Renewable Energy Sector Outperforms as AI Electricity Demand and Geopolitical Pressure Converge

Global electricity demand is growing faster than at any point in recent decades, and renewable power is capturing an increasing share of it. US utilities generated a record 26% of all electricity from renewable sources in 2025. A geopolitical shock has since added urgency. The Iran war has reframed energy security in ways that could extend the sector's momentum well beyond the United States.

Economics behind the run

The primary driver is power demand, not politics. AI data centers require vast quantities of electricity. Solar panels connect to the grid far faster than gas pipelines or nuclear plants can be built, according to Calvert Research and Management managing director Chris Madden.

That demand backdrop is showing up in the generation data. US utilities generated 1.2K terawatt-hours from renewable sources in 2025, a 10% increase over the prior year. The government estimates that 93% of new capacity expected to be added to the US grid this year will come from wind, solar, and batteries.

Falling costs are reinforcing that trend. Renewable installations are now cheaper to build than alternatives in most scenarios, even without subsidies, according to research firm Lazard. Wood Mackenzie projects renewables will account for nearly one in three US electrons by 2030.

"The only technologies to be deployed today at scale and at cost are wind, solar, and battery storage," said Amanda Levin, director of policy analysis at the Natural Resources Defense Council.

Energy security shifts

The Iran war has added a new dimension to the investment case. Early data from the Centre for Research on Energy and Clean Air shows that global fossil fuel power generation fell in the first month of the conflict. Solar and wind output rose, as renewables offset more of the decline in gas-fired power than coal did.

Countries that lack abundant domestic fossil fuel reserves are now rethinking their import exposure. "Any domestic energy will be prioritized," TotalEnergies CEO Patrick Pouyanné told Axios, explicitly including renewables on that list. South Korea's president has called for faster renewables uptake, and France's prime minister has pushed for more wind and nuclear capacity.

The picture isn't uniform. Wood Mackenzie notes that tightening liquefied natural gas (LNG) supply is pushing some Asian nations back toward coal in the short term. BloombergNEF analyst Ethan Zindler frames it plainly. Nations with cheap domestic fossil fuels will lean on them now, while energy importers will accelerate their shift to homegrown clean power.

EU officials, facing roughly $26B in higher fossil fuel import costs since the war began, are preparing new clean electrification plans. That kind of structural pressure is different from a policy subsidy. It doesn't expire.

Ways to get exposure

The returns over the past year have been striking enough to surprise even sector watchers. The First Trust Global Wind Energy exchange-traded fundFAN

surged 55% over that period. The Invesco Solar ETFTAN

gained 65%. Both beat the S&P 500's 19% return.

"People tend to place way too much emphasis on the political climate when it comes to these areas," said Ryan Issakainen, ETF strategist at First Trust, noting that nervous investors pulled $83M fromFAN

even as it surged.

If you want broader, lower-volatility exposure, iShares Global Clean EnergyICLN

offers diversified index coverage at an annual fee of 0.39%. The First Trust Nasdaq Clean Edge Green Energy IndexQCLN

carries a 0.56% annual fee. Calvert Global Energy Solutions caps its top 10 holdings at ~10% of the portfolio, which dampens swings, but carries a 1.24% expense ratio.

The actively managed route has produced stronger results. TCW Transform Systems, run by lead manager Eli Horton, has returned 111% since its February 2022 launch. That compares to 65% for the S&P 500 over the same period. Horton's largest position is GE AerospaceGE

, which builds energy-efficient aircraft and wind turbines. First SolarFSLR

carries roughly 2% weight in his portfolio. Exxon MobilXOM

carries about the same.

Horton avoids funds that focus purely on clean-tech businesses. "So often the unit economics of those businesses didn't work without government subsidies," he told Barron's. His portfolio cuts across power generation, grid infrastructure, and energy-efficient transport instead.

Risks that stay real

A report from the National Center for Energy Analytics flags a decommissioning cost gap for aging wind and solar installations. Most governments haven't funded it. Nearly two-thirds of US states have failed to put adequate decommissioning regulations in place for wind and solar facilities.

Volatility is also a real feature of the sector, not a temporary condition. Renewable ETFs swung sharply during 2021 through 2024, even with the Biden administration's policy tailwind. If you rode those drawdowns and stayed in, you were rewarded. If you sold on negative headlines, you were not.

The sector's performance is now driven by economics and electricity demand, not subsidies. That makes the bull case more durable — and it also means the story is no longer primarily a political one.