Three reasons why clean energy is at a tipping point

Interest in clean energy is surging with the Inflation Reduction Act of 2022 as a major catalyst, supporting all three primary drivers of growth.

• Clean energy systems are less susceptible to geopolitical turmoil. Optimized clean energy systems can generate reliable energy in nearly any geography, no matter the geopolitical climate.
• Clean power is getting cheaper. Clean power is now more affordable than power from fossil fuel sources.
• Demand for clean energy is growing. Energy security needs could accelerate the transition to clean energy and related investments could benefit as a result.

Top of mind for investors are the Inflation Reduction Act of 2022’s $370b of clean energy related spending and energy security against the backdrop of geopolitical instability, Russia’s invasion of Ukraine, broader geopolitical tension, and inflation and supply chain challenges. Against this backdrop, investors are renewing their focus on clean energy, a trend largely based on three factors.

Clean energy systems are less susceptible to geopolitical turmoil.

Clean energy sources require favorable natural conditions — such as wind, geothermal, hydroelectric or sun — muting the geopolitical dynamics that make fossil fuels-based energy systems unreliable. While environmental factors can vary by region and over time, optimized clean energy systems featuring multiple clean energy sources and supportive infrastructure like smart grids and energy storage solutions generally offer reliable and consistent access to energy.

Fossil fuel resources, conversely, are regionally concentrated and controlled by just a handful of countries. Most countries must power their economies with imported oil, gas, and coal, making them susceptible to geopolitical conditions that can sour.

Clean power is now significantly more affordable than fossil fuel energy.

Solar and wind power are now 1/3 of the price of coal and a little less than 2/3 of the price of natural gas.¹

Clean power sources now generate 29% of all global electricity, up from the 17-19% share clean sources held from 1985-2009, a trend that has helped bring costs down.² Two decades of increasing scale and efficiency for solar panels and wind turbines drastically lowered the cost of clean power components and project development.

Demand for clean energy is growing.

During the oil crisis in the 1970s, fuel shortages and soaring energy prices drove many countries to make commitments to scale then-nascent clean energy technologies. Denmark, for example, which generated 92% of its energy from imported oil at the time,³ now gets 56% from wind turbines.⁴ We are already seeing meaningful commitments to ramp up clean energy generation amid today’s energy supply shock. In late-February, Germany announced its intention to fully transition to clean power by 2035, 15 years sooner than its previous target.⁵  And just a week later, the European Union announced plans to fast-track clean energy adoption and phase out Russian fossil fuels “well before 2030.”⁶

In the U.S., the Inflation Reduction Act, which became law in August 2022, is a gamechanger for demand. It includes approximately $370b in energy-related spending and has further accelerated focus on the transition to clean energy — among government, investors, and stakeholders. This is in addition to last year’s Infrastructure Investment and Jobs Act (IIJA), which drove historic spending in U.S. infrastructure and included tens of billions for clean energy, vehicles, and other related technologies. Investment in clean energy sources like wind and solar, on-shoring clean energy manufacturing across the supply chain, tax credits, and opportunities to lower home energy costs are all features.

We believe growing use of clean energy should continue to accelerate in the coming years. The International Energy Agency projects that global renewable electricity capacity will increase more than 60% by 2026, representing 95% of all new power capacity.⁷ The growing demand will likely incentivize significant investment.

More reliable and affordable than ever before, we believe clean energy’s potential to provide energy security, combined with enhanced government support, may spur significant opportunities for investors. While the environment for clean energy was already poised for success, the Inflation Reduction Act has underscored that we are at this tipping point. Investors should be ready for further focus on bolstering global clean energy manufacturing, decarbonization, and incentives for consumers to make energy efficient choices.