Energy & Climate: The Connection Brief
2026-06-02  ·  22 min  ·  Human Pace, The Audio Edition
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Hi, I'm T. I translate risk for people making capital decisions in clean energy and artificial intelligence infrastructure. This is Human Pace, the audio edition.

Today's piece is called Energy and Climate — The Connection Brief.

Climate and energy operate as one system, running in a loop. For example, heat raises demand for cooling. Physical damage disrupts the grids, generation, and fuel infrastructure expected to meet that demand. Clean capacity is growing but not fast enough. Fossil fuels fill the immediate gap, carrying their own exposure through chokepoints.

To understand the loop, follow the pressure as it moves: from the atmosphere, into the grid, through the transition, and finally onto the balance sheet.

There are nine connections in this brief.

The first connection is the atmosphere's invoice.

You may have heard climate risk is financial risks. We pay for climate risk through disaster recovery, insurance premiums, emergency power, and the infrastructure we have to rebuild.

The climate sends $182.7 billion invoice in 2024 across 27 separate billion-dollar weather and climate disasters, the fourth-costliest year in the record. If we go back further and the tally reaches 403 such events since 1980, and more than $2.9 trillion of total weather and climate disasters according to National Oceanic and Atmospheric Administration.

But the total is not the number that matters. The slope is. Between 1980 to 2023, the country averaged roughly nine billion-dollar disasters a year. Between 2020 to 2024, it averaged twenty-three.

Let's sit with that for a second. The baseline more than doubled inside a single generation. And one footnote worth knowing: the National Oceanic and Atmospheric Administration, or NOAA, retired this dataset after 2024. Climate Central now maintains it.

What does that mean? A doubling in event frequency is a structural shift in the baseline. This is the new ground that every energy asset, every grid, and every insurance program now operates on. When the loss curve steepens, the question moves from "did we plan for a bad year?" to "did we plan for the new normal?"

So who carries the risk? Taxpayers and disaster-relief funds and increasingly, the insurance market too. The invoice does not disappear. It travels to whoever underwrite the exposure.

The second connection is heat. Heat has become a demand driver.

U.S. electricity demand was flat for two decades. That era is over and heat is part of why.

On July 28–29, 2025, U.S. peak demand set back-to-back records, topping out at 759,180 megawatts according to the U.S. Energy Information Administration. That record had a warm-up. Because just a year earlier, June 2024 heat wave already pushed PJM Interconnection, the mid-Atlantic grid operator, 19 percent above its prior-June peak.

NERC, the North American Electric Reliability Corporation, now calls extreme heat the leading summer reliability risk. Summer peak demand jumped more than 10 gigawatts in a single year — double the prior increase — and six regions now sit at elevated risk of shortfall under a heat wave.

And the cushions are thin. New England’s grid operator, known as ISO New England, enters summer with just a 4 percent reserve margin under extreme conditions. The Midcontinent Independent System Operator, or MISO, which runs much of the Midwest, turns negative. A negative reserve margin is the arithmetic saying the power may not be there.

So what does that actually mean?

Here is the loop in miniature. A hotter climate raises electricity demand at the exact hours the grid is most stressed, and the fastest way to meet that demand still burns fuel that warms the climate further. Heat now hits the grid from both sides: it derates lines and plants on the supply side, and it drives cooling load on the demand side. The climate is becoming its own accelerant on the energy system.

So, who carries this risk then?

Arguably, grid operators and ratepayers, especially during the precise hours when electricity matters most. A reliability margin that holds in a normal summer can vanish in a wide-area heat dome. When it does, the cost reaches households and businesses twice over: first and directly, when outages strike during dangerous heat such as spoiled food, shuttered businesses, and health emergencies once air conditioning fails — and secondly and indirectly, through the price spikes when power runs short and the costly stand-by plants utilities fire up only at peak. Both the direct and indirect costs passed straight through to monthly bills.

So the climate is already sending the bill, and part of that bill is more demand for power. The obvious answer is to build clean generation faster.

That brings us to the third connection: renewables overtook coal.

For most of 2025, the news was good, genuinely good. Renewables generated 33.8% of the world's electricity, edging past coal at 33.0% to lead the global power mix for the first time in more than a century according to Ember.

Solar did the heavy lifting — adding a record 636 terawatt-hours, up 30%, and meeting three-quarters of the year’s entire demand growth. And for the first time outside a recession, global fossil-fuel generation actually fell, by 38 terawatt-hours.

The capital was following the same direction. According to the IEA, global energy investment reached $3.3 trillion in 2025, with clean energy drawing roughly twice the dollars going to oil, gas, and coal. Coal demand was set to plateau through 2027.

