With the price of petrol back over £1 per litre, we can’t help but think about energy: about how to find it, how to use it – and how to save it. Of course, as investors, you and I just want to know how to profit from it. And that’s what we’re looking at today…
In December, the United Nations Climate Change Conference will take place in Copenhagen. In the words of environmentalist Tom Burke, it “will do more to shape human destiny and for longer” that any previous such event. Already, environmentalists are limbering up and reminding us in the direst terms of the threats to the planet and the human race.
Why climate change points to a major investment opportunity
Prince Charles, of course, is well to the fore and does not pull his royal punches: “The best scientific projections indicate that we have very little time left – indeed, less than one hundred months – in which to alter our behaviour drastically. Although I wish it were otherwise, I fear we have reached the point when if we do too little, too late to tackle this problem, the consequences could be catastrophic.”
But the stock market, punting on a recovery of the banking sector, has taken its eye off the subject of the environment. Back in 2008 before the recession hit, shares in all manner of green cloaks were the rage. A string of new companies came to the stock market promising to do their bit for the environment. They were greeted with enthusiasm, their share prices reached for the sky like rainforest trees, and investors looked far forward to spy their ultimate rewards. But then everything went wrong…
The bear market has changed all that. Worrying about what might happen in a decade or so is a luxury we cannot afford in a crisis. Those same share prices have sunk back to earth. But while the stock market has a rhythm of its own, it is badly out of tune with the insistent beat of global warming. The need for solutions is greater than ever. And, if progress is never as fast as the environmental lobby would like, sticks and carrots are gradually changing our ways.
There are a few ideas out there that sound, frankly, nutty. Take space reflectors for instance. One plan is to form a sixty thousand mile wide cloud of trillions of tiny deflector satellites. They’d be placed about one million miles above the earth, to block the sun’s rays. Then there are the floating sea pipes. Colder water is richer in life that absorbs CO2 from the atmosphere, so another idea is for huge flotillas of vertical pipes to pump cold water from the depths of the ocean up to the surface.
Maybe it will come to this, but the world is likely to adopt simpler and more reliable solutions first. And many of these concern not just finding new, green energy, but making sure that we use less of it in the first place.
Making money from the race to energy efficiency
Nobody is going to be more influential than Dr Stephen Chu. This former Nobel Prize winner is now President Obama’s Secretary of State for Energy, and he is an optimist. “With a serious commitment to energy efficiency, widespread deployment of the technologies we already have, and an aggressive investment in science,” he argues, “we can dramatically reduce our carbon emissions”. In particular he believes that huge savings of energy can be achieved by improving buildings – “we can give engineers and architects the tools to design buildings that use 80% less energy than today”.
That is some saving and down in the world of penny shares there are plenty of companies that would like to play their part. Take Pentagon Protection (LSE: PPR), for instance. This stock market minnow supplies a transparent film which, when placed on window panes, prevents buildings from absorbing heat thus cutting the air conditioning bill. Then there is energy efficient LED lighting – a subject that I discussed in the last edition of my newsletter Red Hot Penny Shares.
And there is Sabien Technology (LSE: STN), which promises to reduce the energy and carbon emissions from heating and air conditioning systems by up to a quarter. This type of company has government and our social conscience on its side.
You can see the potential. Energy is expensive both in terms of costs to the environment we live in but more importantly (from an investment perspective) in real monetary terms.
With the race on to become more energy efficient, you can be sure that investors will be looking for companies with viable ways to bring costs down. Alongside oil, it’s the other great energy trade.
• This article was written by Tom Bulford for daily investment email The Right Side