Energy has moved through an inflection point, and it may be one of the most significant investment shifts in a generation.
After years of being overlooked, the energy sector is attracting renewed attention from institutional investors and advisors. The catalysts include a fundamental transformation in how energy companies operate, combined with an unprecedented surge in electricity demand driven by:
- Artificial intelligence
- Data centers
- Reshoring of manufacturing and infrastructure
- Global population and economic growth
“Energy is the invisible thread that connects our daily lives.”
— Rob Thummel,
Senior Portfolio Manager, Tortoise Capital
Today’s energy sector delivers a combination of what investors seek but infrequently find: free cash flow, shareholder-friendly capital allocation, and exposure to structural growth trends that span technology, the global economy, and national security.
For advisors building portfolios in 2025, energy warrants a fresh evaluation, not as a cyclical trade, but as a strategic allocation positioned at the intersection of multiple secular tailwinds.
In this article, we explore five key themes underpinning the resurgence of energy investing:
- Energy’s Moment Has Arrived
- From Boom & Bust to Capital Discipline and Consistent Income
- U.S. Electricity Demand Is Surging
- Energy Is AI’s Critical Enabler
- Energy Addition, Not Transition
#1 Energy’s Moment Has Arrived
Energy powers everything: from the lights in our homes to the data centers processing AI workloads that are reshaping entire industries. But today’s energy sector is fundamentally different from what many investors remember.
This isn’t the boom-bust, capital-intensive, shareholder-unfriendly sector of the past. Energy companies have undergone a dramatic transformation: disciplined capital allocation, commitment to delivering free cash flow, and a strategic focus on returning value to shareholders through dividends and buybacks.
At the same time, demand dynamics have shifted. The world is racing to build out AI infrastructure, electrify transportation, expand liquified natural gas (LNG) exports, and reshore manufacturing—all of which require massive, reliable energy supply. For the first time in decades, U.S. electricity demand is growing, not flat.
The result? Energy sits at the center of some of the most important macro trends shaping the global economy: technological advancement, the transition to a more electrified world, and national security.
Energy’s compelling investment case includes revalued fundamentals, long-term demand visibility, and strategic relevance to the digital economy. Once, energy was a defensive allocation or a commodity bet. Moving forward, energy is a growth story.
Source: Energy Institute Statistical Review of World Energy 73rd Edition, June 2024. An exajoule is a large unit used to measure total global energy consumption.
#2 From Boom & Bust to Capital Discipline and Consistent Income
The energy sector’s transformation didn’t happen gradually: it was compelled by crisis, then embraced as strategy.
For decades, energy companies operated with a growth-at-any-cost mentality. Capital poured into drilling programs and supply expansion, often outpacing the cash flow those investments generated. Companies funded the gap through equity raises and debt markets, creating a cycle of overinvestment, leverage, and volatility. When commodity prices fell, balance sheets buckled. Dividends were cut. Investors learned to be skeptical.
Then, COVID-19 changed everything. When the pandemic hit in 2020, capital markets froze. Energy companies that had relied on external financing to fund growth suddenly had no access to capital. Management teams were forced to make hard choices: cut CapEx, preserve cash, and in many cases, reduce or eliminate dividends.
But something unexpected happened. When CapEx was slashed—often by 50% or more—cash flow didn’t collapse. It held steady. That realization became the foundation for a new operating model.
With excess cash flow now available, companies began paying down debt, buying back shares, and rebuilding dividends. What started as a survival response became a permanent change in the philosophy of capital allocation. Management incentive structures were realigned to reward cash generation and shareholder returns, not just production growth.
“They’re more disciplined. They’re focused on generating free cash flow, they’re focused on returning that free cash flow to investors.”
— Rob Thummel, Senior Portfolio Manager, Tortoise Capital
From late 2020 through today, the energy sector has generated substantial free cash flow and deployed it with a level of discipline rarely seen in prior decades. Share buybacks are consistent. Dividends are growing. Leverage ratios are declining. For many companies, returning capital to shareholders now takes precedence over expanding production.
This shift is structural, not temporary. The sector that once destroyed value through overinvestment now seeks to be shareholder-friendly.
For advisors evaluating income-oriented allocations, energy now offers what it historically promised but rarely delivered: predictable cash flow, attractive yields, and capital allocation aligned with investor interests.
Source: Bloomberg
#3 U.S. Electricity Demand Is Surging
The last time electricity demand reshaped the American economy at this scale was the original Industrial Revolution. What’s unfolding now—driven by AI, data centers, and electrification — may prove comparable. As Tortoise Senior Portfolio Manager Rob Thummel has noted: “Electricity is the new oil.”™
For more than two decades, U.S. electricity consumption was essentially flat. Efficiency gains offset new demand. Population growth didn’t move the needle. Load growth, the metric utilities use to plan capacity, was stagnant.
That era is over.
For the first time since the 1990s, electricity demand in the United States is growing, and the outlook suggests this may be just the beginning. The drivers are multiple, structural, and compounding: artificial intelligence and data centers, the reshoring of manufacturing, electric vehicle adoption, and rising LNG exports.
“We’re actually seeing load growth for electricity—for the first time in decades.”
— Brian Kessens, CFA, Senior Portfolio Manager, Tortoise Capital
This isn’t a temporary spike. It’s a fundamental shift in how much power the economy requires to function and grow.
Data centers are the most visible catalyst. Training large language models and running AI inference at scale requires massive amounts of electricity, operating 24/7. Major technology companies are now competing not just for chips and talent, but for access to reliable, grid-scale power. Some are exploring dedicated generation facilities to secure supply.
Reshoring adds to the demand picture. As manufacturing returns to the United States—driven by supply chain concerns and policy incentives—it brings energy-intensive production with it. Factories need power. So do the logistics networks that support them.
Electric vehicles, while still a relatively small share of total electricity consumption, represent another layer of growing demand. As EV adoption accelerates, the grid will need to support millions of vehicles charging simultaneously, particularly during peak hours.
LNG exports compound the effect, particularly as the U.S. has become the world’s largest exporter of natural gas. Natural gas liquefaction facilities require enormous amounts of energy to cool and compress gas for shipment overseas. As U.S. LNG exports expand, domestic electricity and gas demand rises in tandem.
The cumulative impact is significant. Projections from utilities and grid operators now show sustained electricity demand growth as far out as forecasts extend. For the first time in a generation, the question isn’t about growth, but whether supply infrastructure can keep pace.
This demand growth creates both a challenge and an opportunity. Building new generation capacity, upgrading transmission infrastructure, and expanding pipelines all take years and require substantial capital investment. The gap between projected demand and available supply represents a structural tailwind for energy infrastructure and the companies positioned to meet it.
For investors, this marks a historic shift. Energy is no longer a mature, low-growth sector. It’s responding to new demand dynamics, and those dynamics are tied to some of the most important economic and technological trends shaping the next decade.
Source: EIA and DOE as of 12/31/2024
#4 Energy Is AI’s Critical Enabler
“It’s becoming increasingly apparent that the data centers are very power hungry.”
— Brian Kessens, CFA, Senior Portfolio Manager, Tortoise Capital
Artificial intelligence is often discussed in terms of algorithms, breakthroughs in machine learning, and the race to build more capable models. Artificial intelligence is also called the next industrial revolution but revolutions require energy. Behind every AI application is infrastructure, and that infrastructure runs on electricity at massive scale.
AI requires two ingredients: computing power and electrical power.
The energy requirements of AI are staggering. Training a single large language model can require as much electricity as a small town uses in a year. Running inference—the process of generating responses and predictions—demands continuous power draw across vast server farms. Data centers housing AI workloads operate 24/7, with no downtime and minimal tolerance for disruption.
As AI capabilities expand and businesses race to deploy AI across operations, the cumulative energy demand becomes a macro factor. Data centers are now among the largest and fastest-growing sources of electricity consumption in the United States. Some projections suggest they could account for more than 10% of total U.S. power demand within the next decade.
This creates a challenge that extends beyond the technology sector. Energy is no longer a passive input to the digital economy, but a constraint that determines what’s possible. Companies building AI infrastructure are now competing for access to reliable, grid-scale electricity. In some cases, tech firms are exploring captive power generation or co-locating data centers near existing power plants to secure supply.
The investment implications are profound. AI’s growth is directly tied to the availability of energy infrastructure. Natural gas is emerging as the most viable source for meeting this demand at scale—offering the reliability that intermittent renewables cannot consistently provide.
Nuclear power also plays a role: large-scale plants offer long-term baseload capacity, while small modular reactors (SMRs) represent an emerging innovation that could bring nuclear generation online more quickly and flexibly than traditional facilities. Nevertheless, nuclear may be more of a long-term theme than a short-term solution.
“We think natural gas and nuclear will be those future supply sources.”
— Rob Thummel, Senior Portfolio Manager, Tortoise Capital
But energy’s role in AI extends beyond infrastructure, becoming a strategic and geopolitical priority. Nations that can provide abundant, reliable energy to power AI development may gain a decisive advantage in both economic competitiveness and national security.
“It’s a new arms race… and energy is central to who wins.”
— Mark Marifian, Head of Product,
Tortoise Capital
The AI race is more than who has the best algorithms or chips, but who has the energy capacity to sustain long-term development and deployment at scale. For the United States, maintaining leadership in AI requires maintaining and expanding energy infrastructure.
For investors, this reframes energy’s role in portfolios. It’s no longer just about commodities or utilities. Energy infrastructure is now foundational to the technologies and industries defining the next generation of economic growth. The companies building pipelines, power plants, and transmission networks are supporting legacy demand and the future as well.
Source: DOE
#5 Energy Addition, Not Transition
For the past decade, the dominant narrative has been “energy transition,” a shift away from fossil fuels toward renewables. The language implies replacement: old sources phasing out as new sources take over.
That’s not what’s happening.
Fossil fuels still supply approximately 80% of global energy demand, essentially unchanged from five years ago. Renewables have grown substantially in absolute terms, adding significant capacity to the grid. But total energy demand has grown even faster. The result is addition rather than substitution or transition.
“It was for a while about energy transition…
but in reality, what it is—is energy addition.”
— James Mick, CFA, Senior Portfolio Manager, Tortoise Capital
The math is straightforward. Global energy consumption has increased in 40 of the past 42 years, interrupted only briefly by the 2008 financial crisis and the COVID-19 pandemic. As electricity demand accelerates—driven by AI, data centers, electrification, and global growth dynamics—the world needs more of everything: more solar, more wind, more natural gas, more nuclear.
Renewables are growing, but they face inherent limitations. Solar and wind are intermittent—they generate power only when the sun shines or the wind blows. Hydro power has slid amidst droughts and climate change. For applications that require constant, reliable electricity—data centers, hospitals, manufacturing facilities—intermittent sources cannot provide base load power on their own.
Natural gas currently remains the most reliable source for meeting 24/7 electricity demand at scale. It provides the stability and capacity that the grid requires, particularly as electricity consumption becomes more critical to economic function. Nuclear power, both through large plants that provide long-term baseload capacity and through emerging small modular reactors, can also offer firm, around-the-clock generation.
This reality has important implications for investors. The narrative of “energy transition” has led some to avoid traditional energy exposure, assuming the sector is in secular decline. But the data tell a different story. Energy demand is rising, and all sources—renewables and fossil fuels alike—are needed to meet it.
“We’re producing more crude oil, more natural gas, more natural gas liquids, and fossil fuels are still 80% of demand.”
— James Mick, CFA, Senior Portfolio Manager, Tortoise Capital
The future of energy isn’t binary: renewables versus fossil fuels. It’s an expanding energy system that requires all available sources to satisfy accelerating demand. Investors may be better served by positioning portfolios for the growth in energy consumption rather than betting on which energy source wins.
Conclusion: Why Energy Now?
The confluence of factors shaping today’s energy sector are historic:
- Disciplined capital allocation
- Free cash flow
- Global technological transformation
- Accelerating growth in electricity demand
- Strategic relevance to national security
Once, energy was a cyclical trade or a commodity bet. But AI is driving a new industrial revolution, and that revolution has a fuel: electricity. As electricity becomes the new oil,™ energy companies are no longer just legacy holdings but beneficiaries of an unfolding future.
Energy has become a growth story grounded in the reality of what powers the world today, and what will be required to power it tomorrow.
For advisors building portfolios in 2025, energy warrants serious consideration, and timing may be critical.
Watch the Full Discussion: “Why Energy Now?”
Hear directly from Tortoise’s senior portfolio management team as they explore the transformation of the energy sector, the drivers of surging electricity demand, and why energy has become central to AI development and national competitiveness.
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