Energy financing: Five forces to keep an eye on in 2026

In this week’s Power Playbook: five forces set to shape energy finance in the coming year.

From power grid bottlenecks and storage deployment to regulatory reform and the data centre surge — here are five factors to keep an eye on as we usher in 2026. What do they mean for where capital flows? Which projects will succeed? And how will the energy transition actually get built? 

AI-driven energy demand tests grid limits

Arguably the most important element to watch has been the effect of AI on the power grid. Globally, power demand from AI and data centres has been surging and the numbers are set to increase further.

According to S&P Global Energy in its Top Trends report, global data centre power demand will increase 17% to 2026 and 14% per year through 2030, potentially exceeding 2,200TWh — roughly India’s total electricity consumption. US capital spending on data centres specifically is set to approach $500 billion in 2026.

However, what’s also interesting here is that with this rising demand comes the potential to supply it with renewable energy.

Faysal Taher, Partner for Energy Transition & Climate Investments, Boston Consulting Group, highlighted this trend in a London Stock Exchange Group webinar: “In terms of the energy sector, the demands [of AI] on energy are, of course, very large, but it's been a great opportunity for clean energy to supply. 

“Coupling these data centres - making them green data centres, connecting them with renewable energy - that's been something that's good for the energy transition, and it's been a play that a lot of energy players are looking to get into. They're using this as a segue to diversify businesses.”

Indeed, take for example utility giant Iberdrola’s recent announcement of a joint venture to invest over €2 billion ($2.4 billion) into Spanish data centres; the utility will supply these centres with clean energy around the clock. 

According to S&P Global, major tech firms including Microsoft, Alphabet and Meta are actively exploring ways to reconcile their rising power needs without compromising on their climate targets; however, S&P Global also notes that 38% of assessed companies with data centre operations lack net zero commitments.

The implication for investors is clear: projects that can reliably serve these concentrated, high-demand hubs — while meeting sustainability criteria — will be highly sought after, while systems unable to cope risk creating bottlenecks that constrain returns.

Solar growth peaks as China adjusts policy

Another key insight from S&P’s report is that, for the first time ever, global solar additions are expected to decline slightly in 2026.

China’s annual installations are forecast to drop from roughly 300GW in 2025 to 200GW in 2026, driven by a policy shift from guaranteed pricing to competitive bidding. Given China’s historic dominance — over 50% of global additions in the past decade — this slowdown has wide-reaching implications.

China accounted for 50% of global additions over the past decade, and with their reduced contributions, says S&P, new global solar installations are expected to decline year-on-year, albeit by less than 10%, as emerging markets take up some of the slack.

Despite this contraction, cumulative PV capacity is still expected to double over the next five years, supported by emerging markets and continued innovation, including faster deployment of battery energy storage. 

Grid integration and supply chain constraints

Decades of underinvestment in transmission and distribution networks are now constraining energy security, decarbonisation and competitiveness. 

According to S&P, ageing infrastructure in Europe — where 40% of grids are over 40 years old — will require €584 billion ($685.7 billion) in capital expenditure by 2030 to keep pace with the transition.

During the LSEG webinar, when asked what challenge is the most urgent for renewable integration for 2026, IRENA’s Norela Constantinescu stressed the urgency of grid integration.

The Deputy Director of IRENA's Innovation Technology Center added: “The integration into the grid itself… this development takes quite a lot of time. We are looking at maybe 10 years' lead times. Because 90% of these renewables that were deployed are variable renewables of wind and solar, we need to combine with the development of the grid and with flexibility. The grid can give flexibility, but we should look at a portfolio of solutions.”

Such solutions, said Constantinescu, include “storage, short duration, like batteries, but also long duration, depending on the energy mix you have. If it is wind, then also longer time duration storage is needed. This has to be taken into account in this development.”

This of course isn’t the only challenge.

Constantinescu also cited investment and permitting as critical, and this last point has been a repeated note among clean tech executives when it comes to 2026.

Peter Davidson, chief executive and co-founder of US-based Aligned Climate Capital, told me: “In 2026, I expect to see real movement on permitting and transmission reform.

“Smarter regulation and new grid technologies can finally unlock capacity and move clean power where it’s needed most. Add private capital to the mix, and we can build a stronger, faster grid that keeps up with America’s growing appetite for power.”

Charles Murray, chief executive of US-based Switched Source, said that supply chain constraints remain critical: “As we look ahead to 2026, we will begin to see supply chain and workforce challenges easing for sectors tied to electrification or distribution level, but continue to see long lead times for power transformers. 

“New investments in domestic transformer manufacturing at the distribution level are starting to have an impact, but do not expect prices to come back down for transformers or cables. These commodities saw prices increase well beyond inflation rates, but it seems unlikely they will do more than plateau. 

“The global shortage of skilled labour, especially in high-voltage, high-power transformers, is slowing production and driving up costs across the grid supply chain. We’re hearing from major manufacturers that the best training programmes for this work are overseas, which creates real logistical and timeline hurdles for US facilities.”

Flexible power purchase agreements

As renewable capacity grows, markets are increasingly exposed to zero- or negative-price events. S&P Global reports that data centres accounted for 27GW, or 43% of total corporate power procurement in 2025 through October, illustrating the scale of demand driving new PPA structures.

Financial arrangements are evolving accordingly. Hybrid and shorter-term PPAs that integrate multiple technologies and storage, along with stronger downside protections, are emerging as the standard. Investors and off-takers are rethinking risk allocation to manage extreme price swings, particularly in Europe where PPA indices remain below cost-based levels.

These innovations are likely to influence where capital flows, favouring projects that can deliver predictable cash flows despite volatile power prices.

More from the Power Playbook:
Four ways Europe’s utility giants turned profits in 2025
Is Europe's Grids Package funding the leap or falling short?
Enlit Europe offers snapshot of financing trends

China’s green tech push

China is pushing aggressively into new technologies. According to S&P, green hydrogen electrolyzer deployment is projected to reach 4.5GW in 2026. Electrolyser stack prices have plunged from $250 per kilowatt (/kW) in early 2024 to under $100/kW due to oversupply and fierce competition.

Unlike solar and batteries, Chinese firms aim to export energy as well as technology, with at least two Chinese green ammonia plants receiving EU certification for clean molecule exports, with indications of prices as low as $600 per metric ton on a free-on-board basis (FOB).

On the mobility front, China is also poised to become the first major “EV majority” market, with battery electric and plug-in hybrid vehicles representing around 50% of new light vehicle sales in 2025’s first three quarters. 

Emerging markets across Asia and Latin America are also emerging as key adoption targets.

These developments, combined with global climate policy shifts such as the EU Carbon Border Adjustment Mechanism taking effect in 2026, underline the interplay of technology, trade, and regulation. 

Investors will need to navigate both market opportunity and geopolitical influence as capital increasingly flows eastward.

What do you think? What else do we, as professionals in the energy sector, need to watch when it comes to capital flows for the energy transition?

Cheers,
Yusuf