Why buyers stay bullish on US renewables | USAEMALL.com

Welcome to Energy Source, coming to you from New York.

US oil production is forecast to fall next year for the first time since the Covid-19 pandemic, my colleagues Kristina Shevory and Jamie Smyth report. Slumping oil prices, driven by rising supply from Opec+ and anxiety over Donald Trump’s trade policies, has caused producers to scale back drilling activity.

As Trump’s landmark tax bill is debated in the Senate, its potential impact is rippling through the renewable energy industry. Residential solar company Sunnova filed for bankruptcy on Monday, in a sign of the sectors mounting woes if crucial government subsidies are cut. Still, some industry insiders believe the sector can navigate a possible rollback of tax credits.

In today’s Energy Source, we hear from long-term investors in the US renewable energy industry about why they’re not spooked by the potential repeal of Inflation Reduction Act tax credits.

Thanks for reading, Alexandra

Why investors see opportunity in US renewables

As Trump’s “big, beautiful bill” makes its way through the Senate, potential rollbacks to clean energy tax credits are raising the alarm across the renewables sector. But long-term investors in the industry have not been swayed by the political noise and are still betting on growth.

Energy demand is set to surge in the US on the rise of artificial intelligence data centres, onshoring of manufacturing and electrification of the global economy. The International Energy Agency said it expects power consumption by data centres to account for almost half of the growth in US electricity demand between now and 2030.

Long-term investors are betting a surge in energy demand will act as a tailwind for the industry even in the absence of the Inflation Reduction Act’s tax incentives.

“It’s important to distil the noise from the underlying fundamentals,” said Jennifer Boscardin-Ching, a senior client portfolio manager in environmental thematic investing at Pictet Asset Management. “One of the biggest differences going forward compared to the past 20 years is this inflection point in accelerating electricity demand.”

Todd Bright, co-head of private infrastructure in the Americas at Partners Group, agreed surging power demand could create opportunities for the renewables industry.

“We see opportunities all across the spectrum for new build, wind, solar and storage, which are actually competitive now on a levelised cost of energy basis with natural gas,” he said.

Although Trump’s landmark tax bill could threaten residential solar, offshore wind and other nascent industries that rely on government incentives, investors expect more mature technologies such as onshore wind, battery storage, utility or community solar to still be primed for growth (albeit at a potentially slower pace without subsidies).

Boscardin-Ching said Pictet’s investment arm has not adjusted its strategy in light of the potential rollback of tax credits, and has remained committed to investing in utility solar and onshore wind projects in the US.

Similarly, Bill Green, managing partner at Climate Adaptive Infrastructure, a fund with $1.3bn of assets under management, said CAI remains committed to investing in community and utility-scale solar, onshore wind and battery storage.

Partners Group’s Bright said he expects new renewable energy projects to get built if the IRA tax credits are rolled back, but at a slower pace.

“Irrespective of what happens with the IRA, that demand cycle is still there,” he said.

Renewable energy sources are also cheaper and faster to deploy to the power grid than new natural gas plants, which face a shortage of turbines.

John Ketchum, chief executive of renewable energy developer NextEra Energy, in April said he expected 450 gigawatts of cumulative demand for new generation between now and 2030. But he forecasted only 75 gigawatts of new gas to come online between now and the end of the decade.

“Today, renewables and battery storage are the lowest-cost form of power generation and capacity, and we can build these projects and get new electrons on the grid in 12 to 18 months,” he said.

International companies are also doubling down. South Korean solar cell maker OCI Holdings will invest $1.2bn to expand its Texas plant because it expects solar to be the only way to meet surging energy demand driven by the AI boom.

Some investors expect the industry to shift its focus away from government subsidies to the Big Tech sector that is willing to pay a premium for renewable energy to power AI data centres.

“The Big Tech companies have global businesses, they have operations in Japan and Europe, places where decarbonisation is important,” said Henry Makansi, a managing partner at Kimmeridge. “They take long-term views so this administration is just a blip on a 30-year megatrend that they’re focused on.”

Some investors also expect the rollback of tax credits to create new opportunities. Smaller, less-funded developers may struggle to navigate the policy and tariff uncertainty, creating opportunities for well-capitalised companies to consolidate the market.

It also gives long-term investors a chance to take advantage of better deals, as policy uncertainty and tighter capital markets have caused valuations for energy developers to fall.

Makansi said: “Developers that two to three years ago, had fairly high valuation expectations for what were not fully mature portfolios are now much more reasonable about taking capital.”

CAI’s Green said he believes the renewable energy industry will thrive and diminishing tax credit support will be “healthy” for the sector.

“People who don’t know the market as well as we do, who haven’t concluded that the inevitabilities are real, are the people who are pulling back,” he added. “That is creating opportunities for us.” (Alexandra White)

Job moves

• Pantheon Resources has appointed Tralisa Maraj as chief financial officer.

• EDF has named Nathalie Pivet as group executive director in charge of performance, impact, investment and finance division on an interim basis.

• Encorp has named Ahmad Harzimi as its new chief executive.

• Jade Gas has appointed Chris Whiteman as interim chief executive.

Power Points

• A group led by Rolls-Royce has won UK government backing to build the country’s first small modular nuclear reactors.

• A UK union leader has warned the country lacks the skilled migrants who are crucial to building new defence and nuclear projects.

• US diesel and gasoline that organised crime groups have smuggled into Mexico make up the bulk of the country’s black market fuel, with the proceeds helping to fund Mexican cartels.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.