Despite President Trump's efforts to cut back on clean energy support, the demand for renewable power and grid projects in the U.S. remains strong. Investment funds are flocking to these opportunities, driven by a perfect storm of factors: soaring power demand from AI and electrification, long-term cost reductions in renewable energy, and the growing need for diversified electricity supplies.
The Trump Effect: A Controversial Shift
Trump's administration has taken a different approach to clean energy, slashing funding, accelerating tax credit expiry, and slowing down clean energy permitting processes. This has significantly impacted the growth outlook for the sector, with the International Energy Agency (IEA) cutting its U.S. wind and solar growth forecasts for the coming years. But here's where it gets controversial: despite these policy changes, investment funds are still actively seeking out renewable energy assets in the U.S.
Market Fundamentals and Grid Infrastructure
Investment funds are guided by specific market fundamentals and the urgent need to upgrade and expand grid infrastructure. Last month, Ares Management Corporation acquired a significant stake in an EDPR portfolio, comprising solar, wind, and battery storage systems across four U.S. power markets. Similarly, TPG, an asset manager, purchased Altus Power, a commercial and community solar developer, for a substantial sum. These moves highlight the continued attractiveness of U.S. renewable energy assets, even in the face of policy shifts.
The Growth Drivers: AI, Digital Infrastructure, and More
Luba Nikulina, Chief Strategy Officer for IFM Investors, emphasizes the robust demand for renewable energy in the U.S., driven by the growth of AI and digital infrastructure. This demand is further fueled by the electrification of various sectors, including industry and transportation. New data centers, onshoring of manufacturing, and the overall electrification of the economy are key factors contributing to the rise in U.S. power demand, which is forecast to increase significantly over the next few years.
Global Priorities and Long-Term Trends
According to IFM's Private Markets 700 report, global investors are prioritizing data centers, electric vehicle charging networks, smart meters, and battery storage. These investments are seen as exposure to long-term trends, with a range of factors driving the demand for clean energy, including improving economics, changing geopolitical factors, and the growing recognition of the link between energy security and national security.
The U.S. Energy Landscape: Rising Demand and Investment
The U.S. Energy Information Administration (EIA) predicts a substantial increase in power demand over the next few years. As a result, massive and sustained investment across the energy sector is needed to meet this rising demand. Investment funds are focusing on mature or proven technologies and projects with well-contracted offtakes and competitive deployment costs relative to revenues. Long-term cost reductions in solar, onshore wind, and battery storage have made these technologies attractive, while energy storage and power grid systems have become critical components of investment strategies.
Global Perspective: A Shift in Focus
The reduction in U.S. federal support for clean energy under Trump has led investors to consider projects in other regions, such as Europe and Asia. This shift in focus is also evident within the U.S., as investors adjust their strategies to gain the best returns. A slowdown in U.S. clean energy deployment is expected to have a significant impact on the country's path to net zero, with the U.S. facing a substantial shortfall in the investment needed to reach this goal by 2060. This underscores the importance of a global perspective in the energy transition and the need for continued focus on relatively low-risk options to ensure a successful and sustainable energy future.
