Sustainable Energy - 2026 Outlook

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Past performance does not predict future returns. 

2025 IN REVIEW

Improving policy clarity, lower interest rates and surging power demand helped to deliver outperformance for sustainable energy equities in 2025. The energy transition narrative has continued to evolve, moving beyond the early-2020s focus on decarbonisation alone toward a more pragmatic emphasis on energy security, affordability and industrial competitiveness. Electrification has emerged as the central secular theme, underpinned by the decarbonisation of transport, heating and industry, the reshoring of manufacturing capacity, and the need to improve power systems. Rising electricity demand from data centres and digital infrastructure adds to these pressures, with clean energy alongside storage as the fastest and most competitive power to market. Our portfolio, which offers broad exposure to companies well-positioned to benefit from the growth and improving profitability of these themes, now trades at a 12% one-year forward discount to the MSCI World Index despite offering greater forecast earnings growth.

The energy transition in 2025 has been increasingly shaped by energy security, affordability and industrial competitiveness, against a backdrop of rising power demand driven by the ‘electrification of everything’, including data centres and the reshoring of industry.

In the United States, President Trump’s unwinding of the Inflation Reduction Act was not as significant as initially feared, and the passing of his new One Big Beautiful Bill Act (OBBBA) allowed a resumption and acceleration of clean energy activity. Surging electricity demand (as a result of the growth of artificial intelligence (AI) querying and data centres, as well as the wider trend of electrification) has heralded a power crisis that has become a dominant issue for the Trump administration. Their desire to win the ‘AI arms race’ requires significant grid upgrades; near-term growth in both renewables and natural gas-based power; and a restart to nuclear power in the longer term.

China continued to reap benefits in 2025 from decades of investment in sustainable energy technologies, and the country likely accounted for roughly two-thirds of global solar additions, around 70% of global wind additions and around 60% of global battery electric vehicle (BEV) sales during the year. The country also dominated the manufacturing industry for all three markets. In 2H 2025, China pursued anti-involution efforts to remove excess manufacturing capacity, eradicate aggressive pricing and improve profitability for manufacturers, thereby improving the country’s competitive positioning.

European policy remained supportive of the energy transition in 2025. The Clean Industrial Deal was launched to boost industrial competitiveness, streamline bureaucratic processes, improve financing and support power grid manufacturers and clean energy manufacturers. Germany’s debt brake reform in February unlocked around €1 trillion in additional investment into defence, infrastructure and energy transition over the next decade. COP30 fell short of expectations.

Falling interest rates made the broader macro environment more supportive. Global investment in clean technologies grew, likely hitting $2.2trn in 2025 (up 10% on 2024 levels and twice the spend on coal, oil and gas in the year), reflecting the fact that renewable electricity is the cheapest form of new electricity supply in most situations. Adding the cost of storage still sees renewables as competitive with the cheapest new fossil-fuel generation. The structural shift towards renewables accelerated with 2025 marking the point at which renewables (including hydropower) overtook coal as the leading source of global electricity generation. Power grid capex is expected to have grown around 16% in 2025, reaching $470 billion.

Renewable share of electricity mix (2027 vs. 2022)

Source: IEA, IRENA, Guinness Global Investors estimates, January 2026

Electric vehicle (EV) sales grew 25% in 2025, with EVs making up 1 in every 4 cars sold and annual sales reaching c.22m vehicles. China saw EV penetration increase to over 50% as policy remained supportive and battery costs fell below the $100/kWh (the level widely seen as enabling cost parity with internal combustion engines). In Europe, EVs are now competitive on a total cost of ownership basis in some segments. In contrast, the US remains the most challenging market to electrify, a situation complicated further by the removal of EV purchase tax credits and the addition of tariffs. Globally, battery prices continued to fall in 2025 and are expected to fall below $100/kWh in 2026.

Solar saw another strong year, with installations at almost 700 GW (up nearly 5x versus 2020 levels), dominated by China. The US grew only c.5% due to political uncertainty, tariffs and Chinese import restrictions, while grid connection bottlenecks and permitting delays hampered growth in Europe. India and the Middle East emerged as key demand drivers. The global wind market installations grew around 17% in 2025, reaching an all-time high of 143 GW (onshore was 130 GW). China dominated while Europe, the Middle East, and Africa saw record years.

Against this backdrop, the Guinness Sustainable Energy Fund delivered a total return (USD) of +26.9% in 2025 vs its benchmark, the MSCI World Index (net return) of +21.1%. Performance was driven principally by sharply positive revisions for global power demand and the secular theme of electrification; the passage of the OBBBA, which acted as a ‘clearing event’ for US developers; and falling interest rates (since sustainable energy investments are typically more interest rate sensitive than fossil fuel alternatives). Since repositioning seven years ago, the fund has delivered a return in excess of its investment universe, based on an equal-weighted average calculation.

