There’s a smart way to invest in the clean energy transition now

Solar and wind power, as well as electric vehicles, are getting the most attention when it comes to investing in green power, but the brightest ideas right now may be LED lighting, insulation and other practical solutions that will help flip buildings “green.”

“Energy efficiency will continue to receive a healthy proportion of post-COVID stimulus spending, with a continued focus on buildings,” said Will Riley, portfolio manager of SmartETFs Sustainable Energy II SOLR exchange-traded fund,
+2.61%,
from a perspective of his team at Guinness Atkinson Asset Management. The ETF was launched in early January.

Areas they want to target include LED lighting, insulation and heat pumps, and power grid and transmission upgrades.

“That’s not the sexy part. It’s not wind, solar, renewable installation equipment,” Riley told MarketWatch in an interview. “It’s building insulation. It’s LED lighting…it’s gauges to make sure we’re using energy more efficiently. It’s not the stuff that makes the headlines, but… it’s available for all countries to save. Everyone can do it.

Riley and his company based their call in part on International Energy Agency estimates that to meet current government policies, energy efficiency spending needs to rise from a recent average of around $250 billion per year to about $375 billion per year this decade and nearly $550 billion per year in the 2030s.

Buildings generate nearly 40% of the world’s annual Earth-warming CO2 emissions, both in the energy they use and in their construction, with concrete being a huge driver of emissions.

‘That’s not the sexy part. It’s not wind, solar, renewable installation material. It is the insulation of buildings. It’s LED lighting…it’s gauges to make sure we’re using energy more efficiently.


-Will Riley

New infrastructure spending signed into law last year included building efficiency funds, such as some $1 billion for building energy codes, and new revolving loan funds supporting retrofits of commercial buildings, homes , public schools and federal buildings.

Learn more about what the new law includes

Additionally, the Biden administration last month announced what it called the new “Buildings Performance Standards Coalition,” creating partnerships with 33 state and local governments — where 20% of the nation’s building footprint is located. and 22% of the US population. The effort targeted how much energy older buildings could waste, improving heating, cooling and more efficient appliances.

“One of the major secular trends that we are focusing on is the move away from liquid fuels worldwide in favor of electrification in all aspects of our lives. Whether it’s transportation, buildings, the heating industry, it’s going to be electrified. And in doing so, using electricity is generally more efficient than using NG00 natural gas directly,
+0.45%
or straight oil,” Riley said.

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“We have two or three companies in the portfolio now spread across the US market and the European market that specialize in the full supply chain of electrical equipment, from uninterruptible power supplies to wiring to connectors and charging. electric vehicles,” he added.

Read: The bitter break with gas stoves is getting closer – here’s another reason why

Riley said compliance rules prohibit him from directly naming the stocks. Examples of farms included in the electrification research highlighted the Canadian company TransAlta Renewables RNW,
+1.23%
and NextEra Energy NEE Power Generator and Transmitter,
+1.59%.
The Swedish company NIBE Industries NDRBF,
+1.02%
is an example of exposure to space heating, lighting and energy efficiency. Sensata Technologies ST,
+2.95%
and Aptiv APTV,
+3.75%
take advantage of the efficiency of electric vehicles, according to research.

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Also not to be overlooked

Riley’s appreciation of energy efficiency also hasn’t deterred a relative uptick in some solar, wind and electric vehicle stocks, particularly demand for batteries.

Riley and his colleagues expect global solar installations to grow in 2022 by more than 20%, led by China, India, the Middle East and other parts of Asia. The outlook for solar power in the United States this year is less certain due to delays in embracing more stimulus spending and Chinese import issues, as China is a major supplier of solar components.

Biden will extend Trump-era tariffs on imported solar equipment by four years, a nod to U.S. solar makers. But in a move for home solar installers, it eased the terms to exclude a panel technology increasingly used in major U.S. projects.

There doesn’t seem to be the same optimism about the short-term outlook for wind power. The fund team forecast flat install growth, limited in part by inflation-hit components – although the US push into offshore wind is seen as a positive factor in their outlook.

When it comes to electric vehicles and the batteries that power them, lower sticker prices, greater brand choice and growing consumer appetite continue to be key drivers behind the projected improvement in sales of electric vehicles.

Demand for batteries for use in electric vehicles and energy storage will accelerate in 2022, they say. Raw material cost inflation will continue to have an impact, but increased manufacturing capacity, coupled with technological improvements, will push average battery costs towards $100/kWh, the level at which consumer electric vehicles become affordable.

Read: Fight inflation with 3 stocks that bet against oil in favor of electric vehicles and the renewable energy network

The transition is not binary

The fund manager also said that enabling climate-conscious investments to be part of a “transition” to cleaner energy sources means thinking about ideas that will keep the economy growing and avoid the divisive effects of climate change. stranded assets as the world shifts away from traditional fossil fuels. CL00,
-0.16%,
underinvestment in drilling and other operations.

Read: Don’t rule out natural gas in clean energy transition, trade group says

Riley advised potential investors to be aware of recent NG00 natural gas price shocks,
+0.45%,
leading to fluctuating energy prices – in Europe in particular – as the world recovers from the worst of the pandemic, severe weather problems arise and as the West faces off against gas leader Russia over the Ukraine.

“Some media players present this as a sort of binary outcome: the former [energy] system or the new system,” Riley told MarketWatch.

“We need all these forms of short-term energy. We need hydrocarbons to be efficient. We need renewable energy to perform and grow,” he said. “And obviously over time we’re going to see a shift towards renewables, but it’s wrong to portray the industry as one or the other. I think it’s become a pointless conversation.

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