Q&A: Renewable energy outlook 2026

January 2026  |  SPECIAL REPORT: ENERGY & UTILITIES

Financier Worldwide Magazine

January 2026 Issue

FW discusses the outlook for renewable energy in 2026 with Seyda Duman at Milbank, Adam McWilliams at Quinn Emanuel Urquhart & Sullivan UK LLP and Oly Moir at Slaughter and May.

FW: What do you see as the most transformative trends currently reshaping the global renewable energy landscape?

McWilliams: The global renewable energy landscape is shifting from climate-first to security-driven economics. China, Europe and the US now prioritise supply chain resilience and industrial competitiveness alongside long-term 2050 goals. China’s dominance – over 80 percent of solar manufacturing, 75 percent of batteries and 95 to 97 percent of rare earth processing – creates structural dependencies that the policies of other countries are aiming to unravel. A further structural trend is artificial intelligence’s (AI’s) rapidly rising electricity demand: industry projections suggest data centres could exceed Japan’s consumption by 2030, with grid bottlenecks already delaying around 20 percent of new projects. Renewables overtook coal as the largest source of global power in early 2025, but further gains depend on also allocating capital to grid infrastructure, storage and industrial electrification, where significant system-wide returns may now sit.

Duman: While the current economic and political climate has slowed down investments in renewable energy projects in certain jurisdictions and renewable energy developers and operators are contending with higher interest and inflation rates, more expensive renewable energy projects and a weakening of state government support and incentives – as demonstrated by the US federal government’s opposition to offshore wind projects, as well as the UK government’s recent consultation paper to change or pause the inflation escalator index for UK renewable energy credits – renewable energy still continues to remain a focus globally with global renewable power output continuing to increase rapidly. As a result, renewable energy developers have become more circumspect and selective with their investments. In this more selective environment, solar photovoltaics (PV) and onshore wind continue to be the backbone of new renewable capacity. According to the International Energy Agency, around 95 percent of the next wave of renewables are likely to come from solar PV and onshore wind. Cheap solar in particular continues to be transformational, with declining module costs, faster installation and modularity – from rooftop to utility scale – pushing solar deeper into emerging markets. One of the biggest barriers to high renewables penetration is variability and the growing need for stable energy. Energy storage, especially battery storage, is developing at pace, both in scale and cost reduction.

Moir: Geopolitical tensions are fuelling volatility in energy markets, and in some regions, consensus on the energy transition is being questioned. Against this backdrop, four trends are reshaping the global renewable energy landscape. First, electricity demand is growing faster than overall energy demand, driven by AI adoption, electrified transport and cooling systems, while renewables dominate new capacity additions. Second, rapid electrification and renewable deployment are exposing grid constraints as a critical bottleneck, with connection queues far exceeding available capacity, highlighting the need for major transmission upgrades. Third, grid flexibility is becoming essential – integrating intermittent renewables requires assets that stabilise the grid, including short and long duration storage, such as batteries, hydrogen and pumped hydro, nuclear, including small modular reactors, dispatchable low-carbon power, and gas power plants with carbon capture and storage (CCS) technology. Finally, governments are responding to inflationary pressures by lowering the cost of capital and consumer prices through long term, transparent frameworks such as contracts for difference (CfDs), capacity markets and regulated asset base (RAB)-style models.

“Battery storage is now central to the energy transition, which is critical for higher renewable penetration amid grid constraints and rising electricity demand.”
— Oly Moir

FW: How are recent advances in energy storage technologies changing the economics and reliability of renewable power systems?

Duman: Battery storage operators are now using AI to analyse complex and large datasets such as weather patterns, historical data and market prices to forecast energy needs and renewable energy output from solar and wind facilities. Analysis has shown that the forecasts of such AI models are 25 percent more accurate than forecasts using traditional methods. By using such AI models, battery storage operators are able to predict energy supply and demand more accurately and navigate the peaks and troughs of energy supply and demand more accurately, thus allowing them to maximise the arbitrage between the electricity they purchase from the grid and store in their battery systems during troughs, and the electricity they sell and discharge to the grid during peaks.

