Hiba Mouallem
Hello and welcome to another weekly podcast by BNP Paribas Wealth Management. Today we will be talking about renewable energy and in particular solar energy. We will analyse how, although renewable energies have seen a rally lately, they are still not considered as a popular investment.
I am Hiba Mouallem, Investment Strategist, and I am joined today by our Global Chief Investment Officer, Edmund Shing. Hello.
Edmund Shing
Hello Hiba.
Hiba Mouallem
Edmund. Very happy to have you with us. We have seen recently that solar power represented the largest source of electricity in the European Union for the first time in June 2025, which showed an increased interest and a comeback of this source of energy. However, lately, the general interest for renewable energies has been fading and investors even shunned the theme after the 2019-2021 euphoria of ESG subjects. Can you tell us a bit more about this?
Edmund Shing
Yes, so that is true. If we look at the history of environmental-related investments and clean energy, certainly from 2016 to, as you said, the beginning of 2021, we saw a sort of “golden age” where ESG-related funds, SRI-related funds and renewable energy and clean energy funds all performed very well.
And in particular, you saw strong performance of renewable energy, the renewable energy thematic investment, together with other growth-related themes from 2019 until early 2021, similar to, for instance, other technology investment themes which also performed very well over that period.
So it is very much a growth-related investment. But then this faded from early 2021 until early 2025, really. On the one hand, ESG and environmental investments fell into a little bit of a relative bear market, and in particular, clean energy suffered with a bit of a drawdown of roughly two thirds in dollars from the height in early 2021 until early 2025. So really, quite a nasty bear market for renewable energies lasting more than four years, driven in part by, for instance, the renewed interest in fossil fuel energy, particularly with the outbreak of war in Ukraine and the soaring price of crude oil and natural gas that that drove.
And then, of course, secondly, more recently, we have had a lot of interest in defence-related investments, following the commitments by NATO members to increase substantially their defence spending. So, all of this has really taken the emphasis away from ESG-related investment and also from clean energy investment, which relied very much on, cheap, long-term debt financing, which was, of course, readily available up until 2021 because interest rates were close to zero at that time.
But of course, from 2022 onwards, you saw a sharp rise in inflation, followed by a very sharp rise in interest rates in order to cap that inflation. So, the cost of debt financing rose sharply. And that certainly had a big impact on the valuation of clean energy and renewable energy investments until, of course, early this year. Since then, we have, as you have said, seen a very sharp rebound in renewable energy, solar energy funds in particular.
Hiba Mouallem
So, this sharp re-interest that you mentioned just now, since the beginning of this year, mainly in solar energy. Let us talk about it a bit in more detail. We have seen the recent data that have shown a major growth of solar energy this year. Do we expect an additional growth in the coming years and an increased use of solar energy?
Edmund Shing
I think we do, because clearly, on the one hand, the levelised cost of solar energy continues to come down. So, when you compare the overall cost of solar power to other forms of electricity generation, actually in many areas of the world compares very favourably, for instance, in southern Europe, where the sun shines a lot, northern Africa, the Middle East, and also in Asia in particular China.
And we should note that the Chinese in particular, are installing more solar panels in terms of square meters than the rest of the world combined this year. So, they are making a huge investment in solar energy. And of course, since they are the principal manufacturers of solar panels, that works well. It also brings down the unit cost because you see increased volumes of production because you see increased installations. But as I said, this is yes, driven by China and that should continue because their thirst for energy is not going to calm down anytime soon. But it is also true in the Middle East, particularly in Saudi Arabia and United Arab Emirates where they prefer to use solar power for domestic use to be able to then export more of their natural gas and crude oil resources to earn foreign income. And of course, in Europe, the installation of solar panels continues to grow, particularly, as I said, in southern Europe. Countries like Spain are still seeing big installations of additional solar power, because again, the cost of electricity is very high in Europe, and we need to do what we can both to increase, to improve the cost of electricity production, but more importantly, to improve our own domestic energy security. This is something that has been very much under threat since 2022, since the Russian invasion of Ukraine.
Hiba Mouallem
Okay. And where does the demand come from mainly?
Edmund Shing
Well, as I said, the demand is coming from China, the Middle East and Europe. But what I would say is where the demand is really coming from is from areas such as obviously technology. So, everyone talks about artificial intelligence. Well, it is quite clear that we are seeing a massive increase in the number of installations of AI-related data centres. Now, these are, of course, very electricity hungry, they are very power hungry. And that implies an increase in the demand for electricity across the US, Europe and Asia, not just this year, but for several years to come, because, again, this AI CapEx wave is not just going to stop this year, but is actually projected to increase even further in the next few years.
So, while this AI investment wave continues, the demand for electricity will continue to grow, related to that, and of course, therefore, you need to increase the amount of generation capacity in order to satisfy those needs.
Apart from that, of course, we have increased penetration of battery electric vehicles and plug-in hybrid vehicles, particularly in Europe as well as in China. Now again, that electricity needs to come from somewhere and this is an increased demand for electricity. And so again, we will need more generation and storage capacity across the electricity grids in China, Europe and elsewhere in order to satisfy this growing need. And again, this is something that the current generation capacity is probably insufficient for, which is why we need to add generation capacity. So, this may be, to some degree, particularly in the US, powered by natural gas, but also perhaps by nuclear to a certain extent. But clearly renewable energy, in particular solar energy is going to play a very important part in terms of the increase in generation capacity to meet these future needs.
Hiba Mouallem
Okay. So, as you mentioned, there will be a higher demand over the next decades for electricity, which will increase the demand for low-cost sources of energy, in particular solar energy. So, if we want to talk from an investment perspective, do you think that the rally that we have seen since April by the renewable energy sector will continue? And in other words, where should investors look to?
Edmund Shing
Well, I think it probably can continue because on the one hand, the increase in demand for electricity, the growth in demand is there and will continue. And I think that is very visible.
Secondly, I do think that the cost of production continues to come down, particularly of solar panels, and the level of efficiency goes up. So that, again, improves the cost efficiency of solar energy relative to other sources of energy.
Thirdly, you are now seeing the pairing of solar power together with industrial battery storage in order to be able to provide electricity from these renewable sources, even when the sun is not shining. And that is very important, particularly for things like data centres, because they need constant sources of electricity, they do not really do well out of intermittent sources. They need it to be constant. So having that battery storage to store excess solar power, which can then be released when the sun is not shining, is very important. And it is a very important factor for stabilising the electricity grids, for instance, we have seen big outages in Spain and Portugal this summer because of too much solar power being produced, which could not be easily coped with by the existing electricity grid. But if you have the battery storage, that would certainly help smooth out these highs and lows, and in terms of peak generation and trough generation.
So, when I think about the investment, I think really investing in renewable energy funds generally, I think, still make sense. And reinvesting in solar energy funds and ETFs also makes some sense. But I would also add battery storage as a third element. So, battery technology is a third area where we continue to see strong performance and we see strong growth in demand. So, I would say those three areas are three sets of funds and ETFs which investors can look at to play this theme today and for the next few months.
Hiba Mouallem
Perfect. Thank you very much, Edmund, and thank you to our audience out there listening to this podcast. Please like, share and subscribe to our series of podcasts. Until next time, goodbye.