Batteries, the technology that makes renewables dispatchable, hit a record-low $108 per kilowatt-hour — down 93% in real terms since 2010 according to Bloomberg. Cheap storage is what turns intermittent power into firm power, and that price is why the crossover happened when it did.

All of that was the good news: the emissions curve bent, and the market bent it. But a global average hides a local truth. The milestone says the fleet is getting cleaner. It says nothing about whether the next megawatt will be clean — and that is where the story turns.

The fourth connection appeared when the grid outgrew its rulebook.

For example, in April 2025, continental Spain and Portugal lost power in the most severe blackout on the European grid in over two decades, as the Iberian Peninsula separated from the rest of the European network. The European network of transmission operators, ENTSO-E, convened a 49-expert panel that found no single cause. Instead, it traced a chain of voltage and reactive-power control failures: the system met a sudden voltage rise it could not absorb, and a cascade of overvoltage disconnections brought the grid down.

The full root-cause report is 470+ pages long. But the decisive finding is short, and precise: the failure was voltage control. Even much higher system inertia would not have prevented the collapse.

Which rules out the explanation everyone reached for first. This was not renewables being renewables. What mattered was the rulebook where the generation mix had outgrown operating rules written for a different fleet.

So, what that means in practice?

The generation mix changed faster than the rules that govern voltage and reactive power. The fix points at the operating manual: it has to be rewritten at the same speed the grid is rebuilt and that work is as much institutional as technical.

So, in the meantime, who carries the risk?

Arguably, everyone downstream of a grid changing faster than its control standards such system operators, regulators, and the households and businesses.

The fifth connection is familiar to every clean energy developer: getting stuck in the queue.

At the end of 2024, according to Lawrence Berkely National Laboratory, roughly 1,400 gigawatts of generation and 890 gigawatts of storage — overwhelmingly solar and batteries — sat in U.S. interconnection queues waiting for permission to connect.

And most of it never arrives. Of the capacity that requested interconnection between 2000 and 2019, only about 13% had reached commercial operation by the end of 2024. Seventy-seven percent was withdrawn. Ten percent was still waiting.

The matter got worse. The 2025 milestone marked momentum at its peak — and and then the peaks went reverse. By mid-2025 the federal government had withdrawn offshore-wind leasing, and the One Big Beautiful Bill Act, passed that July, phased out the wind and solar tax credits that had anchored a decade of investment.

So the constraint has changed hands. The clean energy transition got this far on cost and engineering. The public policy now decides how much further it goes.

That means, the hard part of the transition has moved downstream of the technology. Panels and batteries keep getting cheaper; the bottleneck now sits in the queue, the permit, and the public policy which is a coordination problem among utilities, regulators, and governments. Every clean megawatt held in line is a megawatt the grid ends up meeting some other way. And if the clean power is stuck in a permitting queue, what gets burned to meet the energy demand today?

Every delayed clean project extends reliance on the fossil fallback, and every year of delay locks in more emissions.

Developers carry this risk too: capital sits idle in the queue, interconnection costs can strand a project before the project is built, and a public policy reversal can erase the credit a financing model was built on. When a clean project stalls, the risk does not vanish, it relocates to whoever is left meeting demand the slow way.

Now, let's go to the sixth connection: supply hands.

Every megawatt of the transition is built by human, and the hands are running short. The International Energy Agency finds about 60 percent of energy companies report labor shortages and estimates the sector needs 40 percent more qualified entrants by 2030 just to keep the gap from widening; electricians and power-line workers top the constrained list.

U.S. employers are already feeling it. Across electric power generation, 88% report at least some difficulty hiring. And 59% of grid utilities name line workers, who are the crews that build and maintain the grid itself, as the hardest role to fill according to the US Department of Energy. The scarcest hands are on the part nothing else works without.

Let me say it plainly.

Supply chain begins with supply hands. The interconnection queue assumes an approved project gets built. The workforce data says the crew may not be there. An aging trade, too few apprentices, and simultaneous demand from grid, factories, and data centers collide on the same job sites. A delayed clean energy build means a longer reliance on fossil fuels which makes the labor gap a climate variable.

As we know, capital is impatient. Trained labor is finite. So the risk falls on whoever is paying interest while waiting for the electricians to show up.

Or, the gap gets filled with gas. When clean capacity stalls, gas often fills the gap.

The seventh connection shows how quickly that fallback can be repriced by a single chokepoint: the Strait of Hormuz.

Gas is the fast, firm, reliable fallback. Because the clean capacity sat stuck in the queue and short on labor, the grid leaned on that bridge as if it were permanent. And a bridge built on globally traded fuel is only as secure as its narrowest chokepoint — for example, a strait barely 30 miles wide. In 2024, about 20% of the world's oil moved through the Strait of Hormuz, alongside about 20% of global liquefied natural gas according to the EIA.

