Here’s a thought.
Wall Street is in turmoil. Real estate doesn’t look like it’ll be a good investment for a while. Commodity prices have been falling like a stone. The dollar is gaining strength against international currencies, making many overseas investments seem riskier.
So if business or home investors are looking for a place to park some money—and don’t want to just stuff it in a mattress—what should they do?
I’m not an investment professional. If you’re looking for real investment wisdom, you should probably look elsewhere. Still, it seems that there’s one great investment opportunity that’s getting overlooked: energy efficiency.
Yes, oil and gas prices have fallen from this summer’s vertiginous heights. But they’re still pretty high. And investing in an efficiency upgrade—a new furnace or HVAC system, more efficient windows, better insulation, smarter lighting—is a great way to cash in on high energy prices.
And overall, efficiency upgrades to buildings tend to be a pretty safe investment. The payout in energy savings is reliable, and—more importantly—the return on an efficiency investment actuallygrows as energy prices rise. The more that energy costs, the more money an efficiency upgrade will save you. That makes efficiency a great “countercyclical” investment, and a smart hedge against energy inflation. Plus, the return is all tax free—after all, you don’t get taxed on money you don’t spend!
So right now, when other good investment opportunities are looking scarce, I think a lot of us would be well-served by adding more efficiency to our portfolios. Here’s one site that offers a do it yourself home energy audit, with links to smart energy saving ideas. Any takers?
Good thinking, Clark.I’d just add:The capital markets would likely send billions of additional dollars into energy efficiency in buildings were there a convenient way to bundle and “sell” the cost savings that stem from building energy retrofits. Is there a way to create a security—an investment instrument—that finances building upgrades and pays dividends in the form of a share of savings on in-building energy bills? One model is the “Energy Service Company,” which contracts to provide lighting, heating, and cooling, but is free to provide these services with whatever combination of capital investments and fuel makes most economic sense. The “ESCo” model has been around for a long, long time, but it’s never really taken off. Why not? What would work better?
Yes, Alan, ESCOs have been around a long time. They make sense because a company can depreciate an asset (PV array, furnace, whatever), but a private owner cannot. So commercial ownership of a residence’s HVAC or renewable energy system makes more economic sense.Still, one of the reasons that ESCOs have not taken off is because of the difficulty of dealing with individual homeowners. The overhead and the financial risk are pretty large for the service being offered and the profits to be made.One way of mitigating this a bit is by encouraging the development of residential utility districts. For example, all the neighbors on a block could join in to contract with a firm to install, operate, and maintain a photovoltaic array on the homes in the neighborhood with the most sun. The ESCO has one customer, the “district,” and everyone in the district shares in the cost savings. (The array can be sub-metered to record this.) But the dealing with the individual homeowners is left to the “district,” which is the homeowners themselves.It would be nice for Seattle’s Office of Neighborhoods to facilitate such arrangements, but I know that that office has been decimated over the last few years.
Rob Harrison AIA
@Alan – Just imagine if such an investment vehicle existed! How much more real value would there be in that than say, speculating on short stocks. @Clark – About 15 years ago, Paul Horton and Dave Murray of the Energy Outreach Center in Olympia wrote an article about the financial returns of investing in energy efficiency. The equivalent rates of return are pretty amazing. I posted the article on our website, with their permission. Invest in EfficiencyEven with 1990 energy prices, adding R-38 insulation to your attic had a pay-back time of two to five years. As they say, a mutual fund would have to grow 14.4% every year for five years to equal that return!