Sustainability Atlas
Future of Finance & Investing·13 min read··...

Deep dive: Macro, commodities & the energy transition — what's working, what's not, and what's next

What's working, what isn't, and what's next — with the trade-offs made explicit. Focus on unit economics, adoption blockers, and what decision-makers should watch next.

In 2025, global energy transition investment reached a record USD 2.3 trillion, representing an 8% increase from 2024 and marking the second consecutive year that clean energy investment outpaced fossil fuels at a 2:1 ratio (BloombergNEF 2025). Yet beneath this headline figure lies a more complex story: 90% of that capital remains concentrated in advanced economies and China, while the critical minerals essential for decarbonization face unprecedented supply chain concentration—with China controlling over 60% of refined lithium and 80% of battery-grade graphite processing. For investors navigating this landscape, understanding the macro-commodity nexus has become essential for capital allocation decisions that will shape portfolio returns for decades.

Why It Matters

The energy transition represents one of the largest capital reallocation events in modern economic history. According to the International Energy Agency, USD 3.3 trillion flowed into global energy investment in 2025, with clean energy capturing approximately two-thirds of that total (IEA 2025). This shift carries profound implications for commodity markets, currency dynamics, and portfolio construction.

The macroeconomic environment adds urgency to these considerations. While the European Central Bank has cut rates to approximately 2% through 2026, long-term capital costs remain elevated due to persistent inflation concerns and sovereign debt stress in emerging markets. Financing costs can constitute up to 50% of total energy transition investments, making the cost of capital a decisive factor in project viability (IRENA 2025).

For portfolio managers, the energy transition creates both systematic risks and opportunities. Traditional commodity exposures—particularly to fossil fuels—face structural demand decline, while critical minerals like lithium, copper, and rare earth elements are projected to see 5-8x demand growth by 2040 under net-zero scenarios. Misaligning portfolios to these shifts exposes investors to both transition risk and the opportunity cost of missing the largest infrastructure buildout since electrification.

Key Concepts

Understanding the macro-commodity-transition nexus requires grasping several interconnected frameworks.

Critical Minerals Supply-Demand Dynamics: The energy transition fundamentally reshapes commodity demand hierarchies. Lithium demand grew 30% in 2024 alone, with the energy sector accounting for 85% of that growth. Copper demand is projected to increase 30-50% by 2040 as grid expansion and electrification accelerate. However, mining project lead times of 5-15+ years create structural supply lag risks that current price signals may not adequately capture.

Geographic Concentration Risk: The refining and processing of critical minerals exhibits extreme concentration. The average market share of the top three refining nations reached 86% in 2024, up from 82% in 2020. China dominates across nearly all mineral categories: 80% of battery-grade graphite, 80% of rare earth elements, and over 60% of lithium and cobalt refining. Indonesia controls more than 50% of nickel refining. This concentration creates supply chain vulnerabilities that macro investors must factor into geopolitical risk assessments.

The Financing Gap: Despite record investment, the world remains significantly off-track from climate targets. Annual investment of USD 3.5 trillion is required through 2050, but current flows leave an annual shortfall of approximately USD 2.2 trillion. Only 54% of energy investment reaches emerging and developing economies, despite these regions representing 67% of global population and holding significant clean energy potential.

Cost of Capital Asymmetry: Developing economies face 2-3x higher capital costs than advanced economies for equivalent projects. In Africa, debt servicing costs consume 85% of all energy investment in 2025. This asymmetry creates a fundamental barrier to global decarbonization and concentrates transition benefits in already-wealthy regions.

KPICurrent State (2024-25)2030 TargetGap
Annual clean energy investmentUSD 2.2TUSD 4.5TUSD 2.3T shortfall
Renewable capacity additions585 GW1,000+ GW/yr~40% acceleration needed
Critical mineral investment growth+5% YoY+15% YoY10 percentage points
Emerging market share of investment10%35%25 percentage points
Grid investmentUSD 400BUSD 600BUSD 200B gap
Long-duration storage deployment<5 GW50+ GW>10x scale-up needed

What's Working

Solar Cost Decline and Deployment: Solar investment reached USD 554 billion in 2024, representing 69% of renewable energy investment. Solar PV installations added 453 GW globally—42% of total renewable capacity—and clean energy equipment prices have fallen 60% over the past decade. Solar investment is approaching levels consistent with 1.5°C pathways, representing one of the few areas where deployment matches climate ambition.

Battery Storage Economics: Energy storage has become the fastest-growing segment of the transition. Sungrow, a leading provider, reported 127.78% year-over-year storage revenue growth in H1 2025, with storage revenue exceeding inverter revenue for the first time. Four-hour battery systems can now cover more than 70% of gas peaker plant use cases, fundamentally shifting the economics of grid flexibility.

Corporate Procurement at Scale: Major technology companies are signing unprecedented clean energy procurement deals. NextEra Energy announced a framework agreement with Google in December 2025 for 15 GW of new capacity by 2035, including a 25-year deal to restart the Duane Arnold nuclear plant for 24/7 carbon-free power. Fortune 50 companies have committed to up to 10.5 GW of renewables and storage through 2030 via long-term offtake agreements.

