Energy is one of the most consequential and contested sectors for long-term investors. The simultaneous pressure to decarbonise the global economy and to maintain reliable, affordable energy supplies has created a complex investment landscape: some of the world's largest companies are stranded between a fossil fuel legacy and an uncertain renewable future; new categories of infrastructure — offshore wind, battery storage, hydrogen — are scaling at speed; and government policy remains a critical but unpredictable variable.
This guide sets out the investment thesis, the main vehicles available to private investors, and the risks on both sides of the energy transition.
The Energy Transition: Investment Context
The International Energy Agency (IEA) estimates that global annual energy investment reached approximately $3 trillion in 2025, with renewables (including electricity grids) accounting for more than half of total investment for the first time. Fossil fuel investment — while still very large in absolute terms — is projected to decline as a share of total energy spending through the decade.
The transition is not instantaneous. Coal, oil, and gas remain the dominant sources of primary energy globally, and the IEA's own scenarios acknowledge that fossil fuels will play a material role in the energy mix for decades even under the most aggressive transition pathways. Investors who position for a near-term energy transition — expecting oil demand to collapse imminently — have repeatedly been caught out.
The more nuanced investment thesis is that the energy transition is a 30–40 year structural shift that creates investment opportunities across the entire spectrum: renewables developers and operators, grid infrastructure, battery storage, and (in the near term) integrated oil companies whose cash flows fund the transition and whose assets retain value longer than some projections suggest.
UK-Listed Energy Companies
Major Integrated Oil Companies
BP plc and Shell plc are the two UK-listed global oil majors. Both face the same fundamental challenge: vast fossil fuel assets generating significant near-term cash flows, alongside commitments to transition toward lower-carbon energy over time.
- BP has experienced strategic turbulence as it scaled back the renewables ambitions set out in 2020, culminating in a 2025 strategy reset that refocused the business on oil and gas after returns from its renewable investments underperformed. Its transition strategy remains subject to active shareholder and board debate
- Shell has maintained a more conservative approach to the transition while investing in LNG (liquefied natural gas), which it positions as a bridge fuel. Its cash generation remains strong
Both companies trade on relatively low price-to-earnings ratios compared to the broader market, reflecting uncertainty about their long-term business models. Both pay dividends (typically 3–5% yield) and have pursued share buyback programmes supported by oil price cash flows.
National Grid
National Grid owns and operates the electricity and gas transmission network in the UK (and the New England electricity network in the USA). As the UK electricity grid expands to accommodate offshore wind, the company is a structural beneficiary of the energy transition — regardless of which generating technologies win.
National Grid is a regulated utility with relatively predictable revenues linked to inflation through regulatory agreements. It trades at a premium to pure fossil fuel companies, reflecting the perceived durability of its business model.
SSE plc
SSE is a diversified UK energy company with major interests in regulated network infrastructure and renewable energy generation (principally hydroelectric and wind). It is widely regarded as one of the UK's most straightforward "transition plays" among listed companies — its earnings are heavily weighted toward regulated networks and renewables rather than fossil fuels.
Drax Group
Drax operates the UK's largest power station, running on biomass (compressed wood pellets). It is one of the UK's largest renewable generators by installed capacity — but its status as "renewable" is contested. Critics argue that burning biomass is not genuinely low-carbon on a lifecycle basis. Drax's business model is heavily dependent on continued government subsidy; a change in policy on biomass subsidies would be materially adverse.
Listed Renewable Infrastructure Investment Trusts
Listed renewable energy investment trusts have become a mainstream component of income-seeking portfolios. They own portfolios of wind, solar, and (more recently) battery storage assets, and distribute income from the energy they sell.
Key Trusts (2026)
TRIG (The Renewables Infrastructure Group): one of the largest renewable infrastructure trusts; diversified portfolio of wind and solar across the UK and northern Europe; target dividend of approximately 5.5–6.5p per share per year.
Greencoat UK Wind: focuses specifically on UK onshore and offshore wind; largest listed renewable infrastructure trust by assets; yield approximately 5–7%.
Gore Street Energy Storage Fund: specialises in battery energy storage; benefits from the increasing value of flexible, fast-response electricity capacity as intermittent renewables penetrate the grid. Higher risk profile than wind/solar trusts; revenue depends on grid balancing market structure.
Octopus Renewables Infrastructure Trust: diversified across wind, solar, and other renewables across Europe; yield approximately 5–7%.