Moir: Recent advances in electricity storage are transforming the economics and reliability of renewable power systems. Storage is shifting from a niche role in ancillary services to a core component of system infrastructure. Falling battery costs and wider price spreads enable profitable arbitrage and co-location with wind and solar, reducing curtailment and negative pricing risk, improving revenue stability and project bankability. Long-duration electricity storage (LDES) is gaining traction, supported by mechanisms such as the UK’s cap-and-floor regime and Italy’s MACSE auctions, which de-risk debt and enhance financing. As short-term markets saturate, flexible resources and duration diversity become essential to manage multi-hour renewable lulls, intermittency and seasonal swings. Battery storage is now central to the energy transition, which is critical for higher renewable penetration amid grid constraints and rising electricity demand. Looking ahead, we expect seasonal storage to become increasingly important as renewables dominate supply.

McWilliams: Energy storage economics have flipped dramatically – global battery demand in one week of 2024 exceeded total annual demand a decade prior, reaching 1TWh for the first time. China’s control of over 75 percent of battery cell manufacturing delivers cost advantage through vertical integration and scale. Lithium-ion batteries have become cheaper despite raw material volatility, enhancing renewable project viability by mitigating intermittency. Beyond batteries, the EU leads in liquid air storage while pumped hydro delivers 46GW of EU capacity. Sodium-ion, flow batteries and solid-state technologies help diversify risks. However, regulatory frameworks and supply chain constraints for critical minerals remain challenges. Policies such as the Inflation Reduction Act (IRA), EU Battery Regulation and UK Energy Act provide clarity on recycling mandates and manufacturing incentives, de-risking long-term storage investments essential for renewable reliability at scale.

FW: To what extent are policy frameworks like the Inflation Reduction Act or the EU Green Deal driving long-term investment in renewables?

McWilliams: The US IRA is reshaping deployment economics, mobilising over $1 trillion in projected investment through 2032. Solar additions are tracking around 40-50 percent above pre-IRA expectations, with around three-quarters of new clean energy investment flowing into below-median income counties. This reverses longstanding patterns of uneven regional investment and arises at a time when COP30’s Baku to Belém Roadmap targets $1.3 trillion annually in climate finance by 2035. The EU Green Deal is positioning wind as both a climate solution and a strategic industry, supporting around 300,000 jobs today and projected to become Europe’s largest power source by 2027. Policy risk remains, but framing decarbonisation through energy security has proven more politically durable and continues to anchor long-term private investment.

Moir: Investors seek certainty, stable policy and transparency. Political risk, including upcoming elections, often deters investment. A recent example is the uncertainty surrounding the IRA, which has shaken investor confidence in the US, delaying capital flows into renewable assets and slowing the energy transition. In contrast, Europe and the UK have earned credibility through stable frameworks like CfDs, capacity markets and regulated models, such as RAB for carbon dioxide (CO2) transport and storage, and new nuclear. These mechanisms are designed to reduce financing costs by providing predictable cash flows. Initiatives in the UK, such as Clean Power 2030 and targeted support for LDES, reinforce long-term commitments to renewables, flexibility and low-carbon dispatchable power. The lesson is clear – complex or shifting rules and political reversals deter investment. Stability, simplicity and credible delivery remain the decisive catalysts for attracting long-term capital.

Duman: Policy frameworks have been highly effective in attracting private capital to investments in renewable energy projects, by creating stable investment regimes and promising predictable investment returns for private investors. Indeed, both the IRA and the EU’s Green Deal have been recognised for rallying hundreds of billions of dollars of private investments into renewable energy projects, while creating and reskilling workers for numerous high-quality, well-paying jobs in the renewables sector. However, investors have become more cautious with respect to policy frameworks, noting that they can be easily withdrawn due to a change in governments or political headwinds and they can also lead to malinvestments in the renewables sector.

“Countries that deepen domestic supply chains, secure critical minerals and manage social transitions effectively will capture outsize investment and deployment growth through the late 2020s.”
— Adam McWilliams

FW: What role do you foresee for green hydrogen in decarbonising hard-to-abate sectors by 2026 and beyond?

