Environmental Impact and the IEA Plan for European Energy Independence

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The International Energy Agency (IEA) recently published a roadmap designed for the EU as a 10-point plan for reducing its reliance on Russian natural gas. In this piece, we unpack this 10-point plan while identifying European companies in our Rize Environmental Impact 100 UCITS ETF that stand to be meaningfully impacted positively by each of these initiatives.

In 2021, the EU imported an average of over 380 million cubic metres (mcm) per day of gas by pipeline from Russia, or around 140 billion cubic metres (bcm) for the year as a whole. As well as that, around 15 bcm was delivered in the form of liquefied natural gas (LNG). The total 155 bcm imported from Russia accounted for around 45% of the EU’s gas imports in 2021 and almost 40% of its total gas consumption.

Progress towards net zero ambitions in Europe will bring down gas use and imports over time, but today’s crisis raises specific questions about imports from Russia and what policy makers and consumers can do to lower them. This IEA analysis proposes a series of immediate actions that could be taken to reduce reliance on Russian gas, while enhancing the near-term resilience of the EU gas network and minimising the hardships for vulnerable consumers.

The IEA’s 10-point plan:

1. Accelerate the deployment of new wind and solar projects

In 2022, with record additions to solar PV and wind power capacity, the EU’s output of renewable energy is expected to increase more than 100 terawatt-hours or 15% compared to 2021. As such, European solar and wind equipment and manufacturers will be in high demand:

• • Prysmian – Prysmian SpA develops, designs, supplies and installs a wide range of cables for applications in the energy and telecommunications industries. The company offers submarine transmission, asset monitoring systems, network components and optical fibers.
  • Vestas Wind Systems – Vestas Wind Systems A/S develops, manufactures, markets, installs and services wind turbines worldwide.
  • Nordex – Nordex SE develops, produces, installs and maintains electricity-generating wind turbines. The company also designs and produces blades and control systems.
  • SMA Solar Technology – SMA Solar Technology AG manufactures solar inverters, alternating current converters for solar generated electricity. The company specialises in photovoltaic systems and is headquartered in Germany.

2. Speed up the replacement of gas boilers with heat pumps

Heat pumps are efficient and cost-effective alternatives to traditional gas boilers. Although doubling installation rates would cost an investment of €15 billion, this would save 2 bcm of gas within the year. We can point to companies that produce heat pumps and other solutions:

• • NIBE Industrier – NIBE Industrier AB is an international heating technology company that produces and sells heat pumps, boiler and water heaters and electrical heating elements.
  • Trane Technologies – Trane Technologies PLC manufactures central heaters, air conditioners, electric vehicles, air cleaners and fluid handling products.

3. Accelerate energy efficiency improvements in buildings and industry

Energy efficiency is critical for a secure and clean energy transition. 15% of our Rize Environmental Impact 100 UCITS ETF is dedicated to energy efficiency solutions. This includes companies such as:

• • Kingspan Group – Kingspan Group PLC is a global player in high performance insulation and building envelope technologies.
  • Owens Corning – Owens Corning Inc produces residential and commercial building materials, glass-fiber reinforcements and engineered materials for composite systems.
  • Ameresco – Ameresco Inc is an integrated electric energy corporation that supplies a range of energy solutions, including energy cogeneration, hydro electric and renewable energy facilities.
  • Schneider Electric – Schneider Electric SE manufactures electrical power products. The company offers car chargers, home security goods, light switches, access control, sensors, valves, circuit breakers, cables, accessories, signaling devices, fuse, motor starters and voltage transformers.

4. Step up efforts to diversify and decarbonise sources of power system flexibility

Schneider Electric and Legrand engage in the digital transformation of energy management and automation and offer solutions to make the grid smarter and more efficient.

• • Schneider Electric – Schneider Electric SE manufactures electrical power products. The company offers car chargers, home security goods, light switches, access control, sensors, valves, circuit breakers, cables, accessories, signaling devices, fuse, motor starters and voltage transformers.
  • Legrand – Legrand SA designs and manufactures electrical devices such as switches, sockets, fuses, cables, security systems, circuit breakers, solar energy panels as well as energy management components and accessories.