Since February 28, 2026, the strait has been effectively closed, following military action and a United States blockade of Iranian oil shipments. The United States Energy Information Administration, or EIA, reports production shut-ins averaging 10.5 million barrels a day in April and peaking near 10.8 million in May as storage filled, with Brent crude averaging 117 dollars in April and spiking to 138 dollars. The IEA called it the largest supply disruption in the history of the oil market.

The chokepoint hits gas too. Qatar declared force majeure on liquefied natural gas, or LNG. European gas prices jumped 35 percent. Asian LNG rose 51 percent. U.S. Henry Hub stayed relatively insulated but only because U.S. export terminals already run near capacity. That is a temporary buffer, and it narrows as export capacity grows.

The gas bridge was supposed to be the safe, fast option. The "safe" fuel inherits the very geopolitical risk it was meant to sidestep. This is concentration risk, repriced in real time.

Who carries the risk here? Arguably, anyone who bet the bridge was safe and the broader economy that absorbs the oil-price shock as imported inflation. The deeper exposure belongs to a fossil-dependent system in which a single waterway can reprice energy for everyone.

And repricing does not stop at the fuel. It travels into who is still willing to insure the asset, and into what that asset is worth.

The eighth connection appears in property insurance.

Every signal above eventually arrives here, on a balance sheet. According to Swiss Re, global insured catastrophe losses ran about $137–141 billion in 2024 — the fifth straight year above $100 billion — and 2025 made it six.

The January 2025 Los Angeles wildfires were the costliest wildfire event on record, near $40 billion insured according to Munich Re.

The retreat shows clearest in California. The insurer of last resort — the Fair Access to Insurance Requirements Plan, usually called the FAIR Plan — saw its exposure more than triple since 2022, reaching 750 billion dollars by March 2026. Policies in force climbed past 684,000 from about 271,000 in 2022 as admitted carriers pulled back.

Then the LA fires forced the FAIR Plan to levy a roughly $1 billion assessment on its member insurers, simply to keep paying claims. The state’s response with the Sustainable Insurance Strategy. Insurers may now use forward-looking catastrophe models in rate-setting and in return, but must write coverage for at least 85% of properties in distressed areas. In other words, better tools for the carriers, guaranteed access for the homeowner.

The ninth and final connection is the price of carbon and the risk of stranded assets.

Carbon markets price transition risk, and that price is already live. Europe's carbon market raised 38.8 billion euros in 2024. On January 1, 2026, its Carbon Border Adjustment Mechanism, or CBAM, began charging importers of steel, cement, aluminum, fertilizer, electricity, and hydrogen for embedded emissions. Carbon now has a price that crosses borders.

And the stranding has been counted. A December 2025 study in Nature Sustainability mapped which power plants get stranded on the way to climate targets, and who owns them. Under a 1.5 degree pathway the global total reaches 1.9 trillion dollars. Under 2 degrees, half a trillion.

The ownership of these assets is what makes it a risk story. The top twenty-five companies alone hold upwards of 770 billion dollars of that stranded value, and the top ten, half a trillion. This exposure is concentrated, and concentration is the word that should make any risk manager sit up.

That said, at the moment, for fossil owners, today's geopolitics seems to point the other way. For example, a chokepoint war and a fossil-friendly policy turn have made gas plants look like cash machines. But the forward risk is two-sided, and the owner cannot hedge both.

To recap, climate strains the energy system from both ends. On the one hand, heat raises demand, while disasters, grid stress, and a shortage of skilled labors strain supply. The transition that would answer it is real yet stalled short of completion. So the gap fills with gas and a chokepoint war reprices that fossil bet, oil and gas together. The bill for all of it lands on the balance sheet: the fuel shock, the physical losses driving insurers out of whole markets, and the carbon now being priced into the assets still running with the risk of stranding that comes later.

Then the loop turns again. A hotter climate keeps raising energy demand, and every megawatt the transition cannot build clean gets built another way feeding the warming that started the cycle.

In this loop, insurance market provides the early warning signal. Insurers price climate risk before capital markets do, so where carriers raise rates, cut limits, or leave a region, the risk has already moved onto someone's else balance sheet. Map where coverage is thinning out, quantify what is being self-insured by default, and carry that cost in valuations and reserves before a loss forces the issue.

In short, a market insurers are leaving is a market repricing in real time.

This brief is one of a 3 connection briefs — AI and Energy, Energy and Climate, and AI and Climate. The series is complete and the written version, with every source linked, is at cleanpowerwhisperer.ai.

That's the piece. If you are making a capital decision inside this system and you’d like to think it through with someone, you know where to find me.

Stay curious. Be safe. Be well.