Merrill Lynch Bets On Energy Efficiency

Company says global manufacturing industry could improve its energy efficiency.

Merrill Lynch is following 40 companies across the globe that it believes will benefit from efforts to both reduce CO2 emissions and the cost of energy. The investment firm recently created the Energy Efficiency Index to track these companies.

"While there has been a clear shift of resources and investor attention into renewable energy, energy efficiency remains an area that is relatively under-explored," said Asari Efiong, Merrill Lynch SRI/Renewable Energy equity analyst. "We believe that energy efficiency represents a significant market opportunity for investors, as policy changes look set to force a structural shift in demand."

Merrill Lynch has identified the automotive industry, capital goods, semi-conductors and building materials as the most likely to participate in these efforts. The Merrill Lynch Energy Efficiency Index is divided into four components: integrated plays with a focus on the capital goods sector; fuel efficiency in the automotive industry; building insulation; and energy-efficient solutions, including products, applications and industrial processes.

Merrill Lynch's analysts note the global manufacturing industry could improve its energy efficiency by 18% to 26% overall (and at the same time reduce the sector's CO2 emissions by 19%-32%). The index also highlights companies in the capital goods sector which are best positioned to reduce CO2 emissions and energy consumption across the industry.

The market for power semiconductors also looks well positioned for strong growth driven by the need to improve energy efficiency throughout the electricity supply chain from generation, through distribution to end consumption according to the company. Focusing on consumption, there are a number of ways that chip companies can lower the amount of energy required including reducing standby power, lowering heat loss in power supplies and the introduction of variable speed drives in motors. The new Energy Efficiency index includes the leading companies in power semiconductors together with companies which are best positioned in efficient lighting (both CFL and LEDs) and smart metering.

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