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Today's No-Brainer Energy Investment


Recently, the International Energy Agency (IEA) published a report on total global investments in one specific form of "energy" in 2012. It pegged investment in this form of energy at between $310 billion and $360 billion. What is it? The answer might surprise you.

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Recently, the International Energy Agency (IEA) published a report on total global investments in one specific form of "energy" in 2012.

It pegged investment in this form of energy at between $310 billion and $360 billion. That was larger than investments in renewable-resourced electricity, or in oil-, coal- and gas-fired power generation that year. It was about half of the investments made in upstream oil and gas drilling.

So what was it?

It was energy efficiency. While not a true form of supply-side energy, energy efficiency is the world's "first fuel," as the IEA likes to call it.

And it really is. Energy-efficiency investments are distributed across many different countries and energy users. Major industries, the transport sector, domestic appliances, and buildings are all big spenders on energy efficiency.

So how big are the savings from energy efficiency? The answer is absolutely staggering.

The savings from just 11 of IEA's 18 member countries (Australia, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Sweden, the UK, and the US) in 2011 was equal to 1.34 billion tons of oil-equivalent.

A Little Perspective

Let me put that into perspective. First, know that 1.34 billion tons of oil is equal to 9.82 billion barrels.

That's 26.9 million barrels of oil per day. That's more than one-quarter of the world's present daily consumption.

Put another way, if no one invested in energy efficiency in 2011, demand for energy (in oil-equivalent terms) would have grown that year by 25%.

"Avoided energy use" is the term used to describe the savings. In 2011, avoided energy use was larger than the annual supply of oil (1.2 billion tons of oil-equivalent) natural gas (509 million tons of oil-equivalent) and electricity (552 million tons of oil-equivalent).

The savings were greater than the total final consumption (TFC) of the European Union. They were 87% of the TFC in the U.S. and 80% of the TFC in China for that year.

In monetary terms, the savings in 2011 amounted to $743 billion. According to the IEA, that number is based on an average global price of energy at $13.96 per gigajoule.

In the transportation sector, vehicle fuel economy is now more the rule than the exception. Standards dictating fuel efficiency now cover about 70% of the world's light-duty vehicle (LDV) markets.

Over the next 5 years, many of these standards will drive even more energy-efficient vehicles. The IEA estimates $80 billion will be invested in new standards annually through the end of the decade.

Estimated annual savings for motorists? Between $40 billion and $190 billion.

In developing countries, vehicle efficiency standards will drive even more savings. The IEA expects passenger travel to increase 90% in developing countries from 2011 through 2020.

The Big Money

However, the residential sector is where energy efficiency is really racking up the savings. Improvements in water heating, space heating, appliances and lighting are all big drivers of energy efficiency in residential buildings.

Residential energy-efficiency savings have more than countered the effects of growing populations and the preference for larger homes. Net residential energy use in IEA countries was 14% lower as a result of energy efficiency.

Without the electrical power industry, our economy would come to a grinding halt. No other industries could function without it.

Developing economies are rapidly expanding generation capacity to meet increasing demand. Right now there are more than 25,000 active power projects under construction with a total combined value of $5.82 trillion.

In developed countries, aging infrastructure, ever-tightening emissions regulations and renewable energy are driving vast amounts of capital spending. Much of that money is headed toward energy-efficient transformers, lighting, and renewable energy sources.

Energy efficiency is the hidden reason behind lower global energy demand. Without it, the demand for global energy would be rising far faster than our ability to supply it.

Most energy investors focus on oil and natural gas. However, companies involved in producing energy-efficient products are part of the largest subsector of the energy market.

Make sure you have an energy-efficiency company or in your energy portfolio.

David Fessler is energy and infrastructure strategist at InvestmentU.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.

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