AquaEnergy: back to the basics
VFM launches Wignacourt AquaEnergy Fund
Over the past year, global markets have experienced the consequences of the US credit crunch, bank write-downs and inflation. The combination of these factors has affected the range of investment opportunities.
When times are tough, investors historically return to a "back to basics" strategy. This natural tendency is based on economic factors and dictates the main needs of investors. One such area has proven to be commodities, a dominant emerging asset class for new investment opportunities. Other future asset classes expected to grow substantially are "aqua" or water and renewable energies.
Renewable energy solutions and water, whether for industrial, agricultural or domestic use, are two sectors that have boomed in the past years. Similar to commodities, energy and water demand grow due to demographic and population evolution. As the world population, which is estimated to reach nine billion by 2050 from six billion today, increases and therefore consumes more and annual income per capita increases, hence boosting consumer purchasing power, these sectors are set to grow in the future.
Renewable energies have literally taken off in the past years, increasing 50 per cent on average each year since 2004 and reaching $148.4 billion investment in 2007. This has been due to the global trend of increased consumption by the average consumer as the quality of life in emerging economies reaches higher standards. The prediction that energy demand is set to increase by 30 per cent by 2030 (IEA-World Energy Outlook) has caused a tremendous need for governments to invest money to create new energy production capacities.
As predictions of commodity prices remain very high, renewable energies offer a unique solution by reducing the dependence of local economies on oil. On the other hand, customers have started to become more and more aware of the effects that fossil energies, based on coal and oil, have on the environment. Climate changes, air pollution and extreme natural phenomena force investors to question the type of energy they are consuming.
This "necessity" has led to a quick and wide-ranging "prioritisation" of renewable energies. Whereas a few months ago people were simply talking about these phenomena, larger industrialised countries are seriously putting their money where their mouths are, whether through embracing environmentally-friendly energy production (solar, wind, biofuel) or via efficient technologies to reduce CO2 emissions. What is clear is that renewable energies are high on political and business agendas, as witnessed by fiscal or regulatory incentives emanating from various governments and organisations. Such incentives in turn create new investment opportunities.
Global energy consumption is projected to rise by approximately 50 per cent in the next 25 years. With world population rising and climate change affecting the planet, reduction of CO2 emissions has become a priority as current usage of coal, oil and gas is expected to raise the global temperature by 2°C by 2010.
Leading global companies have sought to counter these developments by investing a total of $148.4 billion in renewable energies in 2007, an increase of 60 per cent over 2006. This investment will certainly continue to increase as a major advantage of renewable energies is to reduce greenhouse gas emissions with a limited ecological footprint.
Water demand is also fuelled by worldwide shifts in demographics. Water consumption rises with population growth. By 2025 water usage for agriculture, industry and municipalities will increase by 28 per cent, 60 per cent and 71 per cent respectively (Shiklomanov reference 1995).
Some basic facts
Fast-growing emerging econo-mies are expected to consume more and more water as incomes rise. Usage of water generally increases with country income, because unlike oil, water has no substitutes and is not tied to inflation, recessions, interest rate changes or inventories. Scarcity of accessibility to fresh water still exists for over 1 billion people around the world. Moreover, water treatment is extremely costly with approximately 97.5 per cent of available water resources coming from the sea and oceans (JT Monitoring Prog WHO 2004).
Global per capita consumption of bottled water has increased by 75 per cent, to 24.2 litres, between 1997 and 2004 and is expected to continue to rise. But it is interesting to note that per capita bottled water consumption in Asia is a tenth of that in North America, indicating potential increased demand for water. It is not a coincidence that in some countries the price of one litre of water is higher than one litre of gasoline. Water is becoming an ever-scarcer commodity.
In parallel, exogenous weather factors have exacerbated the water situation, as 2007 and 2008 have seen extreme water shortages and droughts around the world ranging from Cyprus to the midwest region of the US. This has led to worldwide political pressure to increase budgets for water treatment and distribution.
In the difficult economic situation facing us today, those investments linked to basic needs and new world challenges offer a strong diversification opportunity. We will not stop drinking fresh water, but we may need to switch from oil to new sources of energy.
