With federal tax credits under threat and regulatory stability in short supply, Bala Nagarajan, managing director of the energy investments team at S2G Investments, explained what he looks for in a company. “Is the product or the solution sold by this business cheaper, faster, better than the incumbent solution?” he asked. If so, it’s worth considering. If not, the investment may not be a fit for his company’s portfolio. Nagarajan emphasized that his team heavily discounts any business case that depends on policy incentives. If a company can only pencil out because of a subsidy, S2G is unlikely to back it. The message for entrepreneurs is clear: build something that wins on its own economics first, and treat incentives as upside rather than a foundation. Speaking as a guest on The POWER Podcast, Nagarajan introduced the concept of “anti-fragile businesses”—companies whose value propositions can withstand geopolitical shocks, policy reversals, and economic downturns. His showcase example was Aerones, a portfolio company that uses robots to repair wind turbine blades. The investment thesis is straightforward: there is an enormous existing fleet of wind turbines that needs maintenance, qualified technicians are scarce and expensive, and the work is dangerous. A robotic solution that is cheaper, faster, and safer represents exactly the kind of durable opportunity S2G seeks. For most of Nagarajan’s 17-year career investing in energy, demand growth was a gradual phenomenon tied to long-horizon electrification trends such as in homes, transportation, and manufacturing. Artificial intelligence (AI) data centers have compressed that timeline dramatically. The demand for new electrons is not spread over a decade; it “is knocking on our doors today,” he said. This near-term surge, combined with constrained supply, has created a market dynamic that many people think will keep power prices high for a long time. S2G prefers to take a more skeptical view, Nagarajan explained. “What if things change?” he asked. “How well will our underwrite hold up in the midst of potential changes?” Beyond driving energy demand, AI is changing how S2G evaluates deals. The team uses AI tools to sift through data rooms containing thousands of documents, automatically generating “red flag reports” that highlight potential issues. This lets a lean deal team prioritize its time on the most critical concerns and process opportunities faster than would otherwise be possible. It is a practical example of AI delivering efficiency gains on the buy side of the energy sector, not just the operational side. When it comes to where investor enthusiasm is strongest, Nagarajan pointed squarely at grid-enhancing technologies. Rather than building entirely new generation capacity, the market is hungry for solutions that make the existing grid better. Advanced conductors, grid-enhancing software, and solid-state transformers are all attracting significant capital. Conversely, the “power-to-X” sector—green hydrogen, sustainable aviation fuel, and similar products that rely on cheap clean electricity as a feedstock—is struggling. Rising power prices have undermined the economics that made these products viable just a few years ago, and “capital flows have been challenged,” Nagarajan said. One of the more sobering takeaways from the conversation concerned the widening gap between well-capitalized developers and smaller players. As tax credit deadlines tighten, only developers with deep balance sheets can afford to “Safe Harbor” equipment, that is, purchasing materials early to lock in expiring incentives. Smaller developers, unable to make those upfront investments, are being forced to sell projects to larger competitors or abandon them entirely. The result is a flight of capital toward established brands and away from the nimble, entrepreneurial firms that once held an advantage. In his closing remarks, Nagarajan made a claim that cuts against the grain of clean energy orthodoxy, specifically, he suggested natural gas is not a bridge fuel anymore. Given the massive demand for gas turbines from hyperscalers and the signals from manufacturers like GE Vernova and Siemens Energy, gas is firmly embedded in the energy mix for the long term. The consequence, he argued, is that emissions will inevitably rise, which will in turn drive significant demand for high-integrity carbon credits. Nagarajan said he is personally bullish on the space and is actively evaluating companies for investment. Nagarajan’s overarching message is one of disciplined optimism. The energy sector is experiencing a rare convergence of rising demand, constrained supply, and deep pools of available capital. But the investors and companies that he expects to win are those that resist the temptation to underwrite to today’s enthusiasm, and instead build and back businesses that can thrive regardless of which way the policy winds blow. To hear the full interview with Nagarajan, listen to The POWER Podcast. Click on the SoundCloud player below to listen in your browser now or use the following links to reach the show page on your favorite podcast platform:

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The POWER Podcast · 207. Investing in Energy’s ‘Anti-Fragile’ Future

For more power podcasts, visit The POWER Podcast archives. —Aaron Larson is POWER’s executive editor. [Ed. note: Quotes have been lightly edited for clarity and length.]