The energy transition is set up as one of the most important trends in the last decade as well as one of the most attractive investment sectors for the future.
In these times of turbulence on the markets and rapid and contradictory information flows, it is necessary to step back to identify the megatenances which remain in force despite the current economic situation and American policy.
In this context, the energy transition is set aside one of the most important trends in the last decade as well as one of the most attractive investment sectors for the future.
Why is the energy transition such a clear and irreversible trend?
The energy transition, which started in the early 2000s to deal with climate change and responding to the exhaustion problem of fossil fuels, has experienced strong growth over the past four years, mainly supported by three factors.
- Renewable energies have become the cheapest means of electricity production1. Thanks to technological developments and the effects of economies of scale, the updated cost of the energy of photovoltaics and wind turbines has become the most competitive. This has made renewable energies the preference technology of investors and developers of energy projects, reaching 90% of the volume of projects in the queue of connection to the network of the United States2.
- The electrification of the economy and the development of artificial intelligence have sparked a massive increase in demand for electricity. The Electric Power Research Institute estimates that the electricity consumption of data centers could represent 9% of the total electricity demand in the United States by 20303. In addition, Bain and Company estimates that the United States will have to increase its electricity production by 26% compared to 20234. The generation of renewable electricity is the only one that can respond to this new demand-shorter than that of other methods Production (about 2 years versus 5 years for a new gas plant). These figures do not take into account the additional demand linked to electrification for domestic and industrial heat production and the growth of the electric vehicle market.
- The imperative of energy sovereignty, in particular for Europe and China having both of low natural energy resources. China has become the undisputed world leader in the energy transition. According to the International Energy Agency, China represents 37% of the $ 2.3 billion invested in the energy transition worldwide in 2024, and dominates the production value chain of photovoltaic panels, batteries and electric vehicles5. This is the result of a long-term strategy promoting the potential of new technologies opening the way to energy independence in a complex geopolitical context. Since the start of the Russian-Ukrainian war, Europe has also woken up in front of its vulnerabilities, which are now reinforced by the current context of the United States.
This dynamic creates an investment opportunity being available in 4 main categories.
1. The construction of new energy infrastructure
The investments described above are devoted to the development of solar, wind farms and battery storage networks, but also to the construction of new transmission lines, the modernization of the network, the development of biogas, green data centers and electric vehicle recharge networks. In the field of infrastructure, the energy transition is the most dynamic sector generating a large number of investment opportunities.
2. The Ecosystem of Products and Services Suppliers to support the infrastructure linked to the transition
These include manufacturers of components, operating and maintenance service providers, consulting and analysis companies as well as software providers. These players operate in a market supported by rapid growth and offer attractive investment opportunities.
3. Technological innovation
Unlike models based on the combustion of fossil fuels, where only marginal additional gains of efficiency are possible, transition technologies have real innovation potential, in particular innovations around solar cells and batteries6. Artificial intelligence will also have an important role to play in the operation of electrical networks as well as in the establishment of intelligent cities.
4. Energy efficiency
Given the significant increase in demand, electricity prices should not drop to the medium-term. Consequently, the models around energy efficiency, allowing optimization and reduction of consumption, represent a sector with strong prospects for growth.
In the current context, investing in the transition can be considered as a defensive investment strategy for 2 main reasons.
1. Transition issues are not at the heart of global trade flows impacted negatively by the current geopolitical context. Nevertheless, it is necessary to take into account the impact of customs taxes on the supply chain of transition technologies, which is mainly controlled by China.
2. The fundamental engines of the transition listed above are structural and go beyond GDP growth. They first generate the deployment of infrastructure, in turn creating the ecosystem of goods and services suppliers. GDP growth, as with any other investment strategy, remains a major factor to define final energy demand.
Finally, it is relevant to return to climate change, the original engine of the energy transition. It continues tirelessly and its negative economic effects are intensifying. As the current situation deteriorates, the pressure to speed up the transition intensifies. This leads to negative implications for assets that hinder decarbonation, and unlike the advantages for those in the transition value chain. From the point of view of risk management, investors must ensure that their portfolios are positioned to reflect this possibility.
