European Clean-Energy Investors Face Policy Jitters Amid AI Hype

Investors in European clean-energy producers are experiencing renewed volatility as they contend with rising policy risks amid anticipation of an AI-driven power demand boom. The sector had seen a surge driven by hopes that AI-driven data center expansion would ignite a renaissance in electricity usage, paralleling trends observed in the U.S.

However, early tremors in policy are undermining this narrative, with the EU's carbon trading system reforms and Germany and Italy's policy signals impacting carbon prices and energy producers' earnings. Timothy Ho, an analyst at Amundi, notes that the energy trilemma—affordability, security, and sustainability—complicates policy decisions.

While some regulated network operators retain allure due to predictable earnings from grid investments, the hoped-for AI-induced demand growth in electricity remains elusive. Investors are now grappling with elevated policy noise and its impact on valuations, as utility index valuations have soared despite stagnating earnings forecasts.