Investing in the Evolving Energy Transition

The global energy transition is entering a new phase. Falling clean-technology costs, rising electricity demand and advances in electrification are reshaping where and how the transition is taking place. And while policy support and climate commitments remain important, the primary drivers of decarbonisation are shifting toward economics and technology.

Two dynamics are particularly important. First, emerging markets have become the growth engine of the energy transition – largely because clean technologies are now often the lowest-cost option for new power generation and industrial development. In advanced economies, a sharp acceleration in electricity demand, largely due to AI, is creating renewed urgency to add more power sources, upgrade the grid and use energy more efficiently in everything from semiconductor workflows to data-centre cooling.

Together, these trends are redefining the opportunity set for investors across the energy transition value chain.

Fundamentals versus sentiment

In recent years, investor sentiment toward clean-technology sectors has been depressed. Higher interest rates and uncertainty over government support weighed on company valuations. However, weakening sentiment has not been matched by a deterioration in fundamentals. Many high-quality companies enabling decarbonisation have continued to deliver strong earnings growth.

The gap between earnings performance and share-price performance has created a notable disconnect, particularly among companies with durable competitive advantages and exposure to structural growth trends.

More recently, clean-tech markets have begun to recover. While some of this rebound reflects a technical recovery from oversold levels, we think there is a strong case that select companies in the decarbonisation universe are on track for durable growth.

This is partly because the market for their products and services is expanding rapidly: the International Energy Agency (IEA) projects that global clean-technology markets could more than triple in value by 2035, reaching over US$2 trillion annually, supported by continued cost declines and rising demand for electricity and efficiency solutions.

Emerging markets as the new growth engine

Emerging markets are increasingly at the centre of the energy transition. Unlike earlier phases which were largely driven by climate policy, clean-tech adoption in many developing economies is being led by cost competitiveness. Solar, wind, batteries and electric vehicles have reached – and in many cases surpassed – cost parity with fossil-fuel alternatives. This is broadening the decarbonisation investment opportunity set across the developing world.

China plays a critical role in this shift. Its scale and manufacturing efficiency have driven down global clean-technology costs. It is estimated to cost at least 40% more to manufacture solar panels, wind turbines and batteries in the US and Europe than in China, and up to 25% more in India. Consequently, Chinese exports of clean technologies are enabling countries across Asia, Latin America and Africa to electrify and industrialize more affordably.

Nearly half of China’s clean technology exports now go to emerging markets, to countries such as India, Brazil and Thailand. According to the IEA, China’s clean-technology exports could exceed US$340 billion annually by 2035.

Rising power demand in developed markets

At the same time, developed markets are experiencing a structural shift in electricity demand. After decades of relatively flat consumption, power usage in the US and Europe is surging. Key drivers include artificial intelligence, data centres, electrified heating and cooling, electric vehicles and some degree of industrial reshoring. In the US, electricity consumption is expected to grow by approximately 38% over the next two decades, compared with just 9% growth over the previous 20 years.

This surge has elevated the importance of utilities, grid operators and efficiency specialists. Access to reliable, affordable power has become a critical constraint for data centre developers and industrial users, with major technology companies increasingly citing electricity availability as a bottleneck to expansion.

Utilities that can deliver low-cost renewable generation, invest in grid modernisation and manage rising demand are therefore well positioned for growth, as are companies that provide efficiency solutions for computing and industrial processes.

Technology, electrification and efficiency

Technological progress is also broadening decarbonisation markets. Today, more than 75% of final energy demand is considered technically electrifiable. This creates significant opportunities across industrial electrification, power semiconductors and energy-management technologies.

Efficiency is an equally important lever. As electricity demand rises, reducing energy intensity becomes critical to limiting emissions growth and infrastructure strain. Technologies that enable smarter energy use – from power-efficient data-centre hardware to advanced industrial automation – will play a central role in this next phase of the transition.

Beyond energy systems, innovation is also emerging in sectors such as agriculture. Food systems account for roughly 30% of global greenhouse-gas emissions, and precision-agriculture technologies offer pathways to improve productivity while reducing environmental impact.

Implications for investors

For investors, this “transition of the transition” – from policy-driven to economics-driven adoption, and from developed-market leadership to emerging-market acceleration – underscores the important of focusing on fundamentals rather than short-term sentiment. As decarbonization becomes more closely linked to cost efficiency and technological progress rather than policy, the next phase of the energy transition may prove broader, faster and more resilient than markets currently assume.

RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Author

Deirdre Cooper

Head of Sustainable Equity

Ninety One

Deirdre is Head of Sustainable Equity at Ninety One. Deirdre is a leading voice in understanding and committing to sustainable investing, particularly investment to address and combat climate change. Ninety One’s Global Environment Strategy, which she co-manages, invests in companies enabling the transition to a low-carbon economy to capture the structural growth driven by decarbonization. Prior to joining Ninety One in 2018, Deirdre was a Partner, Portfolio Manager and Head of Research at Ecofin. Before joining Ecofin, Deirdre was an investment banker at Morgan Stanley where she headed their European Renewable Energy coverage effort and built an investment banking and principal investing franchise. She has long had a passion for sustainable investing and has worked on a voluntary basis in the microfinance sector both in the US and in Pakistan. She is a member of the advisory board for Imperial College’s Centre for Climate Finance and Investment. She is a peer reviewer for the IEA’s World Energy Outlook. Deirdre earned her Master of Business Administration from Harvard Business School, where she was a Baker Scholar, and her Bachelor of Arts in Actuarial Science from University College Dublin.