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Beating the heat – and energy price shocks – with renewables
key takeaways.
Amidst volatile energy prices, electric vehicles, heat pumps, and home solar paired with battery storage offer a compelling route to resilience and energy security
As summers bring longer and hotter heatwaves, residential solar plus battery storage is an ideal combination for cooling homes cheaply and reliably
This summer’s exceptional heat is leading to a spike in air conditioning adoption. Over the longer term, this threatens extra strain on grids and increased emissions
The regulatory environment is complex, and several policies have undermined residential electrification in recent years. However, the forthcoming EU Electrification Action Plan suggests tailwinds around the corner
The electrification of the global economy continues apace. Rising temperatures and today’s energy price shocks are creating a further catalyst for the rollout of clean, economy-wide electrification.
June 2026 will go down as the hottest seen in Western Europe. Among myriad new records France marked its highest-ever 24-hour nationwide average of 30 degrees Celsius across day and night; and Germany saw a new spot high of 41.7 degrees.1
In the equatorial Pacific Ocean, the tropical weather pattern, El Niño – which is forecast to become a ‘super El Niño’ – is set to bring hotter and drier weather to many parts of the world in the months to come.2 Though El Niño’s impact on Europe is less marked, forecasters fear it will still exacerbate this summer’s already extreme weather.3 With more heatwaves forecast for the rest of July and August, Europe’s many new temperature records may be short-lived.
It’s no surprise, then, that sales of air conditioning (AC) units and other cooling devices are growing rapidly. China’s exports of portable air conditioners to Western Europe are up by 70% over the first five months of the year, with one manufacturer, Midea, reporting a 108% increase in shipments to France and Spain.4 Across Europe, a growing number of fans, air conditioners, evaporative coolers, and even heat pumps – many of which can be used for cooling as well as heating – are being deployed earlier, dialled up to higher settings, and kept running for longer.
This brings with it a paradox – our attempts to beat the heat are warming the planet. In 2022, air conditioning was responsible for 1,750 million tonnes of CO2e emissions (3.2% of global emissions). While a significant proportion came from refrigerant leakage, the bulk – 1,000 million tonnes – came from burning fossil fuels to produce the electricity that powers AC.5
Emissions-free renewables and society-wide electrification are no longer a virtue proposition, they are the value proposition
This year, the cost of that electricity has risen. According to the Institute for Energy Economics and Financial Analysis, The Iran War – billed as Europe’s second energy crisis in four years – could contribute to a rise in electricity bills for the average European home of around EUR 1006. Petrol and diesel prices have been similarly affected, spiking nearly 21% across the EU in April and May compared with the same months in 20257. Though prices have since fallen back from the year’s high they remain elevated, and driver uncertainty lingers.
As temperatures rise – along with electricity and petrol prices – the shift to domestic solar, at-home battery storage, electricity-powered home heating and cooling, and electric vehicles (EVs) is compelling. Emissions-free renewables and society-wide electrification are no longer a virtue proposition, they are the value proposition. Falling costs, improving efficiencies, and geopolitical upheavals point in only one direction – towards ending our reliance on fossil fuel imports. But are governments helping?
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Rooftop solar – do the economics still work without the subsidies?
The economic case for installing rooftop solar depends on several factors, including the cost of installation, the price of electricity from the grid, government subsidies, and tariffs paid for feeding home-generated electricity back to the grid.
Between 2010 and 2019 the global price for solar photovoltaic panels fell by around 90%,8 and prices have continued to fall as state-subsidised Chinese manufacturers have expanded capacity, stoking a supply glut.9 This has been bad news for Western solar panel manufacturers, many of whom have been priced out of the sector, but good news for today’s buyers.
Yet, despite the easy availability of cheap panels, the number of new residential solar installations have fallen in recent years, following the end of numerous national subsidy schemes and signals from several governments that they will limit favourable grid feed-in tariffs.
