Rising demand for electricity is leading to investment in clean energy sources such as wind and solar.Andrew Vaughan/The Canadian Press
To the casual observer, the clean energy sector would appear to be under pressure this year because of U.S. President Donald Trump’s move to cancel tax breaks for wind and solar projects and electric vehicles.
However, clean energy has been one of the market’s best-performing sectors: the S&P Global Clean Energy Transition Index is up by more than 55 per cent this year. The much-discussed surge in gold has only been slightly more dramatic over the same period, while the S&P 500 has gained about 16 per cent.
“What we have observed is a rebound from excessive bearishness about policy support for renewable energy,” says Massimo Bonansinga, portfolio manager at BMO Global Asset Management Inc. He manages BMO Global Climate Transition Fund, which was up about 19 per cent this year as of Oct. 31 (for Series A).
Mr. Bonansinga notes that sentiment has been shifting as the U.S. pullback in support for clean energy has not been as severe as expected, and the sector is also benefiting from a surge in electricity demand.
The convergence of “mega trends” such as data centres for artificial intelligence, electrification and regional reindustrialization has created “enormous demand for electrical power,” he says. “It’s caused a generational shift in the electricity consumption growth curve.”
The rising electricity demand is reflected in investment across almost all power-generation technologies.
“Clean energy has a critical role to play, with wind and solar offering shorter development times and competitive costs alongside a compelling carbon profile,” he says.
Mike Dragosits, portfolio manager with Harvest Portfolios Group Inc., says clean energy stocks have capitalized on the “frenzy” and “huge growth expectations” around the AI data centre buildout and subsequent energy demand.
“Artificial intelligence and data centre growth is a story that seems to be headed one way – upward,” he says, with clean energy projects required to power the industry.
“This should be a strong driver for wind, solar and energy storage, in particular,” he says.
Harvest Clean Energy ETF HCLN-T was up about 37 per cent year-to-date as of Oct. 31.
The clean energy space enjoyed outsized gains in 2021, led by solar equipment and services stocks, as well as hydrogen fuel cell companies, Mr. Dragosits says.
Clean energy funds took off that year with a flurry of launches and more than US$20-billion in global inflows, according to Morningstar Inc.
But surging interest rates and falling valuations led to outflows from those funds. The S&P Global Clean Energy Transition Index peaked in early 2021 before dropping sharply and continuing a steady decline for years.
The sector’s rebound only began after a new low in April following Mr. Trump’s “Liberation Day” tariff announcements. Over a five-year period, the index is still down more than 3 per cent.
Mr. Dragosits notes this year’s clean energy performance is being helped by the inclusion of integrated utility companies that have a significant renewables component, as well as wind and solar equipment companies, and Silicon Valley-based fuel-cell firm Bloom Energy Corp. BE-N.
Global outlook
Mr. Bonansinga says his funds are investing globally, taking advantage of the different opportunities that electricity demand growth is offering in Europe, America and Asia.
“Energy markets are global, but electricity is regional and we have, over time, shifted investments to capture growth and profitability where it presented itself,” he says.
He notes data centres and AI are still largely a North American theme, but “there is a lot of value” in stocks elsewhere.
In the wake of a strong rebound in 2025, what’s coming next in clean energy?
Mr. Bonansinga identifies the nuclear sector, while looking for more clarity on funding and regulation for projects in North America, Europe and Japan. As well, he sees consolidation ahead in renewable power, as companies look to increase efficiency and withstand competition from Chinese manufacturers.
Mr. Dragosits notes there’s a big gap between stated pledges and targets from countries around the world and current greenhouse gas emissions.
While the timelines may get pushed out, he says there seems to be agreement around the world that the goals are still important, so big investment dollars will be needed, providing a long-term tailwind for the sector.
He also recommends keeping an eye on political developments south of the border, particularly around tariffs and other policy risks.
“That could keep potential volatility on the horizon, especially under a Trump administration,” he says.