Mr Demetropoulos is director and head of equity and commodities derivatives marketing for Malta, Greece and Cyprus at BNP Paribas.
When times are tough, investors historically return to a "back to basics" strategy. This natural tendency is based on economic factors and dictates the main needs of investors. One such area has proven to be commodities, a dominant emerging asset class for new investment opportunities. Other future asset classes expected to grow substantially are "aqua" or water and renewable energies.
Renewable energy solutions and water, whether for industrial, agricultural or domestic use, are two sectors that have boomed in the past years. Similar to commodities, energy and water demand grow due to demographic and population evolution. As the world population, which is estimated to reach nine billion by 2050 from six billion today, increases and therefore consumes more and annual income per capita increases, hence boosting consumer purchasing power, these sectors are set to grow in the future.
Renewable energies have literally taken off in the past years, increasing 50 per cent on average each year since 2004 and reaching $148.4 billion investment in 2007. This has been due to the global trend of increased consumption by the average consumer as the quality of life in emerging economies reaches higher standards. The prediction that energy demand is set to increase by 30 per cent by 2030 (IEA-World Energy Outlook) has caused a tremendous need for governments to invest money to create new energy production capacities.
As predictions of commodity prices remain very high, renewable energies offer a unique solution by reducing the dependence of local economies on oil. On the other hand, customers have started to become more and more aware of the effects that fossil energies, based on coal and oil, have on the environment. Climate changes, air pollution and extreme natural phenomena force investors to question the type of energy they are consuming.
This "necessity" has led to a quick and wide-ranging "prioritisation" of renewable energies. Whereas a few months ago people were simply talking about these phenomena, larger industrialised countries are seriously putting their money where their mouths are, whether through embracing environmentally-friendly energy production (solar, wind, biofuel) or via efficient technologies to reduce CO2 emissions. What is clear is that renewable energies are high on political and business agendas, as witnessed by fiscal or regulatory incentives emanating from various governments and organisations. Such incentives in turn create new investment opportunities.
Global energy consumption is projected to rise by approximately 50 per cent in the next 25 years. With world population rising and climate change affecting the planet, reduction of CO2 emissions has become a priority as current usage of coal, oil and gas is expected to raise the global temperature by 2°C by 2010.
Leading global companies have sought to counter these developments by investing a total of $148.4 billion in renewable energies in 2007, an increase of 60 per cent over 2006. This investment will certainly continue to increase as a major advantage of renewable energies is to reduce greenhouse gas emissions with a limited ecological footprint.
Water demand is also fuelled by worldwide shifts in demographics. Water consumption rises with population growth. By 2025 water usage for agriculture, industry and municipalities will increase by 28 per cent, 60 per cent and 71 per cent respectively (Shiklomanov reference 1995).
Some basic facts
Fast-growing emerging econo-mies are expected to consume more and more water as incomes rise. Usage of water generally increases with country income, because unlike oil, water has no substitutes and is not tied to inflation, recessions, interest rate changes or inventories. Scarcity of accessibility to fresh water still exists for over 1 billion people around the world. Moreover, water treatment is extremely costly with approximately 97.5 per cent of available water resources coming from the sea and oceans (JT Monitoring Prog WHO 2004).
Global per capita consumption of bottled water has increased by 75 per cent, to 24.2 litres, between 1997 and 2004 and is expected to continue to rise. But it is interesting to note that per capita bottled water consumption in Asia is a tenth of that in North America, indicating potential increased demand for water. It is not a coincidence that in some countries the price of one litre of water is higher than one litre of gasoline. Water is becoming an ever-scarcer commodity.
In parallel, exogenous weather factors have exacerbated the water situation, as 2007 and 2008 have seen extreme water shortages and droughts around the world ranging from Cyprus to the midwest region of the US. This has led to worldwide political pressure to increase budgets for water treatment and distribution.
In the difficult economic situation facing us today, those investments linked to basic needs and new world challenges offer a strong diversification opportunity. We will not stop drinking fresh water, but we may need to switch from oil to new sources of energy.
Mr Demetropoulos is director and head of equity and commodities derivatives marketing for Malta, Greece and Cyprus at BNP Paribas.