Batteries – building energy resilience and beating the heat
As grid feed-in-tariffs reduce, homeowners will no longer benefit from simply selling their excess electricity directly back to the grid. Instead, maximum value will be achieved by consuming it themselves – for this, batteries are needed.
Home batteries can build significant resilience to rising energy prices – or even grid outages
By storing home-generated electricity for later use, batteries can build significant resilience to rising energy prices – or even grid outages. According to a 2026 study of 730 households by the Berlin University of Applied Sciences, homes with rooftop solar, a heat pump, an EV, and battery storage generated 59% of their annual energy needs on average – a median of 19 percentage points more than homes with solar but no battery.10
And when it comes to beating rising temperatures, the case for rooftop solar is self-evident. The addition of a battery allows home-generated electricity to be deployed at the hottest time of the day, which is often several hours after peak generation. This approach brings wider benefits, too. For governments, it means less strain on electricity grids – in Italy, for instance, it’s estimated that rooftop solar adoption could cut a household’s grid demand by as much as 68% during extreme heat events11.
Tariffs hit EVs – and why are heat pumps still losing out to gas boilers?
Other key elements of home electrification – EVs and heat pumps – have also met policy headwinds. In the US, President Trump’s “One Big Beautiful Bill” put an abrupt end to consumer-facing tax credits that had supported EV and heat pump rollout (solar installations and home batteries were similarly impacted). According to the International Energy Agency, EV purchases in the US will fall in 2026, marking their first significant drop in seven years.12
In the EU, tariffs or minimum prices have been imposed on imports of Chinese EVs in an effort to support European carmakers. Manufacturers remain under pressure, however, with many marques and parts suppliers suffering job losses due to falling profits, a reality writ large by recent reports of Volkswagen’s proposal to cut up to 15% of its workforce.13
Heat pumps face their own obstacles, with high levies on electricity undermining the economic case for replacing gas boilers – in some European countries, government policy results in electricity being as much as four times more expensive than gas. According to energy think tank Ember, “Despite their vastly superior efficiencies, the lifetime costs of heat pumps remain generally higher than for gas boilers. A key reason is the practice of adding policy-related costs to electricity prices making it more expensive than gas. This needs to be addressed to unlock the electrification of heat.”14
Policy tailwinds and a geopolitical catalyst
Now, though, there are signs that new policy tailwinds are developing. After years of debate, the European Commission’s recently released Electrification Action Plan contains measures to reduce the electricity-to-gas price gap, aiming to raise annual levels of heat pump installations by two thirds by 2030.15 Reports also suggest the plan will create a framework for cutting VAT on home batteries and EVs. Further, the EU’s Energy Performance of Buildings Directive is set to mandate the installation of solar panels on new-build residences, where feasible, from 2030.16
Since the start of the Iran War, interest in home solar, heat pumps, and electric vehicles has spiked around the world
Today’s volatile geopolitical environment is perhaps the biggest immediate driver of electrification, however. Despite the complex and evolving policy environment, since the start of the Iran War, interest in home solar, heat pumps, and electric vehicles has spiked around the world, as homeowners look to insulate themselves from rising energy prices.
In the first quarter of 2026, Asia and Europe saw an unexpected increase in sales of both used and new EVs.17 Heat pump sales have seen a similar spike – the European Heat Pump Association reported a 17% year-on-year increase for Q1 2026 across 11 EU nations.18 And in the US, online marketplace EnergySage noted a 17% spike in quote requests for home solar and a 23% increase for solar paired with batteries, in the 11 days after the outbreak of war.19
Despite a complex and uneven policy environment, the electrification of the global economy is gathering its own momentum. From the level of the individual to the nation state, today’s geopolitical upheavals have sent a clear message – renewable electricity generation, battery storage, and electrified end-user applications can build energy security and reduce cost.
