By Gerard Wynn
LONDON, March 16 (Reuters) - 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 loans.
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 years.
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.