Renewables Overtake Fossil Fuels: The Inevitable Energy Transition and Investment Imperatives

The energy landscape is undergoing a seismic shift, and the data from the first quarter of 2025 confirms it: renewables are no longer the future—they are the present. In the EU, solar and wind energy have officially surpassed fossil fuels as the dominant source of electricity, marking a historic inflection point. Meanwhile, the U.S. is racing to scale solar manufacturing while grappling with structural challenges in wind and hydrogen. Even temporary fossil fuel rebounds, such as Germany's weather-driven spike in coal and gas use, are proving to be fleeting blips in an irreversible transition. For investors, the message is clear: fossil fuels are a sunset industry, and the era of renewables demands bold reallocation of capital.

The EU's Renewable Tipping Point

The EU's Q1 2025 data reveals a stark reality: renewables now supply 57% of the bloc's electricity, with solar alone contributing 8.2%—up from 6% a year earlier. Combined with wind (which fell 15% due to weaker winds), renewables have overtaken fossil fuels, which now account for just 29% of generation (down from 34% in 2023). This milestone was years in the making, driven by policy (e.g., the European Green Deal), falling technology costs, and investor pressure to decarbonize.

But the transition isn't without hiccups. Germany, the EU's largest economy, saw fossil fuel use rebound temporarily in Q1 2025 due to unseasonably calm winds and cloudy skies, which stifled wind and solar output. Coal and gas briefly rose to 22% of the country's electricity mix—a stark contrast to its 2022 peak of 35% renewable generation. Yet this is a weather-induced anomaly, not a reversal of trends. As the EU's grid modernizes and storage solutions like batteries expand (Germany and Italy hold 70% of the region's battery capacity), such volatility will diminish.

The U.S.: Solar Surge vs. Wind Stagnation

Across the Atlantic, the U.S. is experiencing its own energy transformation—but with uneven progress. Solar manufacturing investment has exploded, rising from $0.9 billion in 2022 to $6 billion in 2024, enabling the U.S. to build solar module capacity for 42 GW of annual production. This aligns with the Inflation Reduction Act's (IRA) goal of boosting domestic clean energy supply chains. By 2028, solar is projected to account for 22.5% of U.S. utility-scale capacity, surpassing coal and wind.

The wind sector, however, is lagging. U.S. wind manufacturing investment plummeted to a post-IRA low of $5 million in Q1 2025, with permitting bottlenecks and financial uncertainty stifling growth. While the IRA has spurred $115 billion in clean energy investments since 2022, wind's share of that funding has dwindled. The result? U.S. wind additions fell to 4.8 GW in 2024, far below the 17–24 GW/year needed by 2035 to meet climate targets.

Hydrogen, another critical clean energy vector, faces its own hurdles. Despite IRA tax credits for electrolyzer production, U.S. hydrogen capacity remains overshadowed by solar and battery investments. Federal tariffs on steel and clean tech imports have inflated costs, while policy uncertainty under the Trump administration has slowed project approvals. North America's global share of low-carbon hydrogen capacity is projected to drop from 46% in 2025 to 28% by 2030, ceding ground to Europe and Africa.

Why Fossil Fuels Are a Sunset Industry

Fossil fuels' decline is structural, not cyclical. The EU's data shows that even as gas imports from Russia rose 18% in 2024 (to 12% of gas used), this is a fraction of the 50% reliance seen in 2019. Meanwhile, renewables have avoided €58.6 billion in fossil fuel imports since 2019—a figure set to grow. In the U.S., coal's share of electricity has collapsed to 2%, and oil demand is peaking as EVs gain traction.

The writing is on the wall for fossil fuel investors:
- Valuation risks: Stranded assets are inevitable as renewables undercut fossil fuels on cost. Solar and wind are now the cheapest new-build power sources in most markets.
- Regulatory headwinds: Carbon pricing, emissions caps, and permitting reforms will further squeeze fossil fuel profitability.
- Market dynamics: Demand for oil and gas will peak in the next decade as EVs and hydrogen displace them in transport and industry.

Investment Imperatives: Where to Deploy Capital

The energy transition is a decades-long opportunity. Investors should prioritize three areas:

1. Solar Infrastructure:
2. Solar manufacturing: U.S. firms like First Solar (FSLR) and Europe's REC Silicon (RECSI) are key players in polysilicon and panel production.
3. Utilities: European firms like Ørsted (ORSTED) and NextEra Energy (NEE) are scaling solar and offshore wind.

4. Storage: Battery companies like Tesla (TSLA) and CATL (300750.SZ) are critical to stabilizing grids.

5. Grid Modernization:

6. Firms like Siemens Energy (SIEGY) and GE Renewable Energy (GE) are building the transmission and distribution systems needed to handle variable renewables.

7. Policy-Backed Sectors:

8. Hydrogen: Long-term bets on companies like Plug Power (PLUG) and Linde (LIN) could pay off as costs fall and policy support grows.
9. Recycling: Companies like Redwood Materials (REDW) are vital for reclaiming rare earth metals from retired solar panels and batteries.

Avoid fossil fuel stocks:
- Oil majors like ExxonMobil (XOM) and Chevron (CVX) face declining demand and stranded asset risks.
- Coal firms like Peabody Energy (BTU) are already obsolete in most markets.

Conclusion: The Write-Off of Fossil Fuels

The EU's Q1 2025 data and the U.S.'s uneven progress underscore a simple truth: renewables are not just an alternative—they are the new baseline. Germany's fossil rebound was weather-driven, not systemic, and will be erased by grid upgrades and storage. For investors clinging to fossil fuels, the clock is ticking. The transition is irreversible, and the capital reallocation to renewables must begin now.

The era of fossil fuels is ending. The question is not whether to divest—but how quickly to pivot to the future.