US energy transition investing: putting fundamentals first
The need for incremental power supplies, combined with favourable economic drivers, today composes the primary engine of the US energy transition. That should be good news for investors.
For much of the past year, the narrative around US renewables has been dominated by politics. Rhetoric sharpened last year, federal incentives were revisited, and elements of clean energy support were ultimately scaled back, with subsidies set to phase out between now and 2030.
Yet beyond Washington, capital allocation decisions are being driven by a simpler force: electricity demand expectations continue to rise.
Saad Qais, Head of US Investments at Schroders Greencoat, sat down with Hillary Ripley, Schroders Greencoat’s North American business development team, to discuss the current state of the US energy transition and the evolving opportunity set for investors.
Key takeaways include:
- Economics over subsidies: While federal tax credits have been trimmed, the economics of renewables are increasingly independent of subsidies. Solar and onshore wind remain among the lowest-cost sources of new-build generation in many regions.
- AI and electrification demand drivers: After a decade of stagnant electricity consumption, demand is projected to accelerate due to the rapid expansion of AI and data centres, the electrification of transport and heating, and industrial reshoring.
- Renewables as a pragmatic hedge: Unlike gas-fired plants, which face lengthening lead times for turbines and exposure to fuel prices that have become more volatile, especially in the wake of the conflict in Iran, wind and solar can often be built faster and offer greater certainty over cost base with zero fuel exposure.
- Grid infrastructure is a key bottleneck: Aging grid infrastructure now represents a significant obstacle to continued renewables build-out. Advanced grid management technologies may improve utilisation of existing infrastructure, yet over time the development of physical capacity will be key.
- Storage: Utility-scale battery capacity is growing at a record pace, enabling intermittent renewable output to be shifted to peak demand periods and enhancing the commercial viability of renewable portfolios operating in merchant markets.
- A shift in political rhetoric: Clean energy is increasingly discussed in terms of grid reliability, domestic jobs, and local tax revenues, shifting the debate from aspiration to the practical necessity of "keeping the lights on".
Click here to read the full interview.