Two small-cap energy companies to buy now

The solution to the energy crisis lies as much with reducing consumption as it does with finding new sources. Tom Bulford investigates the energy-saving sector and picks two small companies to buy now.

Oil continues to be the most exciting market of 2009. Despite a substantial bout of profit-taking in the last couple of days, the up-trend resumed. For me, innovative penny shares are the way to turn oil's bull market into potentially extraordinary profits.

You know, the solution to the looming energy crisis lies as much with reducing our need for it as it does with finding new sources. According to the Energy Saving Trust around £8.5bn of energy is wasted in the UK every year. And, compared with the massive technical and political challenge of finding new energy resources, it is a whole lot easier to go around turning off light-bulbs and walking to work instead of taking the car.

These of course are trivial measures. But there are other ways that can make a much greater difference. There are a great many small companies working on exciting ways to save energy, and one that caught my eye is the AIM-quoted Energetix (LSE: EGX).

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Three new technologies helping to solve the energy crisis

Energetix is involved in three very interesting technologies. The first goes by the name of Pnu Power and is considered to be a viable alternative to the conventional batteries used for standby power by utility companies. Clean, reliable and lasting three times as long, Pnu Power's system is based on compressed air and has already been bought by the Californian energy management specialist P&E Automation, and Telecom Italia.

The second product is called Genlec. Almost identical to a domestic wall-hung boiler, this is a CHP (combined heat and power) generator that basically acts as a mini-power station within your own home. Unlike a conventional boiler that heats up water that then cools down if unused, the Genlec only fires up when heat is actually required. And it can also generate electrical power. Commercialisation of this product is under way in Belgium and the Netherlands, thanks partly to a subsidy from the far-sighted Dutch government...

But the Energetix product that really grabbed my attention is for smart voltage management. That's a subject that I described in detail in the 2013 June edition of my newsletter Red Hot Penny Shares. Let me explain that...

Essentially smart voltage management addresses the fact that most almost all electricity users receive, and pay for a higher voltage than they actually need or want. Partly to compensate for leakage from the transmission grid, but also to cope with power supply fluctuations as heavy loads are switched into or out of the grid, power generators routinely supply an excess voltage. In fact the typical voltage level received by a UK house is 245 volts, despite the fact that 220 volts is the level that would optimise performance of electrical appliances and keep the energy bill to a minimum.

There is a handful of companies that supply smart voltage management systems to big commercial users. You may already know that I featured one of these in the latest Red Hot Penny Shares issue - it recently announced an important new contract. Commercial users can easily run up six- or even seven-figure electricity bills and so it makes good sense to spend a few thousand on a device that can cut this by, say, 10%.

But the domestic market is a harder nut to crack. We are using twice the amount of electricity to light our homes and power our many domestic appliances that we were in 1970. And yet few of us are prepared to go to the trouble and expense of investing in energy-saving devices or forms of self-generation such as solar roof panels.

A sector to follow as we all become more aware of the need to save energy

According to the UK's Minister for Energy and Climate Change, Ed Milliband, the average UK household is wasting £300 of energy per year. But much as governments bang on about the problem, habits will only change if energy saving products are cheap... and easy to install and understand.

Energetix has a 49% stake in another AIM-listed company, Vphase (LSE: VPHA), which has a smart voltage management product designed for the household market. A small box that can be fitted by an electrician, it works in conjunction with the fuse box to selectively apply voltage reduction to the circuits most likely to deliver the greatest savings. In the same way that headphones can cancel out unwanted noise, it works by countering excessive voltage. For example if the incoming voltage is measured at 243V, the VPhase technology will apply an opposite voltage of 23V, stabilising the voltage at an energy-efficient 220V.

Vphase has formed liaisons with Southern & Scottish Energy and British Gas, and hopes that the forthcoming introduction into the UK of smart meters will make us all more aware of our energy usage, and how we could save money.

Maybe one day we will all have smart voltage management systems in the cupboard under the stairs. But early adoption of this technology will come from commercial users.

This article was written byTom Bulford for The Penny Sleuth