The analogies with the great energy shocks of the 1970s are growing almost by the day. Government plans labelled ‘operation thermostat’ chime with – and even borrow from – energy rationing initiatives in the midst of the first energy shock of that period, when President Nixon for example asked citizens to “lower the thermostat by at least 6 degrees.”1
The causes are different, but no less complex. Similarly, recent events remind us not only how critical energy systems are to everyday life and living standards, but also how difficult they are to change in the short-term.
As the new energy shock has dramatically escalated amidst a tragic and despicable conflict, much attention has initially focussed on tackling the supply-side of the challenge: the what and the where, (and indeed, from whom), our energy supply comes from. As a direct consequence of the shocks to energy prices and security, the 1970s saw the first green shoots of the renewable energy industry emerge, and we see compelling opportunity here in the medium and longer-term, not just in renewable energy generation solutions, but to supporting technologies and infrastructure.
More recently however, developments that look to curb energy demand signal a growing necessity to address the other side of the same coin, representing both an immediate and longer-term opportunity.
A ‘whole systems’ approach
By definition, the unfolding systemic shock requires a systems approach to navigate the challenges and identify meaningful solutions. For our Ecology strategy, the six solutions themes we invest across include several that are designed to incorporate opportunities in companies focussed on providing environmental solutions throughout the energy system, which we see as critical to enabling sustainable development objectives while also building resilience and long-term affordability.
This highlights the likelihood that across economic sectors, including those that have been relatively slow to adopt newer technologies, are set for profound change in the current landscape. One such domain is energy efficiency in the ‘built environment’. Over recent quarters, we have increased the allocation to our ‘Green Buildings & Industry’ theme, including solutions that address how we heat and cool homes and commercial spaces.
In commercial environments, a collapsing of pay-back periods for energy efficiency programmes will inevitably mean a nearer-term demand-side reaction than in residential environments for example.
But the adverse effect of skyrocketing energy prices has reinforced the need to accelerate residential energy efficient programs, with each energy bill hike adding to the calculated lost savings from previous delays to delivering on energy efficiency ambitions, while also hindering progress to tackling climate change.2
With less than 5% of heating currently used across the UK’s homes coming from low-carbon sources3, the scale of the challenge and the opportunity is significant. Heat pumps are one such solution for building efficiency improvement and emission reduction, simultaneously delivering on the three elements for the energy trilemma: security of supply, long-term affordability, and net-zero alignment.
Ultimately, we see technology and innovation as key to combating the climate and environmental crisis. These solutions are now setting the pace for policy and regulation – a welcome reversal to the previous relationship. As investors, the scale of change required to reverse global warming is creating significant opportunities to support environmental solutions companies, which provide products and services critical to achieving sustainability targets. It is becoming ever more evident that these solutions will spread widely and to as-yet unpenetrated sectors of the global economy. As attitudes toward addressing climate solutions shift, we see a broadening of the value chain beyond the conventional lens. The opportunities throughout the market that this creates will be plentiful and we remain well-positioned to identify them.
2 Analysis: Cutting the ‘green crap’ has added £2.5bn to UK energy bills – Carbon Brief
3 Decarbonising heat in homes – Business, Energy and Industrial Strategy Committee (parliament.uk)
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.