Recycling Economics Emerging: By 2040-2050, recycling could reduce mining investment needs by 30% and cut primary supply requirements by 10-30% for copper, lithium, nickel, and cobalt. Recycled materials deliver 80% lower greenhouse gas emissions compared to primary production, creating both environmental and economic value.

What's Not Working

Grid Infrastructure Bottleneck: While renewable generation capacity additions hit records, grid infrastructure remains the binding constraint. Interconnection queue backlogs in the United States exceed 2,000 GW—more than current installed capacity—with average wait times stretching to five years. Grid investment of USD 400 billion in 2025 remains USD 200 billion short of requirements, and permitting delays add 3-5 years to transmission projects.

Offshore Wind Retrenchment: Ørsted, the global leader in offshore wind, scaled back its 2030 investment goals after massive US portfolio impairments. High interest rates and supply chain inflation have pushed project costs up 30-50% since 2021, rendering many contracted projects uneconomic. The sector is in a period of retrenchment, with multiple developers writing down assets and deferring final investment decisions.

Critical Mineral Investment Slowdown: Despite supply constraints on the horizon, critical mineral investment grew only 5% in 2024, down sharply from 14% in 2023. Exploration activity plateaued as lithium prices crashed 80% from 2023 peaks following an 8x surge in 2021-22. Current prices do not incentivize the new projects needed to meet 2030s demand, creating a classic commodity cycle underinvestment risk.

Emerging Market Capital Access: The financing architecture systematically fails developing economies. Grants account for less than 1% of emerging market financing despite these regions facing the highest capital costs and greatest climate vulnerabilities. Nearly half of 2023 transition investment was debt at market rates, concentrating risk on the least able to bear it.

Manufacturing Investment Retreat: Clean energy manufacturing investment fell 21% to USD 102 billion in 2024. Solar PV manufacturing investment dropped 72% to USD 24.5 billion amid overcapacity concerns, primarily affecting Chinese manufacturers. While this benefits near-term deployment costs, it raises concerns about supply chain resilience and manufacturing competitiveness outside China.

Key Players

Established Leaders

NextEra Energy (USA): The world's largest wind and solar generator by market capitalization, NextEra operates 73 GW of generating capacity with a 30 GW development backlog. The company has committed USD 120 billion in renewables and storage investment through 2029, with framework agreements supporting 81 GW total capacity by 2027.

GE Vernova (USA): Spun off from General Electric in April 2024, GE Vernova operates 120 GW of installed wind capacity across 57,000 turbines worldwide, generating 25% of global electricity. The company provides integrated grid solutions spanning turbines, grid infrastructure, carbon capture, and hydrogen systems.

ACWA Power (Saudi Arabia): This Saudi developer added 14.3 GW of total capacity in 2024, including 10.7 GW of renewables, reaching 69.2 GW gross capacity across 94 assets worth USD 97 billion. ACWA's record 2 GW Egypt wind farm demonstrates emerging market utility-scale deployment capability.

Brookfield Renewable Partners (Canada): A global renewables investor managing diversified hydro, wind, solar, and storage assets, Brookfield added approximately 8 GW of development assets in 2025 with a 2050 net-zero target.

Emerging Startups

Form Energy (USA): Developing iron-air batteries for multi-day energy storage at one-tenth the cost of lithium-ion systems. Form raised USD 405 million in Series F funding in October 2024 and broke ground on its first commercial project in Minnesota, with 150 MWh deployment expected in late 2025.

Twelve (USA): Producing sustainable aviation fuel by converting captured CO2, Twelve has attracted investment from TPG Rise Climate and partnerships with major airlines. The technology addresses the hard-to-abate aviation sector where electrification is not viable.

Base Power (USA): This residential battery storage provider raised USD 600 million in Series D funding in December 2024, deploying AI-optimized home energy systems across Texas and other deregulated markets.

Key Investors & Funders

Breakthrough Energy Ventures: Founded by Bill Gates and backed by Jeff Bezos, Michael Bloomberg, and Richard Branson, BEV raised USD 839 million for its third fund in 2024—the largest climate fund of the year. Total committed capital exceeds USD 3.5 billion across 110+ portfolio companies focusing on patient capital for breakthrough technologies.

TPG Rise Climate: Rise Climate II has secured USD 6.2 billion in commitments as of mid-2025, targeting USD 8-10 billion at final close. The fund takes a multi-strategy approach across buyout, growth, and infrastructure investments, with a partnership with UAE's ALTÉRRA fund mobilizing Global South capital.

Energy Impact Partners: A utility-backed venture capital firm providing strategic investment and operational support to grid-edge and clean energy startups with USD 3+ billion under management.

Examples

1. NextEra Energy's AI Data Center Pivot: NextEra's December 2025 partnership with Google illustrates how corporate clean energy procurement is evolving. The 15 GW commitment through 2035, including nuclear restart agreements, demonstrates that sophisticated buyers now require 24/7 carbon-free power matching—not just annual renewable energy credits. This shift is reshaping how developers structure projects and how investors evaluate offtake quality. NextEra's stock performance reflects this strategy's success, with the company maintaining 10% annual dividend growth through 2026.

