first started covering cleantech, I came across a quote from a Delaware state senator that I've never forgotten.
He said the cheapest unit of energy to produce is the one you don't need.
It's an irrefutable statement, but it's taken the market quite some time to figure out how to make money by not producing energy.
Now, governments and businesses are figuring out just how many dollars energy waste wastes. And more than a few companies are coming up with novel ways to make money by helping customers use less energy.
This week, the UK's Carbon Trust Advisory has a report out analyzing the energy use of more than 1,000 companies that spend more than $1.5 million on energy every year.
The study found businesses in the UK waste at least $2.53 billion every year because they don't use energy efficiency measures — 15% of which could be saved through staff training and heating and lighting upgrades.
Direct investments in energy efficiency have an average return of 48%, leading Carbon Trust's managing director to conclude: “The business case for energy efficiency is clear and compelling. Few other investments get anywhere near that rate of return.”
Others are quickly catching on.
Efficiency on fire
In militant China, local governments are setting energy-use quotas for officials in an effort to reduce energy intensity. Officials can lose their jobs if their region exceeds the target.
What's more, if targets aren't met, the government is taking action. Steel and cement factories have been forced to close and electricity supply has been cut from traffic lights, neighborhoods, and hospitals.
The message is clear: Be more efficient with your energy use or don't get any at all.
In New Jersey — and indeed around the country — the use of wood-burning stoves is on the rise.
Unless you cut, split, stack, and season it yourself (which is done on my grandparents' farm), a cord of wood costs about $150. And that cord will generate as much heat as 135 gallons of heating oil, 200 gallons of propane, or 4,275 kWh.
The benefit is clear:
Wood/$150 per cord
Heating Oil/$3.25 per gallon
Electricity/$0.12 per kWh
Propane/$3.60 per gallon
And the savings are even more dramatic if you cut it yourself.
Efficiency fruit: low to high
With energy costs expected to rise dramatically in the next two decades, we're now seeing the benefits of energy efficiency exploited on a much larger scale.
And there are plenty of ways for investors to profit up and down the efficiency value chain.
At the very bottom, you have things like programmable thermostats, insulation, windows, and more efficient appliances. Here, you're dealing with stalwart companies like GE (NYSE: GE), Honeywell (NYSE: HON), Whirlpool (NYSE: WHR), Cisco (NASDAQ: CSCO), IBM (NYSE: IBM), and others.
That's the very lowest fruit, simply engineering our existing homes and devices to use less energy.
From there it gets more complicated — but more lucrative... Much more lucrative.
Because you then start looking at smaller companies with novel solutions, which means they can appreciate much faster.
That's a two-year chart of EnerNoc (NASDAQ: ENOC), Veeco (NASDAQ: VECO), Aixtron (NASDAQ: AIXG), Stantec (NYSE: STN), and Voltaire (NASDAQ: VOLT).
Each are involved in different aspects of the energy efficiency market; as you can see, each has doubled in price — or better — since early 2009.
The beauty of this market is the sheer scope of it. We waste so much energy (6.5% of total generation just in transmission!) that billions will be made improving efficiency.
Take that UK study mentioned above, which pointed to lighting systems as a main avenue for efficient upgrades... Light-emitting diode (LED) makers like Aixtron and Veeco are the two best performing stocks on that chart.
The use of LEDs is significantly on the rise for everything from home and office lighting to flashlights and even computer and TV displays because of their bright light and extremely low energy requirements.
Phillips (NYSE: PHG) said today LEDs already make up 15% of its lighting revenue. That'll go to 50% in the next five years, and to 75% by 2020.
Other companies, like Voltaire, are tackling another big energy consumer: the millions of Web servers that allow you to search Google, send e-mail, stream video, and read this article.
Intel (NASDAQ: INTL), Yahoo! (NASDAQ: YHOO), eBay (NASDAQ: EBAY), Facebook, and Google (NASDAQ: GOOG) have at least a million servers between them. Millions more are powering Web hosting services and smaller websites.
Reducing their power consumption means big savings for the companies that use them... and big profits for the companies with the know-how to make it happen.
Companies like Stantec are taking the engineering approach, making everything from water treatment and waste management to traffic flow and industrial infrastructure more efficient.
And at the very top of the tree, when all downstream options have been exhausted, you have demand response. That's when companies like EnerNoc get paid to curtail electricity demand at critical times or in response to market prices.
It pays businesses and organizations to reduce energy usage during times of peak demand; it then essentially sells that reduced demand back to the utility. More than 100 utilities are already using EnerNoc's services.
It's exactly what that Delaware senator was talking about several years ago...
The cheapest energy to produce really is the energy you don't need.
And now, the utilities are willing to pay for it.
Call it like you see it,
Editor, Energy and Capital
P.S. This article doesn't cover batteries, and how they're being used to store wind and solar energy in residential and commercial applications — which would make renewable energy much more efficient and cost effective.
Soon, your nighttime power could come from solar energy you stored during the day. And this new solar technology could be the one that helps millions of consumers get off the grid.
Energy Demand will Increase 58% Over the Next 25 Years
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