Moir: Green hydrogen is entering early deployment, with its near-term role concentrated in hard-to-abate sectors where electrification is not feasible. Industrial heat, refining, chemicals and sustainable aviation fuel remain the most promising applications, but only if costs decrease. However, the buzz around green hydrogen a few years ago has started to fade, with many projects being delayed or cancelled – even those that have received generous government subsidies – and several players deciding to leave the market entirely. Aside from the challenging economics, the two key challenges being faced are the lack of an offtake market and of large-scale transportation and storage infrastructure. There simply is not a broad market of creditworthy offtakers willing to commit to long-term contracts with material potential liabilities, particularly if it may involve material capital expenditure to enable the facility or asset to use hydrogen or increased operational risk. And the lack of existing infrastructure heightens the risk of there being a single point of failure, for both the supplier and the offtaker, with no easy way to mitigate. If green hydrogen is to fulfil its potential, governments will need to address both these issues, including helping to solve the ‘chicken and egg’ issue in relation to building new infrastructure.

Duman: While hard-to-abate sectors are major contributors to global CO2 emissions – the production of steel, cement and fertiliser accounts for approximately 9 percent, 8 percent and 2 percent of annual global emissions respectively – the products of such sectors are necessary for human development, and we can only expect global usage of such products, and related CO2 emissions, to grow as the world population increases and global living standards rise. Therefore, green hydrogen will have a key role in the decarbonisation of these industries as it remains the most promising solution to this conundrum. However, large scale green hydrogen technology is still in its infancy and further investments, government support and incentives, alongside continued research and development, will likely be required to further develop and scale-up the technology.

McWilliams: By 2026, green hydrogen will primarily scale in sectors where consumers or manufacturers can absorb a sustainability premium, notably green steel and low-carbon logistics. China holds more than 60 percent of global electrolyser manufacturing, replicating the pattern seen in solar and batteries and complicating reshoring efforts elsewhere. Recent demonstrations show viable hydrogen use in glass, ceramics and minerals processing, with feedstock replacement and seasonal storage expected to follow. Hard-to-abate sectors like shipping and aviation will rely on hydrogen-derived fuels, while blue hydrogen provides transitional volumes because it can be produced at industrial scale using existing gas infrastructure, bridging supply until green hydrogen becomes cost-competitive. Infrastructure remains the constraint, as pipelines, storage and port facilities must develop in parallel with demand. Amid all of this, companies are increasingly structuring contracts to preserve optionality as hydrogen economics evolve.

FW: How are supply chain vulnerabilities and critical mineral dependencies influencing project timelines and costs in the renewable sector?

Duman: The supply chain shocks stemming from recent events – ranging from the Houthi rebels’ attacks on cargo ships in the Red Sea, to tariff wars over solar panels and critical and rare earth minerals – have pushed the issue of supply chain vulnerabilities to the forefront of renewable project developers’ minds. Developers now have to plan for mitigants to counteract such vulnerabilities, including rerouting supply chains, finding contingency suppliers or replacing suppliers altogether, and purchasing more expensive insurance policies – all of which results in more costs for the project and potentially extensions to the project timeline. In relation to tariffs on supplies and equipment for renewable projects, developers are now keen to negotiate with their counterparties to allocate liability for unforeseen tariffs.

McWilliams: Supply chain brittleness is now the primary cause of renewable project delays, regardless of policy support. The 2025 US-Australia critical minerals framework, which is an $8.5bn pipeline with $1bn initial financing, highlights geopolitical realignment as Australia navigates friendshoring with other allies and while China tightens rare earth export controls. Analysts still expect 10-20 years before meaningful supply independence, with diversification constrained by China’s structural dominance comprising 95-97 percent of rare earth processing and major control of polysilicon. Operational limits compound these pressures because, even when materials are available, shortages in engineering capacity, fabrication and specialised installation vessels slow the shift from approval to construction. The UK faces a 1-2GW annual solar engineering, procurement and construction (EPC) shortfall, and vessel scarcity threatens delivery of roughly 42GW of approved offshore wind capacity, requiring near-doubling of installation capability. In this environment of structural constraint, nickel, cobalt and graphite may stabilise, but copper risks a 30 percent deficit by the mid-2030s. Developers are therefore lengthening procurement windows and adding escalation clauses, yet mine development cycles of 7-10 years mean supply cannot adjust quickly.

