As policy volatility reshapes the US landscape, private markets investors are switching tactics to take advantage of AI-driven power demand.
Surging electricity demand driven by artificial intelligence (AI) is providing a powerful tailwind for investments in US clean energy. Yet shifting federal policies under the second Trump administration are forcing private market investors to seek refuge in contractually insulated assets and a broader range of climate solutions.
The US renewable energy sector faces a dichotomy. On one hand, near-term electricity demand is projected to continue rising sharply, propelled largely by the rapid deployment of AI data centres, alongside industrial expansion and reshoring. According to the North American Electric Reliability Corporation’s 2025 long-term assessment, US summer peak demand is forecast to grow by 224 gigawatts (GW) over the next decade — a 69% increase over the growth projected a year earlier. This sustained energy demand makes renewable generation a critical solution for meeting future capacity needs.
On the other, the policy environment has shifted from being a clear tailwind under the previous Biden administration to a significant source of uncertainty. The US Energy Information Administration (EIA) reported that developers planned to add a record 64 GW of utility-scale capacity in 2025, with clean energy sources – solar, wind, and battery storage – accounting for over 90% of the total. As new deployment reached record levels, federal policy shifts have introduced new eligibility rules, greater compliance uncertainty, and upended investment timelines.
In response, investors are becoming more selective and discerning. Private equity and infrastructure funds have shifted attention from pure growth potential to fundamental regulatory viability, asking: “Will this project qualify, will it qualify in time, and what happens if US policy shifts during construction or financing?”. This environment has triggered a ‘flight-to-quality’, with a growing preference for assets that are structurally or contractually insulated from policy headwinds, such as contracted operating renewables.
2025 was undoubtedly a challenging year, with the change in US political leadership coinciding with an 18% fall in wind and solar investments in the first half, according to BloombergNEF. At the early-stage end of the private markets, Pitchbook reported just US$3 billion in venture capital deal value invested in clean energy technologies in Q3 2025, down 40.7% from Q2 2025 but a rebound from the first quarter’s US$2.3 billion low – with two of the sector’s biggest deals raised by US firms. In the public markets, Danish renewables developer Ørsted’s legal tussle with the Trump administration over two offshore wind projects reflected the issues facing the whole sector. Nevertheless, BloombergNEF reported US investment in the energy transition rising by 3.5% to US$378 billion in 2025 overall. Deloitte’s Renewable Energy Industry Outlook for 2026 concluded that “adaptability is essential”, with investors needing to balance speed of deployment with resilience.
‘Beautiful’ barriers
Regulatory uncertainty remains one of the most formidable challenges to realising returns in US cleantech and renewable energy. The One Big Beautiful Bill Act, signed in July 2025, significantly compressed the development window by requiring wind and solar projects to either begin construction by 4 July, 2026, or be operational by the end of 2027 to retain their full tax credit eligibility. The simultaneous introduction of Foreign Entity of Concern rules and stricter domestic content requirements further added to developer burdens, requiring many to overhaul global supply chains.
Lillian Freiberg, Head of North America at Clarity AI, a sustainability technology platform, says clean energy investors are now having to navigate revised timelines. “Despite uncertainties, appetite for investment in private cleantech and renewables remains high, as US demand for power and infrastructure continues to grow,” she says.
US private markets investors now assume that policy support is less reliable, and all that risk is being priced upfront. This shift means explicitly underwriting downside cases and requiring stronger downside protection, such as higher contingency reserves, tighter covenants, or stronger guarantees from developers. Freiberg notes that legal certainty is increasingly replacing policy certainty. There is a marked preference for longer-term contracts, shorter timelines to lock in economics, and higher return thresholds to compensate for the lack of federal predictability, she says.
The impact of federal policy is also driving capital toward state-level opportunities. Investors are increasingly sourcing deals in markets with established clean energy programs or clear procurement frameworks, such as California, which maintains long-standing clean energy mandates despite shifts in Washington. The International Energy Agency (IEA) has revised its forecast for US renewable energy capacity expansion downward by 50% for the 2025-2030 period, “However, state-level initiatives may remain in place to continue driving growth for the sector,” says Raith Pujiastuti, Senior Analyst at Morningstar Sustainalytics.
Brendan Scollans, Head of North America Investment at Morrison, a global infrastructure investment firm, notes that contracted operating renewables – projects that are currently generating electricity and are bound by long-term, legally binding contracts – are insulated from these policy headwinds. Such assets have limited exposure to the “federal nexus” — including permitting approvals — and do not carry the same uncertainty regarding tax credit monetisation. Scollans observes that while federal policy poses challenges, the scale of new energy required to meet demand necessitates an “all-the-above” approach to energy technology deployment.
“For renewables developers, the biggest risk is limited outside offshore wind as the repeal of tax credits is not retroactive,” adds Tancrede Fulop, Senior Equity Analyst at Morningstar.
AI boom fuels demand
The emergence of AI and the subsequent data centre boom is creating an “overwhelmingly positive” impact on investor interest in renewable energy, according to Scollans. US electricity demand from data centres has grown at an annual rate of 12% over the past five years and is expected to continue rising. Major technology ‘hyperscalers’ like Microsoft, Alphabet, Meta, and Amazon are actively seeking zero-carbon energy supplies to meet their decarbonisation targets.
Renewables stand to benefit significantly from this demand surge not only because of their cost competitiveness but also due to their speed-to-market compared to conventional generation, which faces high costs and lengthy build timelines. Freiberg notes that large tech hyperscalers are signing long-term power purchase agreements (PPAs) with developers, signaling credit-worthy demand that makes projects easier to finance and debt easier to underwrite. These long-dated contracts mean more predictable cash flows, making projects less reliant on direct policy support. “Grid bottlenecks are fostering interest in direct-to-data centre PPAs,” says Fulop.
