Insight: Energy Transition – how economics are reshaping the sector

By Lucille Bonnet, Managing Partner at Alantra’s Energy Transition fund Klima

For decades, energy policy has revolved around two core objectives: securing supply and keeping costs under control. Decarbonisation came later, often viewed as a third objective and, in many cases, an additional constraint. Recent trends, however, are showing that energy security, affordability and the shift towards renewables are increasingly aligned under the same economic rationale.

Geopolitical tensions have exposed the vulnerability that comes with dependence on imported fossil fuels. Volatility across global energy markets has not only pushed prices higher but also reinforced the need for more resilient systems built around domestic energy sources, greater cost stability and lower external dependence. In Europe, where more than half of energy demand is still met through imports, the energy transition is becoming a condition for sustainable economic competitiveness.  

Technology and economic viability

In the last decade, the economics underpinning the transition have changed materially. Technologies that used to rely heavily on subsidies are now competitive on market terms. In 2024, 91% of newly installed renewable capacity generated electricity at a lower cost than the cheapest new fossil-fuel alternative. Energy storage illustrates this shift clearly: utility-scale battery costs have fallen by more than 90% since 2010, reinforcing their role in a more electrified and flexible power system.

This is a significant turning point. The energy transition is no longer driven solely by regulation or climate targets, but by economic fundamentals. The sector today is built around mature technologies, proven business models and companies capable of competing without relying on economic support. What were once emerging industries are now established and commercially viable markets.

From an investment perspective, this represents more than a cyclical trend. It is a structural reallocation of capital taking place on a global scale. In 2025, annual investment in the energy transition stood at roughly $2.2 to $2.3tn , around double the amount invested in oil, gas and coal combined.

The opportunity spans the entire electricity value chain, from generation and networks to end-use consumption. Within this landscape, attention is shifting towards the technologies that enable the coordination, optimisation and management of a more electrified energy system.

As renewable penetration and electrification continue to accelerate, the challenge is no longer simply adding generation capacity, but balancing and operating a far more dynamic electricity system. Grid congestion is already becoming a major bottleneck, with more than 2,500 GW of renewable and storage projects currently waiting for connection worldwide. As a result, technologies that improve forecasting, flexibility and system optimisation are becoming critical to the functioning of modern power systems.

This trend is being reinforced by rising electricity demand driven by artificial intelligence, transport electrification and reindustrialisation. Globally, data centres consumed around 415 TWh of electricity in 2024[LB1] , roughly equivalent to the annual electricity consumption of France, and the IEA estimates that figure could approach 945 TWh by 2030. Meeting this demand will require not only additional capacity, but also more sophisticated management of a more, complex, decentralised and digitised energy system.

Where the opportunities are emerging

The most attractive opportunities are not necessarily found in early-stage technologies, but in companies that have already validated their business models, demonstrated commercial traction and proven their ability to operate in competitive markets.

These companies are becoming essential to the next phase of the energy transition. As electrification accelerates, value is increasingly shifting towards the technologies and service models that make the system work: connecting assets, improving visibility, managing flexibility, reducing congestion and enabling more efficient use of existing infrastructure.

This is already visible in markets such as smart grids, flexibility, energy management and system optimisation, some of which are expected to grow at annual rates of between 10% and 20%, according to BloombergNEF and other industry estimates. The common thread across these segments is not dependency on regulation or subsidies, but the ability to solve increasingly urgent operational and economic challenges for utilities, corporates and infrastructure owners.

The energy transition is therefore entering a more mature phase. It remains shaped by policy, but it is increasingly driven by economics: the need to secure supply, control costs, reduce external dependence and manage rising electricity demand. For investors, this creates a broad and durable opportunity set across companies that can combine technology, scale and operational execution.

The next phase of the transition will not be defined only by how much renewable capacity is added, but by how effectively the energy system can be deployed, connected, optimised and managed. That is where some of the most compelling long-term investment opportunities are likely to emerge.