By Gerard Wynn
LONDON, March 16 Sustained high oil prices
plus growing political support are boosting the energy
efficiency sector, which equity index data shows has long been a
less glamorous relation of struggling wind and solar stocks.
Conventional wisdom is that achieving energy
savings across homes and industry is a struggle, with uptake
obstructed by apathy and high up-front costs.
Meanwhile a "rebound effect" dilutes energy savings even
where these are achieved, where consumers simply indulge
themselves more, for example turning up the heating when they
make savings on fuel bills.
Nevertheless, companies which specialise in driving energy
savings are performing well.
Index providers combine listed companies which make money
from a particular theme, say efficiency, and weight them
according to their market capitalisation and the portion of
sales derived from the theme.
So far this year, benchmark efficiency indices have
out-performed the wider MSCI index of global stocks (up about 11
percent as of March 16), by 3 to 7 percentage points.
Examples of companies within the HSBC "Energy Efficiency and
Energy Management" index include Praxair (which supplies
industrial gases), Tesla (electric vehicles) and
Rockwool (insulation material).
In addition to performing well this year, consensus
forecasts suggest the theme will also beat climate peers (clean
energy and waste) over the next 12 months, with greater
earnings per share growth and lower price-to-earnings ratios,
HSBC analysts report.
Returns to efficiency stocks are against the backdrop of
high oil prices, driven in part by sovereign bond buy-backs and
supply shocks including Libya and Iran.
Brent crude has barely nudged below $100 since February
2011, despite a demand-sapping euro crisis, double-dip recession
warnings and rapidly slowing emerging economies, suggesting that
higher prices may be for the long term. Brent
stood at $123.40 on Friday.
Thomson Reuters data show a daily correlation between
efficiency stocks and U.S. crude oil from 0.49 to 0.51,
among four benchmark indices since the start of last year.
A value of 1 denotes a perfect positive correlation and 0 no
correlation at all.
Those indices are the HSBC Benchmark Energy Efficiency Index
; NASDAQ OMX Energy Efficiency ; Credit
Suisse Global Resource Efficiency Index ; and the
FTSE Environmental Opportunities Energy Efficiency Index
Another driver is policy support.
Efficiency appeals to cash-strapped governments in the
industrialised world, which like the sound of a low-carbon
technology which yields investment returns without subsidies as
they pull back from support for renewable energy.
Emerging economies have also set efficiency goals as they
try to meet vast, un-fulfilled energy demand and avoid blackouts
without running up a bill for burning fossil fuels also
responsible for soaring carbon emissions.
Governments have set a multitude of efficiency programmes,
incentives and targets.
The European Union is presently sharpening its main tool,
the Energy Efficiency Directive, and will likely approve in the
coming months binding obligations on energy companies to cut
their customers' fuel bills, and perhaps national targets to
install more efficient electricity metering.
Germany has a target to cut electricity use by a tenth by
2020 - as it tries to plot an energy path without nuclear.
Schemes in the United States ("Property Assessed Clean
Energy") and Britain ("Green Deal") aim to allow homeowners to
tap investment grade bond markets for cheap home improvement
And China's 12th five year plan for 2011-2015 includes
targets for efficiency in energy, carbon emissions and water
use, including a goal to cut energy consumption per unit of
national wealth (energy intensity) by 16 percent.
It's at the point of delivery that efficiency can fall over.
Even in China's centrally planned economy, where authorities
have previously resorted to energy rationing to meet efficiency
goals, the National Bureau of Statistics says the country missed
the 2011 leg of its present five-year plan.
China cut the energy intensity of its economy last year by 2
percent, lagging a target to shear off 16 percent over five
Britain, meanwhile, has been ticked off by environmental
groups for shifting support from direct grants to a loan scheme
which may struggle to grab homeowners' attention.
Critically, delivery is about managing behaviour: educating
consumers about their energy use and how to save money. Here a
gradual rollout of smart meters will help by relaying live data
on energy use according to individual rooms and appliances.
Higher oil prices will help, and a higher political focus as
developing countries try to manage energy demand and carbon
emissions, and the great engineering innovators Japan and
Germany try to wean off nuclear power.