However, the AI boom also exposes fault lines in regulation and readiness. Data centres have load patterns that require significant baseload capacity. While emerging baseload technologies like small modular nuclear reactors (SMRs) are promising, they are not expected to be a viable option in the short term. Pujiastuti warns that in the immediate future, AI growth is likely to be fuelled primarily by natural gas because these plants are faster to build. Morningstar’s Fulop adds that ongoing capacity expansion by gas turbine suppliers like GE Vernova and Siemens Energy could lead to lower turbine prices and reduced delivery times, making natural gas more competitive with wind and solar in the near term.
“The positive story for renewables sometimes gets lost in the fact that fossil energy may be used to power data centres or that tech companies are seeing their NZ targets imperiled by the rising energy use. But this really is a case of a rising (demand) tide lifting all boats. Especially renewable energy in places that it is very cheap to produce,” says David Carlin, Founder of consultancy D A Carlin and former head of climate risk at the UN Environment Programme Finance Initiative.
The rapid growth of AI infrastructure is also leading to community pushback, reflecting the uneven geographic spread of power demand and supply across US states. Data centres are increasingly competing for scarce water and energy resources, facing denied permits in regions like Northern Virginia — known as ‘data centre alley’ — and North Carolina.
The World Economic Forum estimates that annual data centre water use could reach 1.7 trillion gallons by 2027. As power-hungry data centres fuel civic concern, utilities are beginning to charge these facilities more to ensure they, rather than consumers, cover the cost of required infrastructure.
Gridlock and state-federal divides
A key constraint to new project deployment remains the state of the US electricity grid. Interconnection delays are a significant obstacle, with the grid requiring massive investment over the coming years to accommodate the new load from data centres. Freiberg points out that specific regions, such as Northern Virginia and Dallas Fort Worth, are bearing a significant share of this strain. Interconnection approvals are slow and can take years, creating a risk that utilities will turn to gas plants.
For investors and developers, the time and cost associated with the interconnection process is the biggest challenge to reaching a final investment decision. Scollans says that developers with diversified portfolios of assets across multiple electricity markets and interconnection queue positions are better positioned to navigate these delays. “These dynamics are increasing barriers to entry, challenging smaller, capital-constrained developers, but are conversely benefiting scaled and sophisticated developers, allowing them to capture new energy demand,” he adds.
The regulatory landscape is further complicated by the divergence between federal and state policy. While the Trump administration incentivises and deregulates conventional generation, many states are doubling down on their own energy transition targets. This creates an “irrational system of regulation”, according to legal filings cited by Bloomberg Intelligence, which can shield some fossil fuel companies from local litigation via federal preemption but creates a fragmented and inconsistent market for clean energy investors.
Solar and battery power systems in blue states could be big growth areas, according to Carlin. “In many cases we are seeing state incentives step in where federal ones were slashed. Depending on the results of the 2028 election, we could see the federal winds blowing differently as well, but energy security and affordability remain top of mind for American companies and consumers, so expect these kind of installations to continue,” he says.
Further complicating matters is the physical state of the grid. US grids are often at capacity and unable to absorb shocks during peak stress events like heatwaves and winter storms. Freiberg notes that grid-related issues that threaten cash flows and insurance costs are a top concern for private markets funds, which value revenue consistency. Consequently, investors are treating physical risk as a direct cash-flow consideration rather than a “sustainability-driven nice-to-have”, she says.
Broadening the climate lens
As federal support for traditional wind and solar becomes less predictable, investors are being urged to explore a wider range of climate solutions. Jessye Waxman, Campaign Advisor for the Sierra Club’s Sustainable Finance campaign, argues that clean power alone is insufficient for a net zero transition. She says that investors should look toward “underappreciated market opportunities” in heavy industry decarbonisation, energy efficiency, resilient and affordable housing, nature-based solutions, and climate-resilient infrastructure.
Pujiastuti suggests that reduced federal support for solar and lithium-based storage may prompt a shift toward projects less exposed to current regulatory risk, such as nuclear and geothermal energy. This diversification is also becoming necessary due to physical climate risks. Morrison’s Scollans says robust modelling and intensive diligence for physical risks, such as severe convective storms, have become standard in new renewable deals, with procurement of comprehensive insurance being crucial to any investment.
Physical climate risks are already reshaping economies, with the US suffering US$6.3 trillion in impacts from extreme weather over the past decade. This is driving investment into ‘prepare and repair’ themes, which involve companies focused on resilience and picking up after storms. Companies positioned in repair, resilience, and water solutions like desalination are increasingly attractive to private markets. Pujiastuti notes that approximately 60% to 70% of privately owned utilities in the US now maintain adequate to strong practices in addressing these physical risks.
Ultimately, the importance of the energy transition is unlikely to diminish in the coming decades. While federal policy shifts in the US currently appear as a global outlier, experts continue to hold high expectations for corporations’ progress on decarbonisation.
BloombergNEF’s 2026 Energy Transition Investment Trends report cited electrified transport, renewable energy, and grid investment as the main drivers behind a record US$2.3 trillion global investment into the energy transition in 2025, up 8% from the prior year. But investors who widen their lens beyond clean power and adopt systemic risk frameworks may well be best positioned to benefit from the broader economic transition ahead.
“Investors should broaden their strategies and look to invest across a fuller range of climate solutions: from energy efficiency and industrial decarbonisation to resilient infrastructure, housing, and nature-based investments” says Waxman. “These opportunities are needed both domestically and globally, particularly in emerging markets where climate action and economic development intersect.”
