The election of US President Donald Trump in January 2025 changed the political landscape for renewable energy dramatically. Around 300 clean energy projects in the US are now under review as the new administration prioritizes fossil fuels, while grants worth billions have been canceled.

This top-level backlash has followed a long period of underperformance for sustainable stocks.

Sustainable Stocks Boom, Then Crash

The average clean energy equity fund shows an annualized three-year return of negative 9%. If you had invested in an exchange-traded fund tracking the S&P Global Clean Energy Transition Index three years ago, you would have lost 47% of your money.

“If we look at the longer track record of global clean energy transition stocks, we can see that, before the crash, there was a moment of euphoria during covid and for most of 2021,” says Nicolò Bragazza, associate portfolio manager at Morningstar Investment Management.

Rising inflation and interest rates then led to a sharp change in market sentiment and falling valuations, he adds.

Clean energy companies, especially developers, are capital-intensive and often heavily rely on debt financing.

“Rising interest rates starting in 2022 have significantly increased costs, hurting margins and slowing project timelines. Valuations also became very stretched, and the rate-hike cycle triggered a massive derating as speculative money exited,” says Alexander Roll, investment strategist at Global X.

Sustainable Energy Output Booms, Stocks Underperform

Still, the underperformance of clean energy stocks over that period contrasts with the rapid growth in global renewable energy capacity.

“Global renewable energy capacity increased by 52% over the five-year period from 2019 to 2023, according to the International Energy Agency,” says Hortense Bioy, global head of sustainability research at Morningstar.

“In 2024, 80% of the increase in global electricity generation was provided by renewable sources and nuclear. In the US, last year, renewables accounted for over 90% of new capacity additions, led by growth in solar and battery storage,” she says.

Renewable Projects Need to Make Financial Sense

Investor sentiment toward clean energy shifted notably after Trump’s election, with capital pulling out of the sector over concerns about regulatory changes. There’s also uncertainty around the future of clean energy tax credits under the Inflation Reduction Act, a piece of legislation enacted by the previous Joe Biden administration.

But a full repeal is unlikely, says Morningstar’s Bioy, because that would rebound on Republican states, which have benefited the most.

“But a partial repeal is very likely at the profit of fossil fuel projects. Meanwhile, tariffs on Chinese imports may make the economics for the renewable energy sector in the US more complicated.”

However, Alex Monk, global resources equities portfolio manager at Schroders, says that clean energy is driven by more than policy. “Economics and consumer demand play an equally important role,” he says.

“Even during Trump’s previous term, solar capacity expanded because it made financial sense. That remains true today: for major infrastructure like data centers, renewables are often the most viable option. In short, while political changes could slow momentum, the long-term outlook for clean energy remains strong, as demand for reliable, low-cost power is robust.”

Green Energy—a Part of European Identity?

Justin Ourso, global head of infrastructure at Nuveen, expects the green energy transition to persist around the world, especially in Europe, but natural gas, pipelines, and traditional energy “will benefit from Trump administration policies.”

Global X’s Alexander Roll also sees a “global divergence” between Europe and US on clean energy. Europe will continue to “provide structural long-term support via fiscal bills to support the continued buildout of cleaner European infrastructure.”

Morningstar’s Bioy highlights that, “outside of the US, demand for cheap low-carbon technology doesn’t show any sign of abating,” and that, “In Europe, building more clean energy capacity and faster has become a matter of sovereignty.”

The AI Boom Helps Renewables

Could power-hungry artificial intelligence projects help save sustainable energy?

“The artificial intelligence boom is causing an unprecedented boost in power generation demand, with forecasts outstripping current capacity for generation and transmission in most economies,” says Nuveen’s Ourso.

He anticipates a growing demand for transmission infrastructure to accommodate investments in data centers to support AI model-training.

Morningstar’s analysis of the clean energy project pipeline also points to continued growth in 2025.

“We expect the strongest growth in battery storage projects, which continue to see rapid growth from a small base,” says Morningstar’s Bioy.

“Solar is expected to see continued growth in 2025, but at a slower rate compared with 2024. Meanwhile, onshore wind is likely to see a modest rebound following trough installation last year,” she adds.

“Despite the short-term uncertainty in the US, the long-term drivers for clean energy remain intact and the outlook for the sector remains positive. History has shown that the energy transition will continue regardless of who is in the White House,” says Bioy.

Renewable Stock Fundamentals Are Improving

Schroders portfolio manager Alex Monk sees renewable energy stocks as a compelling investment opportunity, particularly the solar sector.

“Solar economics are strong, installation costs have dropped significantly, and solar-plus-storage solutions are now competitive in terms of reliability and returns,” he says.

Fundamentals and valuations are key in this sector, he adds. Free cash flow yields are in double digits, and companies are starting to return capital to shareholders. And valuations are back to 2019 levels.

“Many renewable stocks now trade at discounts, a rare opportunity in this space,” he adds.

Morningstar’s Bragazza is more cautious.

“The most important thing for investors is to pay attention to valuations and the price they pay for an asset,” he says. “In periods of market turmoil and inflationary pressures, valuations matter even more. Even though renewable energy might represent the future of energy, that doesn’t mean it is a good investment all the time. A good investment to be such must have a good price.”