Index (NEX) – Sector Definitions
The Index is made up of companies active in the following seven Sectors*:
1. Renewable - Wind
Wind is the renewable technology that has had the biggest impact on our energy usage patterns over the past decade. The next decade will see continued activity, particularly in developing countries and offshore. The Wind sector includes components and subassemblies for wind turbines, as well as manufacturers of turbines themselves. A big part of this sector, however, consists of the developers, generators, utilities and engineering firms that have sprung up to exploit opportunities to build wind farms around the world.
2. Renewable - Solar
The Solar sector covers all technologies that capture energy directly from the sun, either using a photovoltaic (PV) material, or via solar thermal technologies such as concentrators or Stirling engines. The solar energy sector is already substantial - cost reductions through new technologies or through increased manufacturing scale should see it breaking into new areas of energy demand over the coming decades.
3. Renewables - Biofuels & Biomass
Liquid transportation fuels including biodiesel and bioethanol can be derived from a range of biomass sources, including sugar cane, rapeseed/canola, soybeans, and importantly ahead, cellulosic biomass. The Index will not include companies whose only involvement is as a grower of biofuel feed-stocks, but will cover suppliers of processing technologies and equipment, through logistics and distribution players, to manufacturers of energy systems specially adapted for the use of biofuels and products. The Index may also include companies involved in production and consumption of solid and gaseous fuels derived from biomass. Solid biomass for the energy sector can include a number of specially-grown crops, such as switch grass, elephant grass or coppiced willow, but can also consist of crop residues such as straw. We include here processors of other waste matter for energy generation, such as sewage waste, chemical by-products or biogas from municipal waste, as their exploitation often involves the same technologies as grown-for-purpose biomass.
4. Renewables - Other
One of the characteristics of the clean energy industry is that it is based on the exploitation of a diverse range of renewable energy sources. This sector covers companies that are active in renewable categories other than the main ones of wind, solar and biofuels/biomass.
Marine Energy covers all technologies relating to extraction of energy from the sea. Possibilities include waves and tide, either via tidal barrages or tidal flow generators. We also categorise companies looking at run-of-river energy solutions as part of the Marine sector.
Geothermal power has long played a part in the energy mix of countries with obvious geothermal resources, such as Iceland and Japan. Geothermal energy can, however, play an increasing role worldwide. New drilling techniques allow users to tap into resources formerly too deep to access, and new ways of extracting useful power from lower-temperature geothermal fields allow use of resources that could not have been used economically in the past. Low-temperature geothermal heat can be used to reduce the cost of heating residential and commercial buildings.
Hydroelectric power is seeing a new lease of life as part of the world’s shift to cleaner energy solutions. There is controversy about the sustainability of large-scale hydroelectric power projects, but there are interesting developments in small-scale and low-head hydro, and even micro-scale, and the latter small and micro-hydro technologies are generally preferred for this Index.
5. Energy Conversion
The Energy Conversion sector covers conversion technologies and the fuels that lead into them.
Hydrogen & Fuel Cell Technology is included, from the production and storage of hydrogen to its distribution, as well as various technologies and applications in which it can be used. Hydrogen is not, of course, a renewable fuel source per se -- it is only a carrier of energy, in the same way electricity is not a source but a carrier of power. But if produced renewably, hydrogen looks like a promising candidate to replace fossil fuels in transport and other applications in the longer term. Many observers believe that hydrogen and fuel cells will eventually lie at the heart of a post-fossil-fuel energy architecture. Fuel cells have been around for over 150 years and their performance is not in doubt, but their high manufacturing costs and low reliability mean that they have yet to capture any mass markets –- and it is not certain that they will ever do so. A number of companies and research initiatives are hoping to change that over the coming years.
Advanced turbines and lower-carbon fuel systems are also covered in this sector.
6. Power Storage
Many renewable energy and emerging energy technologies are either intermittent, or have response curves that are unable to follow the dynamic demands that are put on them when deployed. Batteries and other energy storage technologies may therefore become key enablers for any shift to these technologies. We include here mechanical technologies like flywheels and components like ultra-capacitors, which are straight potential replacements for batteries, but not hydrogen-based storage solutions, which would be classified under Hydrogen & Fuel Cells.
7. Energy Efficiency
Companies in this sector are working to deliver step-change improvements in efficiency of the existing generation and distribution systems. Important technologies include software to improve electricity demand management or reduce grid losses, as well as breakthroughs in motor or generator design. This sector would also include technologies for combined heat and power (i.e. those which enable the capture and use of waste heat from power generation).
Demand-side energy conservation technologies and practices are highly relevant to investors in the renewable and low-carbon energy field. Shifts towards renewable energy sources over the coming 20 years must be accompanied by wholesale improvements in energy efficiency. We include in this sector technologies that reduce the use of energy in homes, retail and commercial buildings. These may include building components that reduce energy use, intelligent systems for managing power consumption and technologies that more efficiently use power.
Note: Nuclear power is not considered clean energy for the purpose of this Index. This is as much in recognition of the differing industry structure and drivers of the nuclear industry as it is ideological. A minor involvement in the nuclear industry will not, of itself, disqualify a company from inclusion.
* Effective at the rebalance for Q1 2008, the previous Services and Suppliers Sector (SS) is discontinued, and the Demand Side Energy Savings (DS) and the Generation Efficiency & Smart Distribution (GE-SD) Sectors are consolidated into Energy Efficiency.
* Effective at the rebalance for Q1 2009, The Hydrogen and Fuel Cells (HFC) Sector is changed to Energy Conversion (ECV).