Wood Mackenzie, a data and analytics provider for the energy sector, estimates that AI software powered by large language models will require a rapid ramp-up in data center capacity, driving electricity demand growth of 10%–20% per year through 2030.
If the Trump administration embraces an “America First” policy that emphasizes bringing more manufacturing back onshore, the need for additional power to meet industrial and commercial demand may grow even faster. As we see it, this means renewables will remain a key part of the solution. They may share the spotlight with conventional power sources if utilities delay the retirement of coal-burning plants and accelerate the construction of natural gas–fired ones. But adding conventional energy capacity takes time.
For investors, this may add up to new openings to finance the utility-scale battery storage required to address the issues of intermittent power generation that come with solar and wind. These projects typically require customized financing solutions, and private lenders often have greater flexibility than banks to structure suitable solutions.
2) Focus on Late-Stage Development
Expected changes in federal policy may accelerate the development of existing projects, particularly if momentum to repeal or water down the IRA’s renewable tax credits builds as the year goes on. Investors have already started to take advantage of prevailing tax laws by safe harboring certain types of equipment to lock in existing credits, and in anticipation of higher tariffs. In the US tax code, safe harbor rules allow developers to qualify for tax credits based on when substantial work began, even if the law changes while the project is still being completed.
But the need to shore up an overextended power grid, in our view, raises questions about a full IRA repeal. So does the investment and job creation the IRA has delivered to many states—both red and blue. We think opportunities in commercial and industrial solar development, where state-level and utility mandates have created strong underlying demand, are likely to persist.
If the IRA is ultimately repealed, tax credits would likely be phased out gradually to avoid disrupting businesses. But we think certain renewable energy sources will remain part of the overall mix. For example, lower input costs and operating expenses have steadily driven down the average cost of building, operating and maintaining utility-scale solar power systems in the US even without tax credits.
The regulatory and investment outlook outside the US presents a clearer picture. In Europe, power generated by solar and wind overtook fossil fuel–generated power in 2024, and the market is expected to more than double in size by 2030.
3) Deal Structuring Matters
Credit investors by nature tend to focus on what could go wrong—even when things are going right. Though we see many reasons why the outlook for renewable energy remains favorable, it will take time for the specifics of the new administration’s policy to become clear. For this reason, where investors rank in the payment structure—known to creditors as the “waterfall”—may be more important in the months ahead.
We think the headwinds and uncertainty around renewables in the US may increase the appeal of being near the top of the waterfall on higher-risk investments. In such structures, lower-tiered creditors only receive principal payments after higher-tiered investors are paid back in full.
Investors may have to be more selective in 2025 as new policies crystalize. But we expect opportunities in key renewable technologies, including utility-scale solar and battery storage, to persist.
