Smart Money Is in Energy Efficiency

The winds of change are blowing through our energy economy, and it won't be long before they're at gale force. The simple fact is that we can't maintain our prosperity and growth without energy, and we can't continue to produce energy the way we've been doing it all along. Everything about the way we generate, transmit, and consume energy is going to have to change. This creates plenty of investment risk, but it also offers extraordinary opportunity for those who see the big picture.

The cheapest Megawatt
U.S. Deputy Secretary of Energy Daniel Poneman had a lot to say about energy efficiency at the recent Bloomberg New Energy Finance (BNEF) Summit. "Life is too short to work on second-class problems," he said by way of opening. Poneman views the transformation of our energy economy as the challenge of our generation, emphasizing that we cannot resist the transition to sustainability: We must lead it.

The U.S. energy economy has reached 100 quadrillion British thermal units (btu) per year. This is nearly 20% of the world's energy, even though the U.S. has only 5% of the world's population. Astonishingly, more than half the energy we use is wasted. Poneman asks us to think about what we could do with that energy, or with the money saved from not buying it.

This isn't just about the environment, Poneman points out. Former Energy Secretary Steven Chu says, "I believe in energy efficiency because I'm cheap." The cost of waste goes straight to the nation's bottom line. Poneman says we could save tens of billions of dollars that could be plunged right back into investment. "Sometimes we have a lack of imagination," he says.

The cheapest megawatt, Poneman says, is the one you don't have to generate: "We have got to do better than 45% energy efficiency. Einstein himself said that we cannot solve problems by using the same kind of thinking we used when we created them."

Sarbjit Nahal, head of thematic investing strategy at Bank of America Merrill Lynch, recently published an anvil-heavy tome positing the theory that the next five to 10 years will be devoted to a serious bid to improve energy efficiency, and guiding equity investors through strategies to capture opportunities on that front. The efficiency possibilities touch every sector: Serious improvements could be made in the way buildings run, data centers are cooled, semiconductors power devices, and lighting illuminates. 

Michael Liebreich, chief executive of BNEF, said at the recent BNEF Summit that energy efficiency had the potential to be a game-changer. Indeed, he views energy efficiency as a critical element of our transition to a new energy architecture.

The players
Energy efficiency is a huge space to play, so I won't pretend that I can offer an exhaustive view of the companies involved. That said, here are some names that are very interesting in this area.

Johnson Controls (NYSE: JCI  ) is involved in making buildings run more efficiently. Commercial buildings' energy intensity has dropped by more than 40% since 1980, but there is plenty of room left for further improvement. Johnson offers products and services that optimize buildings' energy and operational efficiencies, as well as lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles. In 2012, Johnson's building efficiency unit accounted for 35% of net sales.

Ameresco (NYSE: AMRC  ) is one of the few large, independent energy efficiency service providers. The company's principal service is the development, design, engineering and installation of projects that reduce the energy and operations and maintenance costs of its customers' facilities. Ameresco has seen declining revenues recently because of unusually long lag times in getting its projects funded, but this seems a temporary setback.

Philips Electronics (NYSE: PHG  ) is among the world's largest lighting manufacturers, and promoting energy-efficient lighting is one of its top priorities. Lighting accounts for more than 19% of the world's energy consumption, so Philips is well positioned to benefit from the efficiency trend. The company announced last month that it had created the world's most energy-efficient LED lamp suitable for general lighting applications. The lamp will come to market in 2015 for office and industry applications and will ultimately be available for residential use.

BorgWarner (NYSE: BWA  ) makes fuel-efficiency tools for cars and is among the tips Sarbjit Nahal provided in his report. The company has outperformed every auto supplier in North America over the past three years. BorgWarner's stock has slipped recently, largely because of declines in European auto sales. That could make the timing just right to consider this solid company.

And then there's General Electric (NYSE: GE  ) , one of the pioneers of energy efficiency solutions, with its fingers in nearly all of the new energy pies. The massive conglomerate offers an entire array of products that improve the efficient operation of power plants, airplanes, railroad systems, and wind turbines, just to name a few.

For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.


Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 13, 2013, at 8:23 AM, swarfer wrote:

    When fuel prices are low, replacement with more efficient expensive plants and equipment does not pay. To counter this the administration is not pushing energy production, but CO2 regulation to force less fuel consumption. As natural gas prices continue to collapse and newer efficient plants are built, we will all still pay more. As long as Democrats control Washington, betting on companies providing expensive efficiency solutions should make you money.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2425108, ~/Articles/ArticleHandler.aspx, 8/21/2014 12:36:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement