Market Commentary: A Fair and Balanced Look at Clean Energy

We remain unabashedly positive about the U.S. energy sector, particularly within our main focus—midstream energy infrastructure companies. Secretary of Energy, Chris Wright, eloquently describes why global energy consumption is set to grow robustly in the years ahead and why fossil fuels will remain the dominant energy source in his recent essay, "Climate change is a by-product of progress, not an existential crisis," published in The Economist. The essay defends the Trump administration's strategy of reducing clean energy subsidies and promoting U.S. energy dominance via oil, natural gas, nuclear, and even coal. We were particularly drawn to Wright’s comments highlighting that wind and solar contribute about 3% of global primary energy consumption despite years of subsidies to promote its growth.

While we agree with nearly all of Wright's points, we believe his essay doesn’t fairly portray the important role that wind and solar will continue to play in helping meet the anticipated soaring growth in electricity demand. The essay overlooks the fact that in 2024, wind and solar provided ~15% of global electricity consumption and ~17% in the U.S.—up from nearly zero at the start of the new millennium. What follows is our attempt to provide a fair and balanced look at clean energy.

WHAT WE AGREE WITH:

1.      Climate change is not an existential crisis

Climate change, as Wright states, “is not an existential crisis but “a by-product of progress.” While CO2 levels have risen, so has life expectancy. The quality of life has dramatically improved, and billions of people have been lifted from energy poverty through access to fossil fuels. 

2.      Growing energy needs

The world needs more energy due to growing populations, improving living standards in impoverished countries, electrification, and powering data centers to support artificial intelligence development.

3.      The cost of focusing solely on climate change

The singular focus on climate change is extraordinarily expensive, inflationary, and results in the loss of manufacturing jobs for those countries. Countries like Great Britain and Germany, which have embraced green policies, provide cautionary examples.

4.      Clean energy cannot replace fossil fuels

Despite trillions of dollars spent on clean energy projects and subsidies, fossil fuels still account for ~80% of primary energy consumption. Major industries such as iron and steel production, cement manufacturing, petrochemical, pharmaceuticals, and agriculture remain dependent on fossil fuels.

5.      Reliable, affordable, cleaner energy is needed

The world needs reliable, affordable, and cleaner energy.  While global emissions of greenhouse gasses (GHG) have increased with rising energy consumption, GHG emissions intensity (emissions per GDP) has decreased.

6.      Wind and solar are now economic without subsidies

Wind and solar are now economic in the U.S. and no longer require subsidies to support growth. This is evident in Lazard’s June 2025 Levelized Cost of Energy (LCOE) Report.

WHAT WE THINK WAS OVERLOOKED:

1.      Wind and Solar’s role in meeting growing electricity demand

Wright’s essay downplays the important role that wind and solar can play in meeting the growing need for electricity. After nearly two years of stagnant growth, U.S. electricity consumption is expected to grow by around 2% annually over the next few decades, driven by demand from data centers.

2.      Wind and Solar’s cost and speed compared to alternatives

Wind and solar projects can be completed more quickly and cheaply than alternatives like natural gas combined cycle cogeneration plants and nuclear facilities.

3.      AI development relies on 24/7 electricity

Winning the AI race is a national priority, and it will depend on the rapid construction of data centers, which require 24/7 electricity. Renewables will be an important provider of incremental energy for these data centers.

ACKNOWLEDGING LIMITATIONS:

We concede that wind and solar cannot provide baseload (continuous) power due to their intermittency—the wind doesn’t always blow, and the sun doesn’t always shine. Even when combined with batteries, wind and solar cannot provide reliable 24/7 power for data centers which will still need to rely on the grid for backup generation. However, wind and solar should be seen as part of the solution to meeting the growing global demand for power, rather than as a competing solution in isolation.

 Perhaps think of energy generation as a team sport with wind and solar getting meaningful playing time.

Source: EIA Short Term Energy Outlook July 2025

ONE BIG BEAUTIFUL BILL SIGNED INTO LAW: WHAT THIS MEANS FOR THE ENERGY SECTOR

The passage of the "One Big Beautiful Bill" (OBBB) on July 3, 2025, furthered the Trump Administration’s mission to strengthen U.S.’ energy dominance. The bill was a clear positive for traditional energy and not so positive for clean energy. It reversed and amended some of the anti-fossil fuel and clean energy rules from the IRA (Inflation Reduction Act or known as the Clean Energy Bill). We were struck by the lack of provisions for permit reform—critically necessary to facilitate infrastructure buildout, in our view. Projects (both oil and gas, and clean energy) will continue to be deferred or not ever sanctioned if there is uncertainty regarding the granting and timing of permit approvals. On a positive note, the bill did include provisions to streamline environmental reviews. Below are some (but not an exhaustive) lists of noteworthy provisions.

IMPACT ON TRADITIONAL ENERGY

Oil & Gas Leasing of Federal Lands Expansion

Mandates a specific number of lease sales for federal onshore and offshore acreage. Requires the Bureau of Land Management to hold oil and gas lease sales every quarter. Reduces the royalty rate from 16.7% to 12.5% for certain leases.

IMPACT: Potentially this could lead to increased exploration drilling (drill baby drill) on federal land. This in turn would mean more tax revenue and even more production!

DOE Loan Guarantee Expansion

Extends loan guarantees from the Department of Energy to include all energy projects, not just low-emission ones.

IMPACT: Fossil fuel companies can now access federal funds for upgrades and expansions, making it easier for them to invest in new infrastructure.

Strategic Petroleum Reserve (SPR) funding

Provides $171 million toward refilling the Strategic Petroleum Reserve and $218 million for infrastructure maintenance and repairs.

IMPACT: This is a slimmed down amount from the original House proposal and seems woefully inadequate to refill the SPR that currently holds ~400 million barrels out of a capacity of ~727 million. During the Biden administration, nearly 300 million barrels were withdrawn to lower oil prices.

Amends the National Environmental Policy Act (NEPA)

A project sponsor may opt to pay 125% of the expected cost of preparing an Environmental Assessment (EA) or Environmental Impact Statement (EIS) to guarantee an accelerated review timeline of 180 days for an EA and one year for the EIS.

Lawsuits can only be filed by plaintiffs that can demonstrate direct harm and must be filed within 120 days of the project’s approval (versus as late as six years!)

IMPACT: This is a big win as it hopefully makes it more difficult for environmentalists to file frivolous lawsuits and employ delay tactics that can make necessary and viable projects uneconomic. However, broader permit reform is required to facilitate infrastructure buildout

100% Bonus Depreciation Made Permanent

Prior to the OBBB, bonus depreciation was being phased out. Retroactive to January 19, 2025, 100% of the cost of a project placed in service can be deducted for tax purposes.

IMPACT: Another big win for energy companies that are in a capital-intensive industry. We expect that our midstream energy portfolio investments will realize improved after-tax cash flow. The extra cash can be reinvested, used to reduce debt, and or returned to shareholders via increased dividends or share buybacks.

NOTE: The following is sourced from a Latham & Watkins’ client alert: One Big Beautiful Bill: New Law Disrupts Clean Energy Investment

IMPACT ON CLEAN ENERGY

Tax Credits for Wind and Solar Projects Phase Out Much Sooner

To qualify these projects must either be completed by the end of 2027 or begin construction before July 5, 2026. However, projects that were under construction before 2025 are largely unaffected by the new law.

IMPACT: The fly in the ointment is the definition of what does “begin construction” mean. On July 7th, the President signed an executive order instructing the US Treasury department to revisit the “begun construction” rules for wind and solar projects. For example, investing 5% of the anticipated cost of construction may no longer qualify as a safe harbor or protecting the eligibility to qualify for tax credits.

Foreign Entity Of Concern Rules

All new clean energy projects must now meet strict new foreign ownership and sourcing requirements, known as “foreign entity of concern (FEOC) rules”, to be eligible for tax credits.

IMPACT: Projects that begin construction in 2026 or later must navigate complex FEOC rules, including proving that an increasing share of components are sourced outside China.

The Section 45Q Carbon Capture Credit The Section 45Q carbon capture credit for CO₂ used in Enhanced Oil Recovery (EOR) has been raised to $85 per metric ton, matching the credit available for permanent geological sequestration.

IMPACT: This is another positive for the fossil fuel sector and could promote more drilling for oil. The prior credit for EOR was $60 per metric ton.

BOTTOM LINE: The OBBB significantly rolls back many of the core tax incentives that clean energy projects have relied on since the passage of the IRA in 2022. In our view, large developers, such as NextEra Energy (NYSE: NEE) should be able to adjust to the new rules. According to Lazard’s LCOE report “on an unsubsidized $/MWh) basis, renewable energy remains the most cost-competitive form of generation.” In addition, “renewables stand out as both the lowest-cost and quickest-to-deploy generation resource.” It will be interesting to see if power prices eventually move higher to compensate developers for the eventual phase-out of tax credits.

What the government giveth, the government can taketh.

JUNE REVIEW: MARKET REACHED NEW HIGHS

The rundown:

• In June, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 3.8% compared to 5.1% for the S&P 500 and 2.3% for its customized benchmark. Year-to-date, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 5.6% compared to 6.2% for the S&P 500 and 8.2% for its customized benchmark.

  
  

• In June, SAM’s Energy Transition Portfolio generated a return (net of fees) of 4.4% versus 2.8% for its customized benchmark. Year-to-date, SAM’s Energy Transition Portfolio generated a return (net of fees) of 2.2% versus 11.2% for its customized benchmark.

  
  

• SAM’s portfolios are more heavily weighted in Midstream, which underperformed relative to the clean energy sector and outperformed utilities in June. Year-to-date, Midstream underperformed both the clean energy sector and utilities.

  
  

• Midstream underperformed the overall market and was up in June with a total return of 2.5%, as measured by the AMNAX.

  
  

• In June, utilities and the clean energy sector underperformed the overall market, generating a total return of -0.04% and 4.0%, as measured by the Philadelphia Stock Exchange Utility Index (XUTY) and the S&P Global Clean Energy Index (SPGTCLTR), respectively.

  
  

• Except for consumer staples, sector performance in the S&P 500 was all positive with information technology as the best performer and consumer staples as the worst. Energy delivered a 4.8% monthly total return. June month-end WTI crude oil and Henry Hub natural gas prices were $66.30 Bbl and $3.26 per MMBtu, up ~8% and ~14%, respectively from last month.

RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 143.2% and 27.4% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 130.5% and 22.5%, respectively, for its customized benchmark and 87.7% and 15.2%, respectively, for the S&P 500 as of 6/30/25.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 26.3% and 16.5% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 28.8% and 13.7%, respectively, for its customized benchmark and 56.9% and 15.2%, respectively, for the S&P 500 as of 6/30/25.

2025 Year-to-Date Total Return as of 6/30/25

Source: Bloomberg, NASDAQ and S&P Global

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~4% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and aligns with favorable ESG ratings, offers investors a current yield of ~3.5%. In a world searching for yield, we believe these Strategies offer a compelling value proposition.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment adviser located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.