The Discount-to-NAV Problem
A significant development in 2022–2024 was the sharp widening of discounts to net asset value (NAV) across the renewable infrastructure trust sector. As interest rates rose from near-zero to 5%, the "risk-free rate" increased substantially — reducing the relative attractiveness of regulated utility-like returns from renewable infrastructure.
Trusts that had traded at premiums of 5–15% to NAV (in the low rate environment) fell to discounts of 10–30% to NAV by 2023–2024. This created an apparent anomaly: trusts whose assets generated predictable, inflation-linked income were trading at a fraction of their independently valued worth.
With UK interest rates declining from their 2023 peaks through 2025–2026, some of these discounts have partially recovered. But they have not returned to the premiums of 2021. The sector offers an interesting combination of attractive current yield and potential NAV re-rating if interest rates continue to fall, but the timing of any recovery is not guaranteed.
Direct Energy Investing: Oil and Gas E&P
Beyond the major integrated companies, investors can access the energy sector through:
- Junior exploration and production (E&P) companies: listed on AIM or the main market; higher risk and potential return; production-stage companies are less speculative than pure exploration plays; suitable only for investors who can accept significant capital loss
- Private oil and gas partnerships: some high-net-worth platforms offer direct investment in oil and gas projects (US shale, North Sea); returns are tied to commodity price and production performance; highly illiquid
Commodity exposure in general — oil, natural gas, coal — can also be accessed through exchange-traded commodities (ETCs) or commodity futures. These instruments track commodity prices without owning the underlying asset, but they carry roll costs and are not the same as owning a productive energy company.
ESG Tension in the Energy Sector
The energy sector sits at the heart of the ESG investment debate. For investors applying environmental, social, and governance screens:
- Pure fossil fuel exclusions eliminate BP, Shell, and other oil and gas companies entirely; this has created significant tracking error against benchmarks (as energy companies have outperformed during high-oil-price periods)
- Integrated company inclusion (with engagement) is the approach favoured by many large institutional ESG investors, who argue that engaging with oil companies on transition plans is more impactful than divestment
- Renewable-only portfolios concentrate exposure in a sector that is heavily subsidy-dependent and more correlated with interest rate movements than fossil fuel stocks
There is no consensus "right answer" to the ESG-energy question. The investor who excluded BP and Shell in 2020 significantly underperformed in 2022 (an exceptional year for oil majors); the investor who held them throughout the low-rate period missed the renewable infrastructure trust boom. Long-term energy portfolio construction requires explicit decisions about the transition timeline and the role of each technology.
The 2026 Investment Outlook
Key variables for energy investors in 2026:
- Oil price: influenced by OPEC+ production decisions, global demand (particularly China and India), US production levels, and geopolitical events; Brent traded broadly in the $80–$95/barrel range in mid-2026, with episodic volatility around geopolitical events
- European gas prices: volatile since the 2022 Russian supply disruption; more stable in 2025–2026 as LNG imports and storage have recovered; prices remain above pre-2021 norms
- UK electricity prices: linked to gas prices through the marginal cost of generation; renewable operators with inflation-linked contracts are partially insulated
- Interest rates: falling UK and European rates in 2026 are a tailwind for discounted renewable infrastructure trusts
- Government policy: UK government committed to decarbonising the electricity grid by 2030; significant capital expenditure on offshore wind, grid connections, and storage; change in political direction is always a risk but the policy direction is bipartisan on grid decarbonisation
Compliance note: energy investments are subject to significant commodity price, political, regulatory, and technology risk. Investment values can fall as well as rise, and past performance is not a reliable indicator of future results. Diversification across the energy sector — rather than concentration in any single company or technology — reduces but does not eliminate these risks.
How Global Investments Can Help
The energy sector offers genuine long-term investment opportunities alongside real risks. The challenge for individual investors is knowing how to calibrate exposure: how much to allocate to fossil fuel majors versus renewable infrastructure trusts; how to access private energy assets where appropriate; and how to integrate energy allocation within a broader, diversified portfolio.
Global Investments works with clients to build investment strategies that incorporate the energy transition thesis without concentrating risk inappropriately or abandoning near-term income in favour of speculative long-term technology bets.
This article is provided for general information only. It does not constitute investment advice. The value of investments can fall as well as rise; you may receive back less than you invest. Always take independent financial advice before making investment decisions.
To discuss your investment strategy, please contact our team.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.