2. Form Energy's Iron-Air Battery Breakthrough: Form Energy's December 2024 passage of UL9540A safety testing—demonstrating no thermal runaway or fire risk—validated its fundamentally different approach to energy storage. By using iron, water, and air (80% domestically sourced), Form avoids the critical mineral supply chain risks facing lithium-ion systems. The company's collaboration with GE Vernova on manufacturing, supply chain, and R&D signals major industrial players see iron-air as commercially viable. For investors, Form represents a bet on storage technology diversity reducing concentration risk.

3. TPG Rise Climate's Twelve Investment: TPG's investment in Twelve, a Stanford GSB teaching case, exemplifies first-of-a-kind climate finance structuring. By backing CO2-to-sustainable aviation fuel conversion, TPG targeted a market where carbon pricing and regulatory mandates (EU's ReFuelEU Aviation) create near-term demand certainty. The investment structure balances technology risk with policy-driven offtake, offering a template for financing hard-to-abate sector solutions at scale.

Action Checklist

  • Conduct portfolio-level critical minerals exposure analysis, mapping both direct commodity holdings and indirect exposure through supply chains of portfolio companies
  • Evaluate grid infrastructure investment opportunities, focusing on regions with interconnection queue backlogs and transmission expansion mandates
  • Stress test portfolio companies against 2-3x interest rate sensitivity for capital-intensive projects with long development timelines
  • Assess geographic concentration risk in portfolio companies' supply chains, particularly for China-dependent mineral processing
  • Review long-duration storage exposure and consider diversification beyond lithium-ion to iron-air, compressed air, and other emerging technologies
  • Engage portfolio company boards on transition planning, focusing on disclosed capex alignment with stated climate commitments
  • Evaluate emerging market transition finance vehicles, including blended finance structures offering risk-adjusted returns with catalytic capital participation

FAQ

Q: How should investors think about lithium price volatility when evaluating EV and storage investments? A: The 80% lithium price decline since 2023 peaks reflects a classic commodity cycle dynamic rather than structural demand weakness. With lithium demand projected to grow 5-8x by 2040 and current prices not incentivizing new project development, investors should view the current cycle as creating entry points. However, technology risk exists from alternative battery chemistries (sodium-ion, iron-air) that could reduce lithium intensity. Diversified exposure across storage technologies and vertical integration plays (companies controlling both mining and processing) offers better risk-adjusted positioning than pure lithium commodity bets.

Q: What macro indicators should investors monitor for energy transition exposure timing? A: Key indicators include: (1) long-term interest rate trends, given financing costs represent up to 50% of project economics; (2) interconnection queue approval rates as a leading indicator of deployment acceleration; (3) critical mineral refining capacity additions outside China as a supply chain diversification signal; (4) corporate power purchase agreement volumes and pricing, which reflect demand-side conviction; and (5) grid investment levels relative to the USD 600 billion annual target. The ECB and Fed rate differential also affects currency dynamics for dollar-denominated commodity exposures.

Q: How should investors evaluate geographic diversification in energy transition portfolios? A: The 90% concentration of transition investment in advanced economies and China creates both risks and opportunities. For risk mitigation, overweight companies with supply chain optionality across multiple jurisdictions. For opportunity capture, monitor vehicles like TPG Rise Climate's Global South initiative and blended finance structures that can access higher-return emerging market projects with catalytic capital de-risking. Policy stability indicators—including IRA subsidy structures in the US and EU Green Deal implementation—should inform geographic allocation weighting.

Q: What is the investment case for long-duration storage given lithium-ion cost decline? A: Lithium-ion batteries optimally serve 2-4 hour storage applications, but grid decarbonization requires multi-day storage for renewable intermittency management. Form Energy's iron-air technology at one-tenth lithium-ion costs per unit storage addresses this gap. The investment case rests on: (1) regulatory mandates requiring 100% clean electricity by 2035-2040 in major markets; (2) declining value of short-duration storage as penetration increases; and (3) firming requirements as coal and gas plants retire. Early-stage risk is mitigated by utility offtake agreements and strategic partnerships with established players like GE Vernova.

Q: How do carbon border adjustment mechanisms affect commodity investment decisions? A: The EU's Carbon Border Adjustment Mechanism and similar policies in the UK and potentially the US create tariff premiums for carbon-intensive commodity imports. This favors: (1) low-carbon commodity producers with verified emissions credentials; (2) recycling operations that deliver 80% lower emissions than primary production; and (3) traceability infrastructure enabling emissions verification. Investors should evaluate portfolio company supply chains for CBAM exposure, particularly in steel, cement, aluminum, and fertilizers—the initial covered sectors. Companies with scope 3 emissions tracking and reduction programs will command premiums.

Sources

Topics

macrocommoditiesvaluationfactor modelsportfolio risktraceabilityrates

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