Julius Baer: Energy sector attracts investors

Global energy use has increased more than twenty-fold over the past 200 years due to the multiplying effect of population and higher usage. The International Energy Agency (IEA), the intergovernmental energy policy advisor, expects primary energy demand to grow by more than 50 per cent by 2030.

Demand will come mainly from developing countries whose continued wealth creation and adoption of a western lifestyle will progress, along with the need for more transportation, air conditioning, heating, refrigeration etc.

The IEA, believes the global energy system is on an unsustainable path and is in urgent need of reshaping. It believes the world must learn how to handle its thirst for energy, its addiction to depleting fossil-based resources and the environmental havoc being created.

A number of new technologies are entering the market, aimed at providing solutions to meet the critical challenges of the energy industry. Solar, wind and other renewable power sources can help in solving climate problems but fossil fuels will continue to dominate energy supply for the foreseeable future. The resulting investment opportunities include oil and gas producers who have access to extensive reserves, equipment providers for deep-sea drilling, liquefied gas facilities and gas-powered vehicles, clean fuel producers, solar and wind power companies, providers of "smart" electricity metres and companies that install and maintain power grids.

Government initiatives have an important role to play. For a number of years there has been talk about the importance of sustainable energy but targets have not been achieved when it comes to creating it. The tide is however changing and developing economies are becoming increasingly energy aware.

We expect the US alternative market to grow significantly in 2010 and thereafter following the introduction of favourable incentives such as loan guarantees and tax credits for renewable energy projects. The US is also expected to announce a national renewable portfolio standard, forcing electric utilities to generate a large part of their electricity from renewable sources. Furthermore, the sharp decline of prices for solar modules and wind turbines is likely to have a significant positive impact on demand for solar and wind installation once the current lack of project financing alleviates.

Other markets should also benefit from government incentives in 2010. China has just recently announced its first solar subsidy programme, Japan is resuming its solar subsidy scheme and Italy will start to see the full impact of its subsidies for renewable energy.