By Darius McDermott, managing director of FundCalibre
It’s hot out there: Brits are basking in the third heatwave of the summer and there’s still a lot of it to go. That’s great if you’re an ice-cream salesman, but more worrying for climate change scientists. For investors, the energy transition has seemed a little old-hat, as Trump’s America has embraced a ‘burn baby burn’ approach to energy production, but may now be having a renaissance.
It helps that climate worries have coalesced with some broader fears on energy security. The world has faced two major energy crises within four years. The first was triggered by the war in Ukraine, the second by the recent US/Israeli attacks on Iran. Reliance on fossil fuels has started to look like a long-term vulnerability, leaving countries in thrall to the whimsy of ‘difficult’ nations.
See also: Emerging markets turn energy transition into economic strategy
Fund managers have long cited decarbonisation as one of the most compelling long-term investment trends. However, it has not translated into strong gains for investors. Areas such as renewable energy and electric cars have proved to be poor investments in recent years, vulnerable to inflation and to over-supply from China.
Many managers are now finding a new way to explore this trend. Rather than focusing on renewable energy providers, they are looking at the infrastructure build-out and the mission-critical companies that are enabling it.
In general, the bottleneck is not renewable energy production, but its storage and distribution. According to International Energy Agency analysis, around 80 million kilometres of electricity grids may need to be added or modernised by 2040 to meet national energy and climate targets. That is the equivalent of rebuilding the world’s entire grid network*.
Harriet Topham, a sustainability specialist working on the Montanaro Global Select fund, says: “As transport, buildings and industry move away from fossil fuels, electricity demand is expected to rise substantially. In our view, one of the most important and often overlooked questions is no longer whether sufficient renewable power can be generated, but whether electricity networks can expand quickly and reliably enough to meet rising demand.”
This is evident in the UK, where renewable energy is abundant. Wind farms will occasionally be turned off because the grid cannot cope with the amount of electricity they create**. The problem is not the amount of renewable energy, but that there is often no means to store it when the wind blows too hard, and no means to distribute it effectively round the country.
Topham says rewiring the grid is key, both for the climate and for long-term security: “Electrification may help reduce dependence on imported fossil fuels and also strengthen energy security, a growing priority following the energy market disruptions caused by the closure of the Strait of Hormuz.
“Expanding domestic power generation and modernising electricity networks will not only support the transition towards cleaner energy systems but also improve resilience and greater control over energy supply and pricing.”
She believes this alone would support a substantial and sustained investment cycle across electricity infrastructure. However, the rapid growth of AI and cloud computing is emerging as an additional structural driver of electricity demand.
Data centres already represent as much as 40% of electricity demand in major cities such as Amsterdam, London and Frankfurt. Ember Energy forecasts European data centre electricity consumption will increase by approximately 150% between 2024 and 2035***.
See also: Knacke’s money maps: SpaceX and AI’s search for cheap energy
It is becoming clear that the ability to deploy AI at scale is dependent not only on advances in software and semiconductors but also on the physical infrastructure required to generate, transmit and distribute electricity reliably, says Topham.
While the share prices for semiconductors reflect the demand from AI, companies involved in the electricity supply chain have not yet caught up. “The stock market may be underestimating both the scale and duration of the investment required to modernise electricity systems globally,” she adds.
Rob Lancastle, co-manager of the JOHCM Global Opportunities fund, also believes there are opportunities in electrification and the infrastructure development it requires. He sees accelerating demand for electric vehicles (EVs), for example.
“Consumers aren’t just buying EVs for environmental reasons; now it’s happening for economic reasons. The total cost of ownership has come down.”
He says they are not interested in EV auto manufacturers, which they think are lower quality, but instead see opportunities in the oligopoly type situations in the supply chain: “There may only be two or three critical suppliers that can make that EV transition happen.”
Lancastle believes the war in Iran will change the landscape for energy, prompting countries to look seriously at their energy supply and distribution: “We think the long-term need for energy security now, particularly in Asia, has gone up significantly.”
He says governments are likely to look at bringing energy closer to home, with less reliance on vulnerable pathways such as the Strait of Hormuz. They have been buying companies such as Australian petroleum exploration and production company Woodside Energy, energy technology company Baker Hughes or industrial equipment group Emerson****.
Will Mcintosh-Whyte, co-manager of the Rathbone Multi-Asset Strategic Growth Portfolio, says they are also finding “genuinely compelling value” in the electrification supercycle – particularly in the power networks and grid infrastructure that make the energy transition work.
Some of these companies, including SSE and National Grid, have been held in the portfolio for a number of years. Despite their strong performance over the past five years^, he says valuations have remained attractive. Others, such as Amphenol and Schneider Electric^^, have been added more recently as further opportunities have emerged across the theme.
Montanaro is focused on smaller companies and has been looking at businesses supplying critical components, equipment and infrastructure across the wider electrification ecosystem.
Topham says: “Examples within our portfolios include Pfisterer, a specialist provider of high-voltage connection systems used in electricity grids and HVDC transmission projects, and Hammond Power Solutions, a manufacturer of dry-type transformers supporting electrification, renewable integration and data centre growth.”
The electrification trend is back, but in a different form to the last time. The focus this time round is not on renewable energy or electric cars, but on the plumbing that enables the energy transition. It has been given a new impetus by the war in Iran, yet share prices do not yet reflect its importance.
*Source: Montanaro, May 2026
**Source: BBC, 9 June 2025
***Source: Ember Energy, 19 June 2025
****Source: JOHCM, 1 July 2026
^Source: FE Analytics, full portfolio listing, 29 May 2026
^^Source: Rathbones, 18 June 2026
