Responding to today’s energy crisis
THEME 1

Responding to today’s energy crisis
Europe is today engulfed by an energy crisis: natural gas and electricity prices have reached new all-time highs, largely driven by the sharp decline in Russian natural gas exports. We can no longer rely on cheap gas supplies for our electricity and heating needs, and must be more self-reliant for energy production. This situation should spur a renewed focus on renewable energy generation and storage, as well as investment in improved energy efficiency and conservation – a key subtheme of the circular economy theme.
Much of what we consume as goods and services require an enormous amount of energy for production, provision and transportation. The energy crisis thus places an even greater emphasis on making goods and services more efficient and durable, reinforcing our belief in the circular economy as a long-term theme.
OUR RECOMMENDATIONS
A cross-asset theme: Equities, Bonds, Infrastructure, Real Estate and Commodities
- Energy Efficiency: it is far easier to save energy rather than generate it, via energy conservation solutions including insulation, smart glass, geothermal heat pumps, automatic light sensors and power monitoring systems.
- Renewable/Clean Energy: given the need to generate more electricity via non-fossil fuel sources to ensure greater energy security and self-sufficiency.
- Smart Grid Infrastructure and Renewable Energy Storage: including battery metals, which are necessary raw materials for these storage systems.
- Circular Economy leaders: including a focus on better and more modular design, making products more easily repairable, longer-lasting and requiring fewer raw materials to produce, with a smaller carbon footprint. This covers leading manufacturers and technology companies in a number of manufacturing industries, also major operators in the sharing economy and in leasing.
KEY RISKS
- An overriding political imperative to lower prices for consumers and businesses could lead to a delay in the investments and policies required to drive higher investment in the circular economy in the near term.
- The enabling of new technologies to achieve optimal use of natural resources including energy could supersede current circular economy technologies and business models in the reuse, repair and recycling of goods and services.
Global energy demand just keeps rising…
Record-high European natural gas and electricity prices dominate the news, fuelled by restricted natural gas exports from Russia. With benchmark Dutch natural gas prices currently 15 times higher than the average for the first half of 2021, European gas demand is naturally starting to fall as companies cut back energy-intensive production and services.
Efforts to reduce the carbon intensity of the global economy up to now have been insufficient to arrest rising temperatures. We still consume far too much energy and too many goods, generating a carbon footprint which the world simply cannot sustain over the long term. According to BP, the world saw its largest ever increase in primary energy demand in 2021.
Renewable energy on the bounce
On the energy supply side, we can expect to see accelerated investment in low and zero-carbon energy production through renewable energy sources (principally solar and wind as well as geothermal). In order to reduce the volatility of energy supply as the world transitions away from gas-fired power generation to using more renewable energy sources, we need heavy investment in electricity storage via hydroelectric dams, industrial-scale batteries and gravity-focused energy storage solutions. To this end, renewable energy infrastructure and storage funds remain an excellent investment, offering solid rates of return and long-term growth.
Energy efficiency/conservation now in focus
From now on we must all focus on energy conservation and efficiency, as it is much more productive to save energy than it is to generate. This can take many forms, including heat pumps to partially or fully replace gas central heating, LED lighting, smart light controls and smart meters to reduce electricity consumption, and improved window, roof and wall insulation of homes and office buildings to reduce heat loss.
There are simple energy-saving measures to take: reduce speed limits on motorways; ask consumers to turn down their thermostats a touch; encourage the use of public transportation by reducing the cost of tickets. The International Energy Agency has produced a handbook entitled “Saving Oil in a Hurry”, full of energy-saving measures that are useful at this time of energy crisis. Ultimately, record-high energy prices focus minds and should drive accelerated investment in the transition to a low-carbon energy future, which would be good for us all in the long run, even if we suffer today.
Investing in energy infrastructure
We favour energy efficiency and circular economy funds and stocks, as these should benefit from the intense focus on investment in both energy generation and energy conservation.
The circular economy as an indirect way to consumer less energy
Consider that a large slice of our daily consumption of goods and services is in fact an indirect consumption of the energy required to make and transport goods or to provide services. The energy crisis thus places an even greater emphasis on making goods and services more efficient and last longer, reinforcing our belief in the circular economy (“reuse, repair, recycle”) as an important investment theme.
Companies will invest heavily to find less energy-intensive methods of production of nitrogen fertilisers, aluminium and semiconductors, which are very energy-intensive processes.