The cash return of the fund’s holdings (a measure of real economic return on capital employed) increased to 11% for the median holding at the end of 2025, higher than the equivalent for the MSCI World. At the end of 2025, the Guinness Sustainable Energy Fund traded on a one-year forward P/E ratio of 17.6x (a 12% discount to the MSCI World Index at 20.0x) despite three-year forward consensus-derived earnings growth expectations for the fund being greater than for the Index.

Valuation and earnings growth of the Guinness Sustainable Energy Fund

Source: Bloomberg. Data as of 31.12.2025

OUTLOOK FOR 2026

Looking ahead to 2026 and beyond, we expect that access to power, underlying economics and security of supply will continue to be the most important considerations for governments as the power crunch ensues. The decarbonisation theme of the early 2020s remains relevant, but investor attention today is more focused on the secular theme of electrification. The IEA expects global power demand growth of 3.7% in 2026 (twice the rate of global energy demand growth and well above the 2015-2023 average of 2.6%pa), driven by rising industrial activity and accelerating demand from AI and data centres. China and India will account for 60% of the growth in 2026, while US demand will grow at twice its historic pace.

In the United States, AI and data centres will grow from around 4-5% of US power demand to c.12% by 2030. The inflection is significant; the longer-term outlook for US annual incremental power has increased by almost 8x since 2021, according to NextEra Energy. Significant grid upgrades, a record interconnection backlog and skilled worker/product shortages will keep this market very tight, benefiting equipment manufacturers and contractors. With new nuclear unlikely before the mid-2030s and gas turbines facing cost inflation and wait times, we expect renewables plus storage to offer the fastest and cheapest route to solve the power shortage. These time and costs advantages likely get better beyond 2026 as battery costs fall and gas turbine inflation impacts economics.

For China, we expect continued further growth as policy support for renewables, grids, storage and electrification remains strong (including under the emerging 15th Five-Year Plan, 2026-30). In Europe, little change in approach is expected.

Electric vehicle sales are likely to grow by nearly 4 million to 25 million, and EV penetration will continue to rise (albeit at a more moderate pace) as purchase tax credits and scrappage/trade-in schemes are cancelled/paused in China and the US. EV penetration will still increase, reaching 45% in 2030. Globally, battery prices should fall below $100/kWh in 2026 (a milestone widely seen as enabling cost parity with internal combustion engines) and continue on a journey to $70/kWh by 2030, thereby making EVs cheaper to buy, cheaper to run and cheaper to maintain.

Global auto, ICE and EV population to 2050

Source: US DoE (actual), Guinness Global Investors (estimates) as of January 2026

Solar will see muted growth in 2026, with installations at c.700GW, as China transitions to a market-based power-pricing system and anti-involution efforts raise solar module prices. Pockets of growth will come from the expansion of Indian manufacturing, industrial development in the Middle East, normalisation of solar module inventory in the United States, and grid reinforcement in Europe. Global wind installations drop to around 130 GW, with strong contributions from India, Europe, and parts of Southeast Asia, offset by a Chinese slowdown. Faster permitting and raw material cost deflation should see installations around 200 GW by 2030, with China being around 60% of the market.

Investment in the global power grid (at around $520bn in 2026) appears to have entered a period of structurally higher growth, but it still falls below the level needed to connect new renewables, unblock interconnect queues, and meet the level of forecast electricity demand growth. A further 18 million km of grid needs to be built by 2030 (expanding the existing network by around 20%) to keep pace. Put simply, the grid needs to be larger, smarter and more resilient to enable the energy transition to continue at pace.

Further interest rate cuts will lower consumer and project financing costs and help drive investment into the clean energy sector, likely reaching $2.5trn in 2026. Together with growing AI and data centre demand, bringing higher renewable power prices, stricter energy efficiency requirements, massive grid upgrade programmes and the implicit operating leverage within our manufacturer investments, we believe that confidence in portfolio earnings will continue to improve, and confidence will increase in the structural growth offered by the energy transition.

The consensus-derived earnings per share growth outlook for the fund (12.7% per annum for 2024-2027E) sits at a premium to the MSCI World index (11.5%pa). We do not think that the 12% one-year forward P/E discount of the fund reflects this earnings scenario, and if valuations do not improve, we would expect to see high levels of M&A activity in the sector.

As such, investor interest in sustainable energy equities should continue to improve as energy security grows in importance and individual, social and government pressure for consumers to become more energy efficient increases. We believe that the Guinness Sustainable Energy portfolio of 30 broadly equally weighted positions, chosen from our universe of around 300 companies, provides concentrated exposure to the theme at attractive valuation levels that are especially attractive relative to consensus earnings growth expectations.

Key themes in the Guinness Sustainable Energy Fund

 Source: Guinness Global Investors, 31 December 2025 

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The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.