Demand to Drive US Energy Transition
Despite Trump’s less-than-supportive stance, unforeseen sustainable investment opportunities may thrive during his tenure.
As he began his second mandate as US President, Donald Trump was quick off the mark to sign a flurry of executive orders (EOs) – 180, by some counts.
Covering a broad range of subjects including migration, healthcare, geopolitics, gender or AI, the EOs also tackle climate and other environmental issues.
Widely expected but nonetheless highly consequential is Putting America First in International Environmental Agreements, which notified the international community of the country’s exit from the Paris Agreement for the second time. Meanwhile, Declaring a National Energy Emergency directed regulatory agencies to facilitate energy production, transportation, refining and generation, and expedite infrastructure projects while assessing vulnerabilities and recommending actions to secure the nation’s energy needs.
Trump also ordered the self-explanatory Temporary Withdrawal of All Areas on the Outer Continental Shelf from Offshore Wind Leasing and Review of the Federal Government’s Leasing and Permitting Practices for Wind Projects, and with a view to prioritise LNG and oil and gas projects – paused the distribution of funds through the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act.
“It’ll take several months before we understand how these EOs will play out and how renewable energy funding will be affected,” says Brian Israel, Co-chair of Environmental Litigation at international law firm Paul Hastings. “What we do know is that the White House will be prioritising traditional energy projects and exhibit a fair amount of scepticism toward wind projects in particular – having asked for a review of their environmental impacts.”
What is less clear, Israel explains, is the extent to which the Trump administration will be willing to limit the permitting and facilitation of wind projects – especially given those are predominantly located in Republican states. Texas topped the list in 2023, having generated approximately 119 terawatt-hours (TWh) of wind power – accounting for about 28% of total US installed wind capacity.
In contrast, blue states host comparatively less wind energy production. California generated approximately 6.2 TWh of wind power in 2023 – way behind leading red states such as Iowa, Oklahoma and Kansas.
“A lot of the funding under the IRA went to Republican states to build manufacturing facilities for solar and storage, creating hundreds of thousands of jobs – which isn’t something this administration will want to stop,” argues Claire Broido Johnson, Co-founder of energy aggregation platform Sunrock Distributed Generation. “Trump is trying to push the envelope and see how much he can change in the energy industry, but he doesn’t have unbridled power. This wave of EOs won’t continue ad nauseam.”
While the halt to offshore wind leasing will affect the sector itself, its impact on the overall US energy transition may be limited, argues Paul Drummond, Climate and Environment Lead at asset manager Redwheel’s sustainability unit – Greenwheel. “Offshore wind represents a small proportion of projected renewable build-out,” he says.
Yet, as of 2023, wind energy accounted for approximately 10% of total US utility-scale electricity generation (up from just 1% in 2000), producing around 421.1 TWh of electricity. Overall, renewable energy sources – including wind – contributed approximately 21% of total US utility-scale electricity generation that year.
“The narrative [around the energy transition] has dampened as the political environment in the US turns hostile, but that doesn’t mean actual sustainable investing will necessarily be significantly hit,” Drummond adds. “The underlying fundamentals of investing in low-carbon, efficient clean technologies are still very attractive, and many companies and investors will be monitoring this – perhaps a bit more quietly than before, but it certainly won’t be going away.”
When economics ‘trump’ politics
Notwithstanding Trump’s stance on climate change, pundits are sanguine that the clean energy transition will continue to run its course in the US and beyond.
At a time when countries are expected to publish their updated nationally determined contributions (NDCs), a framework for the global carbon market has finally been endorsed, and a New Collective Quantified Goal to fund developing countries has been agreed – the global race to net zero is very much still on.
And there is only so much this administration can do to stop it.
“We believe the environmental transition will continue to unfold, even in the new political environment,” says Thomas Hohne-Sparborth, Head of Sustainability Research at Lombard Odier Investment Managers. “Language may shift from a focus on climate and decarbonisation, to innovation, infrastructure and affordability – but these are two sides of the coin, and […] the environmental and energy transition should, first and foremost, be seen as a technology revolution.”
