Energy Transition Update 2026
Where we're at, where we're going
Early in the year is a great time to get a fresh calibration on what is happening in the energy transition globally and an opportunity to revisit and hone investment theses. How is our mental map of the world holding up? This process is made easy and a joy thanks to the hard work of Nat Bullard in producing his annual deck, as well as other publications that do a great job of compiling the data. So where are we at?
Things to worry about…
Unfortunately, the fundamental thesis for adaptation and resilience investments remains robust. Far from rapidly reducing emissions, we are yet to even peak globally.
Total coal use is still rising, just about:
With the large and growing economies of SE Asia still tightly coupled to emissions.
HOWEVER
In what should be a milestone for the energy transition, China’s emissions have plateaued with power sector emissions falling for the first time due to renewable capacity additions (as opposed to a contracting economy).
Surprisingly, renewables also edged out coal in India, with coal use in the power sector falling slightly (-39TWh) and renewables growing (+47TWh).
In fact, India might become the poster-child for low carbon economic development. Ember put out this great chart below showing its differentiated path, by passing the fossil-heavy stage as it migrates from bioenergy to electricity (full report here).
Globally, renewables now represent a larger share of generation than coal for the first time.
And, whilst the above renewables figure includes hydro, it is solar that is really driving the shift, with 2025 being yet another record year of installations, despite changes to the Chinese market mechanisms half way through the year. (Next year will be a real test to see if the growth can continue - most analysts assume slightly slower deployment next year and the market takes time to settle.)
With BESS continuing exponential growth, supporting solar’s intermittency. As you can see, this is very much a lithium-ion story (the majority of the rest are flow batteries).
Solar installations are plateauing in Europe after a big leap following the Ukraine invasion and subsequent energy crisis. However, since Europe’s power demand is pretty flat, solar continues to edge out fossil fuels over time.
In the US also, despite the outward hostility of this administration to renewables, solar continues to gain ground, even as nat gas plateaus and coal undergoes (temporarily paused?) structural decline.
In fact, during the course of 2025 there was a strong rebound in solar capacity under construction in the US and continued rapid growth in battery installations.
But the clean energy project pipeline remains fairly static. For reference, these numbers compare to a nat gas pipeline of 85GW.
Solar imports into Africa saw a massive surge (albeit from a low base), rising to 20GW. It has a long way to go in terms of reducing energy poverty, but a promising trend to watch.
Globally, EV sales continue to rise and to take market share.
China is rapidly electrifying trucking.
And although China is the biggest driver of transport electrification, it is not the only source of growth. EV sales in Europe were up almost 30% last year, with sales in December seeing EVs outsell petrol cars for the first time (but surely not the last).
Strong growth (+21%) in the electrified transport sector pushed it to the biggest segment of global energy transition investment at almost $900bn and saw overall energy transition investment up 8% to a new record of $2.3trn, according to BNEF. Investment in clean energy saw its first drop in years. This was largely due to a fall off in activity in China in the second half of the year after market structure changes. However, because of the deflating input costs, solar still had a record year in terms of capacity additions (as noted above), even if the investment dollar amount was lower. Power grids now represent almost $500bn in investment with the US the biggest market at $115bn in investment last year, up 10% from 2024 as utilities rush to accelerate connections and update ageing infrastructure.
Investment in the clean energy supply chain is set to see continued focus on battery manufacturing and battery metals. The global solar manufacturing capacity has already been built, with China’s industry running well below nameplate capacity (as we saw during our China trip in Q4) and with the ability to meet all of the world’s solar needs for the coming years and then some.
China continues to invest in new clean energy manufacturing abroad as it cements trading relationships and positions in new markets.
The US, meanwhile, seems happy to cede the energy technologies of the future to China, with clean energy manufacturing in retreat.
Data Centres. Of course.
AI and data centres were already starting to take up a lot of the conversation in 2024, but last year data centres continued to gain pace and really took centre stage. And, whilst data centres aren’t anywhere close to the biggest driver of power demand on a global basis, they absolutely are the largest source of incremental demand in the US, where so much of the investment focus (and certainly our investment focus) is centred. For more slides on load growth within particular ISOs, see slides 140-145 in Nat’s presentation.
Capex soaring to meet the moment. And it doesn’t show signs of stopping in the short terms. Google just last week announced they expected their capex to roughly double in 2026 to around $180bn. Very difficult to know where this goes - unlike previous infrastructure booms, a lot of spending is on chips with short lifespans, not on things like highways and broadband that will confer durable value over decades.
As fast as models are becoming more efficient, usage is growing even faster - ~15x increase over 9 months Dec ‘24 - Sep ‘25.
So the surging demand is real, but the grid is still proving a major bottleneck for rapid scaling.
And, as usual, when a river of money runs up against an immovable object, it finds a way around. 2025 was the year that behind-the-meter became a real thing for data centres.
According to Cleanview, most of this behind-the-meter power is in the form of gas. But since manufacturing capacity is sold out (see below), this is coming in the form of mobile units, refurbished all turbines scavenged from other industries and repurposed jet engines. Note that Caterpillar recently announced record earning, driven by data centre demand in their energy segment, including a 2GW order for gen sets for the Monarch Compute Campus in West Virginia.
Miscellaneous slides that I liked.
Waymo - this is a big thing that isn’t yet widely appreciated. Autonomous driving is one of those classic examples of technologies that were overestimated in the short run, but are being underestimated in the long run. Last week Waymo announced a $16bn round valuing the company at $126bn post, as it is expanding to 20 new cities this year.
Voluntary carbon markets: very much overestimated. Investors need to focus on things that have sustainable drivers. The most sustainable driver of all, of course, is a superior customer value proposition - better, cheaper, faster.
And here is an example of a “solution” that clearly does not have a superior customer value prop - hydrogen. Europe’s hydrogen’s ambitions were always idiotic. This has now become consensus, so we don’t need to labour the point, but it still stark to see just how delusional Europe’s hydrogen plans were:
Firewood once represented a quarter of US output - wild!