Moir: Supply chain vulnerabilities and critical mineral dependencies are increasingly shaping renewable project timelines and costs. Geopolitical tensions have exposed concentration risks, with China controlling most lithium, cobalt and rare earth refining. Export restrictions and price volatility for copper, steel and specialised components, compounded by tariffs and inflation, are extending lead times and raising EPC costs. Added scrutiny of Chinese components for environmental, social and governance, as well as cyber and broader national security concerns, are further tightening terms and affecting bankability. Offshore wind illustrates the challenge, as long waits for heavy-lift vessels, turbines, high voltage direct current cables and other key components are slowing deployment. Developers are responding with longer, more collaborative procurement, earlier supplier engagement and more robust standardised supply contracts, covering contingencies such as force majeure, change in law, and so on, realistic schedules and cost-control provisions. Governments are rolling out industrial strategies and port upgrades, but these measures will take time. For now, proactive risk management and disciplined planning remain essential to protect returns.

“Investors have become more cautious with respect to policy frameworks, noting that they can be easily withdrawn due to a change in governments or political headwinds.”
— Seyda Duman

FW: In your view, how is digitalisation through AI, smart grids and the internet of things enabling more efficient and scalable deployment of renewables?

Moir: Digitalisation has shifted from being an add-on to a core enabler of renewable integration and scalability. AI-driven optimisation improves dispatch, revenue stacking and battery cycling strategies across multiple markets, while predictive maintenance reduces downtime and extends asset life. Smart grids and advanced system planning, centralised through bodies like the National Energy System Operator, use real-time data to prioritise reinforcements, manage congestion and unlock connections, moving from ‘first-come’ to ‘first-ready and needed’. At the edge, internet of things (IoT) devices enable consumer-led flexibility, complementing utility-scale storage and interconnectors, though progress has been slower than expected. Meanwhile, the AI and data centre boom driving demand is also catalysing flexible power purchase agreements and co-location with low-carbon dispatchable power. These projects benefit from low-cost integration at scale and the creditworthiness of offtakers, often major tech companies.

McWilliams: AI, IoT and digital grid controls are enabling more efficient renewable deployment and simultaneously increasing system stress. AI-enabled building and industrial management systems can cut energy use by 16-36 percent, easing peak loads at a time when global grids may need 80 million kilometres of new transmission by 2040. China leads large-scale smart grid rollout, using AI-controlled microgrids and smart inverters to integrate solar and storage while creating new revenue opportunities through virtual power plants. IoT sensors improve real-time grid visibility and fault detection, yet AI’s power demand is rising fast, pushing data centre developers to choose locations based on power availability rather than network infrastructure, with many planning onsite generation, including renewable sources, by 2030. The constraints are, however, familiar – high upfront costs, interoperability issues, cyber security exposure and regulatory lag. Coordinated investment in both digital and physical grid infrastructure is essential for renewables to scale reliably.

Duman: The digitalisation of the entire energy ecosystem will allow all stakeholders to better optimise their production, transmission and consumption of electricity, for example by improving the collection of energy data, which will then be used for more accurate energy demand and supply forecasts. It may also improve the monitoring and control of electrical grid balance, especially for the purposes of energy storage and integration of renewable energy facilities into the grid. End-users will also be provided with real-time information of their energy usage to enable them to make more informed decisions on their energy consumption. Digitalisation is also likely to increase the grid’s resilience with automated fault detection and mitigation measures. All of these effects will help overcome the wider public’s two main bugbears of renewable energy – its intermittent nature and perceived high cost of electricity production – and hopefully make the widespread deployment of renewable energy more attractive.

FW: What is the outlook for renewable energy in 2026 and beyond? How might supply chain constraints, geopolitical tensions and social equity concerns influence future demand?