5. Encourage a temporary thermostat adjustment by consumers

The average building in the EU is heated at 22 degrees Celsius. If all buildings reduced their thermostats by just 1 degree Celsius would reduce gas demand by 10 bcm per year. Here are companies manufacturing energy management solutions:

• • Landis+Gyr Group – Landis+Gyr Group AG manufactures energy management solutions. The company offers single and polyphase, commercial and industrial meters.
  • Smart Metering Systems – Smart Metering Systems PLC develops smart meters for UK utilities. The company’s products include a meter, which transmits half hourly meter reading data to suppliers through mobile phone networks.
  • Itron – Itron Inc provides solutions for collecting, communicating and analysing electric, gas and water use data. Specifically, the company designs, manufactures, markets, installs and services hardware, software and integrated systems for handheld computer-based electronic meter reading and automatic meter reading systems. The company sells to utility companies worldwide.

6. Maximise generation from existing dispatchable low-emissions sources: bioenergy and nuclear

Rize Environmental Impact 100 UCITS ETF does not invest in nuclear. Companies with revenues from alternative low-emission sources include:

• • Borregaard (bioethanol) – Borregaard ASA is a supplier of specialised biochemicals. The company’s main product offerings are lignin-based products and specialty cellulose, but its product portfolio also extends to vanillin, fine chemicals and bioethanol.
  • Neoen (biomass) – Neoen SAS operates as an independent energy company that develops, finances, builds and manages renewable energy power plants within solar, wind and biomass.
  • Sao Martinho (ethanol) – Sao Martinho SA is an ethanol group in Brazil with four mills: São Martinho mill, the Iracema mill, the Santa Cruz mill and the Boa Vista mill. All generate electricity from burning sugarcane bagasse.
  • Ormat Technologies (geothermal) – Ormat Technologies Inc develops and operates renewable energy projects. The company offers geothermal, recovered energy and energy management and storage solutions.
  • Mercury NZ Ltd (geothermal) – Mercury NZ Ltd provides utility services. The company generates and supplies electricity from hydro, geothermal, gas-fired and wind power stations, as well as owns and manages bio-energy power plants.

7. Enact short-term measures to shelter vulnerable electricity consumers from high prices

It is assumed that these short-term measures would be done via legislation on utility companies. If so, the utility companies would likely be selling electricity to consumers for a reduced price and hence crimping profit margins. It is not clear if there are beneficiaries with regard to this point in our Rize Environmental Impact 100 UCITS ETF.

8. Introduce minimum gas storage obligations to enhance market resilience

We see no company/market implications should governments introduce new storage quantity floors. It is unlikely that this would trigger infrastructure spending (i.e., build out of new storage capacity). There would likely be a one-off rise in natural gas prices as demand increases to meet the threshold and then a return to status quo. To the extent that broader energy storage is both necessary and desired, companies like Ormat Energy and Siemens Gamesa Renewables are well placed to benefit.

• • Ormat Technologies – Ormat Technologies Inc develops and operates renewable energy projects. The company offers geothermal, recovered energy and energy management and storage solutions.
  • Siemens Gamesa Renewable Energy – Siemens Gamesa Renewable Energy SA designs and manufactures renewable energy equipment such as wind turbines, turbine gearboxes, off-grid and other related equipment. The company also provides maintenance and reconditioning services.

9. No new gas supply contracts with Russia

Rize Environmental Impact 100 UCITS ETF does not include natural gas as a sustainable fuel, there are no companies in our ETF that are producing or transporting natural gas or LNG. To the extent that gas supplies will need to be replaced in the near term by alternate energy, European renewable power generation companies could benefit:

• • EDP Renovaveis – EDP Renovaveis SA designs, develops, manages and operates power plants. The company generates electricity using renewable energy sources through wind energy.
  • Enlight Renewable Energy – Enlight Renewable Energy Ltd is a renewable energy company specialising in the initiation, development, financing, construction, management and operation of wind and solar energy projects.
  • Solaria Energia y Medio Ambiente – Solaria Energia y Medio Ambiente SA provides solar power generation solutions. The company generates energy from solar-powered photovoltaic panels.
  • Neoen – Neoen SAS operates as an independent energy company that develops, finances, builds and manages renewable energy power plants within solar, wind and biomass.

10. Replace Russian supplies with gas from alternative sources

Same as above.

This Featured Article has been produced by Sustainable Market Strategies. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.

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