Key takeaways:
Beyond decarbonisation, Europe’s energy transition is increasingly being shaped by a desire for greater energy security. Recent events in the Middle East – which we covered more broadly here – remind us that geopolitical shocks can feed through into gas and power markets, changing the outlook for clean power infrastructure.
For institutional investors, there’s a lesson from recent years: when energy security is threatened, the strategic case for domestic clean power strengthens. This was evident after Russia’s invasion of Ukraine, when reduced Russian gas supplies drove a sharp rise in European power prices.
For renewable assets with merchant exposure, these higher prices were an enabler of stronger returns. Those improved returns also helped sustain development activity, even as interest rates moved higher. As returns improved and development accelerated, renewables became a larger part of the European infrastructure asset universe. More importantly, the continent began to reduce its dependence on gas-fired power generation as clean power deployment increased. That is the broader strategic result: energy shocks can accelerate the structural change from the energy transition.
This is why the Middle East conflict matters for the energy transition. It is reported that 20% of global liquefied natural gas (LNG) exports passes through the Strait of Hormuz[1], so any sustained disruption has the potential to tighten gas markets and lift prices. While European gas prices remain well below the extremes seen during the 2022 energy crisis, market scenarios suggest that several months of disruption could still raise gas prices significantly.[2]
If that happened, the same transmission mechanism we previously saw could re-emerge, in our view. That means higher gas prices feed into higher power prices, particularly in gas-linked power markets, and higher prices support cashflows for merchant-exposed clean power assets.
Europe is better positioned than it was in 2022. Renewables penetration is higher and dependence on gas is lower, but the direction of travel remains the same. A prolonged conflict would likely reinforce the need to accelerate domestic clean power buildout, storage and grid investment.
That said, the implications are not uniform across markets or technologies. Countries with greater gas dependence are likely to see a stronger power-price response than those with more insulated generation mixes. The UK and Germany, for example, are more exposed to gas-linked dynamics than France, where nuclear plays a larger role. For investors, in our view this likely means the impact of any renewed gas shock is likely to be highly market-specific rather than broad-based across Europe.
We believe asset-level exposure matters just as much. Not all renewable projects benefit equally from higher wholesale prices. Assets operating under fixed-price contracts may see limited immediate upside, as their revenues are largely insulated from spot market volatility. By contrast, merchant-exposed assets are more directly positioned to benefit. Within renewables, wind may be relatively well-positioned in markets where its capture price aligns more closely with the wholesale power price.
We believe higher volatility could also strengthen the investment case for battery storage and hybrid assets. In a market where gas prices rise while solar penetration continues to grow, intraday price swings may become more pronounced. That improves the revenue opportunity for flexibility assets that can arbitrage volatility and support system balancing. In that sense, geopolitical disruption may not only support renewable generation, it could also reinforce the value of storage and grid-enabling infrastructure.
We see listed markets offering a more nuanced signal. Higher expected power prices can improve future earnings for some renewable assets, but that benefit may be offset if higher inflation and bond yields discount those earnings at greater rates and compress equity risk premia. In addition, listed renewable funds hold assets with contracted revenues, which limits sensitivity to wholesale price movements. For institutional investors, this is an important reminder that the opportunity is selective: revenue model, contract structure, market exposure and financing conditions all matter.
We believe the current conflict reinforces, rather than weakens, the long-term investment case for the energy transition and associated assets. It does so through two channels. First, it raises the strategic value of domestic clean power, storage and grid infrastructure as tools of energy security. This is recognised by European governments, where the escalation raises the impetus to accelerate clean power buildouts. Indeed, the European Commission is already seeking to strength EU energy resilience following the escalating Middle East conflict.[3] Second, if disruption to gas markets persists, it could improve the earnings outlook for selected clean power assets, particularly those with merchant exposure in gas-linked markets.
The experience of the past few years suggests that geopolitical stress can accelerate capital formation and policy support across clean power. The current conflict may yet prove to be another catalyst.
Key Risks
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[1] IEA, “Strait of Hormuz, Factsheet”, February 2026
[2] Citi Research, March 2026
[3] European Commission, Commission proposes actions to protect Europeans from the fossil energy crisis, April 2026
Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
