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Tickers in this Article: KWT, PZD, AMRC, LIME, EFOI, IBM, HON, JCI, OC, MMM
The Energy Information Administration (EIA) predicts that over the next 25 years, planet-wide energy consumption will increase by more than 50% from current levels. Growing populations will demand increasingly large amounts of energy in order to conduct their daily lives. This trend is one of the reasons why renewable energy sources capture the spotlight and investments like the Market Vectors Solar Energy ETF (NYSE:KWT) stay in the headlines. But investors often ignore a potentially easier - and perhaps more effective - route with regards to energy. IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

A Practical Solution
Studies conducted by The U.S. Department of Energy concluded that buildings are responsible for nearly 70% of the nation's electricity demand and 50% of our natural gas requirements. Inefficient incandescent light bulbs cost businesses and taxpayers around $18 billion in energy bills each year. Energy efficiency measures might be more of a slam dunk for both building owners and investors versus alternative energy sources. A recent report by McKinsey states that over the next ten years, the United States could reduce its annual energy consumption by 23% through an assortment of efficiency measures. This 23% reduction would ultimately deliver savings to the tune of $1.2 trillion for the economy.

With less than one billion of the approximately 70 billion square feet of office space in the United States having undergone efficiency retrofits, the potential in the sector is huge. Analyst's estimate that the market for such retrofits could be worth over $400 billion. Today, energy service companies earn just over $5.6 billion each year with regards efficiency solutions.

An Efficiency Portfolio
As a practical and easy to implement solution for weaning energy demand, investors should consider the efficiency sector as a portfolio addition. The PowerShares Cleantech (NYSE:PZD) tracks a wide range of cleantech ideals including pollution control and smart grid improvements. The ETF can also be seen as a play on the burgeoning energy efficiency market, with the bulk of its 76 holdings in electrical and industrial companies. The fund charges 0.60% in expenses.

With Ameresco's (Nasdaq:AMRC) recent IPO, investors have the ability to add one of the largest consultants and contractors in the efficiency space to their portfolio. The company designs and installs equipment that reduces the energy costs of its customers' buildings and should benefit from both future higher energy costs and companies current record cash hoards. Despite gaining nearly $2 since its IPO, shares of Ameresco still trades at reasonable P/E of 14. Other smaller players in the sector include Lime Energy (Nasdaq:LIME) and Energy Focus (Nasdaq:EFOI).

Heating and cooling require the bulk of a buildings energy consumption. Companies specializing in advanced HVAC systems should see their profits soar as adoption of their products take place. Johnson Controls (NYSE:JCI) and Honeywell (NYSE:HON) recently inked deals with IBM (NYSE:IBM) to use its software and data mining capabilities to improve efficiency nearly 30% on their intelligent HVAC offerings. Already the two leaders in the space, the IBM joint ventures add the possibility of being game changers and driving more business their way.

From a homeowner point of view, corporations that manufacture the relatively low cost seals, chalking and insulation will be the biggest winners. As homeowners look to increase R values, Owens Corning (NYSE:OC) should be given preference as the leading maker of fiber glass insulation, roofing and masonry products. Aside from Scotch tape, 3M (NYSE:MMM) makes an impressive list of energy-efficiency products. These include easy to install window films that attempt to reduce the heat lost through windows. This helps heat stay in during winter and reduces air conditioning costs in the summers.

Bottom Line
As we look towards increased energy demand, it's not enough just to find new sources. Energy efficiency represents a great long term and often ignored sector of the green market for investment. By focusing on the politically neutral idea of saving money through less energy consumption, businesses, homeowners and investors can win. The previous picks are just of the few ways of adding energy efficiency to a portfolio. (For related reading, see Go Green With Socially Responsible Investing.)

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