The trend is clearest in China, which many analysts believe is poised to become the world’s first electro-state – in 2024, electricity accounted for 30% of the country’s final energy consumption20. Though the EU lags on 23%,21 and though domestic solar installations dipped in 2025, roll-out of grid scale electrification continues apace. For example, Europe installed a record 27.1 gigawatt-hours of battery capacity in 2025, marking a ten-fold increase since 2021 – the bloc now has capacity to store the equivalent of one day’s electricity needs for around 4% of EU homes.22
Today’s geopolitical upheavals have sent a clear message – renewable electricity generation, battery storage, and electrified end-user applications can build energy security and reduce cost
At Lombard Odier, we believe the electrification of the economy is an era-defining technology transition. From home batteries, to electric vehicles, to vast grid upgrades there will be opportunities across multiple industrial sectors and asset classes – for example, Lombard Odier Investment Managers estimates that global capital expenditure on electricity grids will increase from an annual average of USD 350 billion through the 2010s, to USD 800 billion per year by 2030, as infrastructure catches up with the demands of electrification.
In our TargetNetZero investment strategies we express this conviction through our science-based approach, that enables us to assess the carbon risk in portfolios and align investments with a net-zero target – for many firms, clean electrification is at the heart of this.
We understand that the transition to net zero has multiple drivers. As the world warms, and the geopolitical landscape becomes increasingly volatile, clean electrification – from supply to end-use, and at all scales from the home to the nation state – offers a route to beating the heat and securing cheap, reliable energy.
As governments reduce feed-in tariffs (FiTs – a fee-per-unit paid to homeowners for selling their home-generated electricity to the grid), the value of exporting surplus solar electricity falls, and the economic case shifts towards self-consumption. This is where batteries become key, cutting homeowners’ exposure to volatile electricity prices. A 2026 study of 730 households by the Berlin University of Applied Sciences found that homes combining rooftop solar, a heat pump, an electric vehicle, and battery storage self-generated 59% of their annual energy needs – a median of 19 percentage points more than homes with solar but no battery.
The lack of FiTs or subsidies for installation makes the economics more straightforward – the cost of installation versus the cost saved in avoided grid electricity over the life of the solar installation. In a world of geopolitical volatility and energy price shocks, this balance may tip in favour of home solar. For many homeowners, however, solar panels are more than a simple economic trade-off, they are a way to build a clean, reliable energy supply that will be unaffected by any future grid instability.
Yes. Reversible heat pumps – units that can run their refrigerant cycle in either direction – provide cooling in summer and heating in winter from a single system. This makes them a direct alternative to installing separate air conditioning and pairs naturally with rooftop solar and home batteries, since peak solar generation usually takes place just a few hours before peak need.
Because of how electricity is taxed – not because of the technology. In some European countries electricity costs the consumer up to four times more than gas, largely because policy-related levies are loaded onto electricity bills. According to energy think tank Ember, this pricing gap can cancel out the efficiency advantage a heat pump holds over a gas boiler across its lifetime. In the EU, this electricity-gas imbalance may soon be addressed by the Electrification Action Plan.
The Electrification Action Plan is a European Commission initiative aimed at accelerating the shift from fossil fuels to electricity across the EU economy. A leaked draft indicates it will target the electricity-to-gas price imbalance, aim to double annual heat pump installations, and create a framework for cutting VAT on home batteries and electric vehicles.
Geopolitical shocks that impact energy flows – such as the Iran war – have a dual impact. In the immediate term, they push up the price of oil and gas – consumers feel the cost at the petrol pump and in their home energy bills. They are also a longer-term reminder of the fragility of global energy supply chains.
For governments that don’t have their own secure supply of oil and gas, renewables and electrification offer national energy security and a predictable energy cost. On a smaller scale, the calculation is similar for homeowners, for whom home electricity production, and the electrification of heating and transport, means less exposure to volatile energy prices and potentially fragile national grids. In short, anything that restricts fossil fuel energy flows is likely to accelerate the transition to renewables.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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