McWilliams: The outlook for 2026 and beyond is defined by strong ambition but uneven capacity. COP30’s Baku-Belém Roadmap targets $1.3 trillion in annual climate finance by 2035, but delivery depends on navigating China’s dominance across manufacturing and materials. Geopolitical tensions, particularly those linked to Russia, have also accelerated Europe’s pursuit of energy independence, boosting renewables even as supply chain bottlenecks slow deployment. Vessel shortages, rare earth dependencies and limited construction capacity remain critical risks that policy cannot resolve quickly. Social equity will shape political durability. Renewables create substantial jobs, but legacy energy workforce transitions must be actively managed to maintain support. Upfront system costs remain a barrier for low-income households despite improving economics. The outlook for 2026 and beyond depends on balancing these tensions. Countries that deepen domestic supply chains, secure critical minerals and manage social transitions effectively will capture outsize investment and deployment growth through the late 2020s.

Duman: Renewable energy technology is still becoming cheaper and more efficient, and this will continue to drive the investment case for the renewables sector. In addition, interest and inflation rates will likely eventually moderate, thus making renewable energy projects more viable. Finally, the trend of deglobalisation, which has been one of the root causes for supply chain constraints, geopolitical tensions and social equity concerns, could work toward solving some of the issues the sector currently faces as a result of governments’ focus on developing onshore industries – eventually leading to an increase in domestic manufacturing and enhanced national energy security.

Moir: We expect that renewables, storage and nuclear will continue to grow, driven by economics, electrification and AI mainstream adoption. The main constraint remains grid infrastructure. Transmission build-out, both on and offshore, the integration of flexible assets and connection reforms will determine how quickly queued projects reach commercial operations date. Due to the penetration of renewables, we expect more volatility and seasonality in power markets, increasing the value of flexibility and long-duration storage. Supply chain pressures should ease gradually with industrial policy, such as US nearshoring, but vessel availability, critical mineral diversification and geopolitics will continue to shape costs. Trade tariffs, election cycles and policy reversals will influence investor appetite and financing costs. Markets with stable, simple frameworks and credible delivery will attract capital. Finally, governments must manage consumer costs and deliver local benefits, including jobs and infrastructure upgrades, to maintain public acceptance and political stability.

 

Seyda Duman is a partner in Milbank’s London office and a member of the firm’s global project, energy and infrastructure finance group. She has significant experience advising sponsors, lenders, export credit agencies and governments on all aspects of energy and infrastructure development and finance matters worldwide. She has a significant focus on renewable energy matters, as well as many other market leading wind and solar transactions and energy transition projects globally. She can be contacted on +44 (0)20 7615 3269 or by email: sduman@milbank.com.

Adam McWilliams is a partner in Quinn Emanuel’s London office and represents clients in disputes around the world. With extensive experience acting in international arbitration and cross-border cases, he has represented energy, infrastructure, construction and natural resources clients in all manner of complex claims, and is particularly experienced with major projects in the renewable energy sector. Having previously worked on assignment in the global disputes group at a major international bank in London, he also acts in high value finance, commercial and civil fraud disputes, being qualified and practising in England (solicitor advocate) and New York (attorney). He can be contacted on +44 (0)20 7653 2052 or by email: adammcwilliams@quinnemanuel.com.

Oly Moir is a partner in Slaughter and May’s infrastructure, energy and natural resources group, and has extensive experience advising clients on complex, high-value transactions and projects in the energy sector, both in the UK and internationally. His practice spans M&A, large-scale project development, and a wide range of corporate and commercial matters. He has played a leading role in advising on some of the firm’s most significant energy transition mandates involving technologies such as offshore wind, nuclear, carbon capture and storage and hydrogen, leveraging his deep experience in the conventional power and oil & gas sectors. He can be contacted on +44(0)20 7090 3307 or by email: oliver.moir@slaughterandmay.com.

© Financier Worldwide

THE PANELLISTS

 

Seyda Duman

Milbank

 

Adam McWilliams

Quinn Emanuel Urquhart & Sullivan UK LLP

 

Oly Moir

Slaughter and May

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