Energy as a weapon: The critical case for energy transition

Market noise would have us believe we're at the end of the road for the energy transition and the push to decarbonise - not just in the US, but even in more climate-oriented markets such as Europe. But the reality is far more nuanced than the headlines suggest. The energy transition offers numerous affordability and security benefits which only strengthen the case for decarbonisation in an era of deglobalisation. This point isn't lost on companies and policymakers in Europe.

President Trump's inauguration in January 2025 saw swift and sweeping attempts to roll back key policy measures designed to incentivise and attract investment in some clean energy sectors. Even Europe, often seen as the most progressive and climate-oriented market, is showing signs of a pullback on flagship "green" policy measures as the region attempts to re-orient capital towards security and defence.

This negative sentiment has been further strengthened by a challenging environment for renewable energy projects that pre-dates the Trump 2.0 presidency. Project developers on both sides of the pond are facing inflationary pressures, supply chain bottlenecks and permitting delays.

But the numbers tell a different story.  Data from the International Energy Agency (IEA) shows that renewables accounted for the largest share of growth in global energy supply over 2024 at 38%. In key markets like Europe, solar and wind generation surpassed coal and gas for the first time, while US coal consumption fell by approximately 4% to its lowest level in nearly 60 years, and European consumption dropped by 10%.

A recent research trip to Europe and the UK revealed how infrastructure companies, policymakers and regulators all seem to be more aligned than ever on the need to invest more - and at a faster pace - in the energy transition. Why? Because the region needs to secure energy sovereignty and support affordability. "The focus used to be more about climate change but now it's more about energy sovereignty", one chief executive explained in a research meeting, "but the solution is just the same because the answer is renewables and grid infrastructure".

At a time of geopolitical instability and trade war uncertainty, we risk overlooking the significance of energy transition investment. It is too easy and simple to assume it is a trade-off between decarbonisation, security and affordability. "When we have debates about defence", said one chief executive of a major European infrastructure company, "we forget to acknowledge that energy is a weapon".

Despite Europe's best efforts to wean itself off Russian gas, the region still purchased around 19% of pipeline gas and LNG from the country in 2024. The decrease was made possible by a sharp increase in LNG imports from other countries and a 19% reduction in gas consumption between 2021 and 2024. The US supplied almost 45% of total LNG imports to Europe in 2024, more than double what they were three years ago. With the US now proving to be an unreliable and volatile trading partner, the case to secure energy sovereignty while managing affordability becomes even more pertinent for Europe.

At a global scale, analysis undertaken by Ember - an energy think tank - shows that 37% of total primary energy demand is met by imported fossil fuels, with 52 countries importing more than 50% of their primary energy from fossil fuels. The weaponisation of energy is a very real risk and the solutions depend on having the right infrastructure to support long-term security.

Robust energy infrastructure will enable countries to enhance electrification and share energy resources more efficiently, and help insulate countries from geopolitical uncertainties and minimise commodity price spikes that can drive up energy costs. Despite macroeconomic pressures such as higher interest rates, renewable energy technologies remain highly cost competitive compared to conventional fossil fuel-based generation, with large scale solar being the cheapest followed by onshore wind on a per megawatt-hour basis (location dependent). The fundamental economics remain intact.

Key to achieving this is having the right regulatory frameworks and mechanisms in place to create more certainty around long-term returns, while ensuring the sector remains investable and financeable. Indeed, energy regulators are stepping up efforts to attract capital towards major transmission and interconnector projects, one of the biggest bottlenecks to the energy transition. One UK-based electric utility described how the "regulators are now focusing more on timely project delivery than nitpicking the costs", a perspective shared by other utilities in Europe.

In March, the UK electricity regulator (Ofgem) approved £4 billion of accelerated investments to fast-track the delivery of high-voltage transmission projects. The UK's National Energy System Operator (NESO) has also proposed a series of grid connection reforms based on the principle of "first ready and needed, first connected". These reforms aim to optimise grid use and facilitate a more efficient transition to renewable energy sources, removing stalled projects holding up the queue.

Even in the US, private sector investment in the energy transition continues apace, albeit with less fanfare. Increasing load demand owing to the rapid build out of data centres is putting particular strain on the grid, requiring significant investments in transmission infrastructure and new electricity generation across the country.

This is despite the Trump administration pausing all federal (not state) leasing and permitting for wind projects and threatening to rescind parts of the tax credits and subsidies inbuilt into the Inflation Reduction Act (IRA) to help catalyse investment in clean energy projects. While the outlook for wind remains uncertain, the outlook for solar remains positive.

Across the US, renewables provided nearly a quarter of electrical generation in 2024, reinforcing their position as the second largest source of electrical generation, behind only natural gas. Looking forward, the Energy Information Agency (EIA) expects growth in US power generation over the next two years to be mostly driven by new solar plants. The EIA also expects utilities and independent power producers to add 26 gigawatts (GW) of solar capacity in 2025 and another 22 GW through 2026. The agency also forecasts that US coal retirements will accelerate, retiring 6% (11 GW) of coal generating capacity from the US electricity sector in 2025 and another 2% (4 GW) in 2026.

While the Trump administration is making efforts to reinvigorate America's "Beautiful Clean Coal Industry", the reality is that coal is far more expensive than renewables and gas-fired power generation. Based on our company research meetings and discussions with sell side brokers, coal plants are becoming increasingly inefficient and cumbersome to operate. Supply chains are shrinking and regulated utilities are keen to close them as soon as practicable.

When we've asked US electric utilities, or even sell side brokers, whether there is any appetite to invest in greenfield (i.e. new) coal power projects, the answer has been a resounding "no". We do not know of one single regulated utility that is currently considering or showing any desire to do so. The invisible hand of the market is clearly at odds with the Trump administration's policy push. In this case, economics have already decided coal's fate.

We therefore believe the energy transition thematic remains intact, albeit with a lot of short-term noise and over-generalised headlines that don't reflect the reality of what's happening on the ground. As an active investor in electric networks and renewables, we are ever watchful for adverse changes and improvements in the economics and scale of investment plans.  However, the horse has already bolted. The energy transition carries significant opportunities for investors - especially those companies providing essential services to society and investing with a long-term mindset.