Trump’s first mandate sparked the ‘We Are Still In’ initiative – a joint declaration supporting climate action signed by more than 3,900 US CEOs, mayors, governors, tribal leaders, college presidents, faith leaders, healthcare executives and others representing a combined US$9.5 trillion in GDP.
During that same term, the costs of solar, batteries and electric vehicles (EVs) continued to fall as markets for these products expanded globally. Despite the administration’s support for coal, at least 11 coal power companies went into bankruptcy.
“The first Trump presidency strengthened our conviction that for technological or environmental transitions to be successful, they must first and foremost be driven by sound economics,” Hohne-Sparborth adds. “Ultimately, the transition to an electrified and renewable-powered economy will happen because of the demonstrated cost advantages of those technologies – driven by innovation cycles, modularity, and basic engineering principles.”
Though renewable energy technologies that aren’t yet as economically viable – such hydrogen or carbon capture and storage (CCS) – may now be delayed, those should be seen as playing a ‘satellite’, as opposed to material, role in the transition.
“The two real drivers of clean technologies, particularly renewables and battery storage, are economics and state action,” Drummond argues. “Onshore wind and solar are very cheap and highly competitive, which is likely to make them attractive even without IRA support.”
Demand for these energy sources in the US is expected to grow significantly in the coming years. Last year, energy transition data and analytics provider Wood Mackenzie reported that attachment rates of distributed solar-plus-storage were “booming” for US residential installations, having quadrupled from 6% to 25% between Q1 2020 and Q1 2024. State-level storage incentives, demand for back-up power, falling battery prices, and solar incentive rate reforms were all contributing factors, it said.
“Panel prices and solar installation costs have gone down so dramatically, and are a distributed energy resource that does not require the grid,” says Broido Johnson. “ESG investing remains a smart business decision. It makes companies more competitive, more resilient, and also more profitable.”
Silver linings
Beyond the economic factors that continue to make a compelling business case for existing renewable energy projects, Trump’s administration may also create new opportunities for sustainable investing through a range of policies that could drive energy demand in general, and electrification in particular.
Lombard Odier expects the White House to target topics such as dietary guidelines and food additives, for example, and provide support to further digitise of the economy – with a view to transition to more efficient consumer and industrial systems.
“Autonomous driving is expected to receive increased support from the administration, and while the administration’s motivations may not be environmental – any such move will provide indirect support to further adoption of EVs,” Hohne-Sparborth adds. “By prioritising the reshoring of strategic industries, the administration may also unlock additional opportunities in industries such as semiconductors, batteries, and other segments.”
Notwithstanding its suppression of the EV mandate established under former president Joe Biden, Unleashing American Energy encourages energy exploration and production on federal lands and waters, which could act as a boost to clean power.
“One very important implication for companies and investor in the energy space is the reform to permitting requirements [for energy infrastructure], which has had bipartisan support for a long time,” says Israel. “It’s a hurdle that turned out to be a major problem for the Biden administration. For certain renewable projects – assuming they can get through the anti-ESG lens – there may ironically be a faster path to implementation under Trump if this goes through.”
Acknowledging the “increasingly unreliable” nature of the US grid, the national energy emergency EO highlights the need for “swift and decisive action” to respond to a high demand for energy and natural resources to power the next generation of technology.
“Grid resilience is something the Trump administration wants, and it can be achieved by building out the distributed grid in local communities,” says Broido Johnson. “We will see more and more power outages across the US and will need new forms of electricity generation. Solar-plus-storage is the one-two punch of distributed generation that is non-intermittent, cost-effective, and can help to increase resilience.”
Although discussions around improving efficiency and decreasing energy use have been ongoing for decades, the conversation has now changed, in line with the rapid development of new technologies.
“Our grid is simply not able to handle the huge electricity demand from AI data centres and crypto,” Broido Johnson adds. “We will have to build a lot more transmission capacity, but there’s NIMBY [not in my backyard] issues and no one really wants more transmission lines. Many investors will be focusing on distributed generation going forward.”
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