Europe's heatwaves are stress-testing the grid. Here’s the opportunity most investors have missed

• Europe’s heatwave exposed a real-time grid problem: higher cooling demand, constrained power supply and tighter system margins.

• Brent’s fall reflects short-term oil flow normalisation, not a full recovery in energy supply.

• AI data centres are turning electricity access into a key physical bottleneck for the next phase of digital infrastructure.

• The First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID) provides exposure to the infrastructure layer that governments and companies increasingly need: grids, transformers, storage and power equipment.

A heatwave just broke Europe's power grid.

On 24 June, four French nuclear reactors were forced offline as cooling water temperatures became too high, at one point removing 4.1 gigawatts, or 7% of national demand, from the grid.

The UK issued its first-ever summer electricity margin notice, flagging a 1,900MW shortfall risk for the following evening’s peak — a tool historically reserved for winter — before it was cancelled once adequate capacity was secured.

In Italy, national grid operator Terna confirmed electricity consumption hit a 2026 high of 55 gigawatts on 23 June, up 15% on May, as heat-stressed underground cables triggered repeated blackouts across Milan and Turin.

World Weather Attribution's assessment, published days later, was unambiguous: because of climate change, an event of this kind is now around 100 times more likely than it was in 2003.We think this matters for GRID, the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID), because its holdings sit at the centre of three converging pressures: a physical energy system that has not returned to normal, a power grid exposed by a heatwave it was never designed for, and a new wave of demand from artificial intelligence and electrification that is only just beginning.

Energy security: Risks remain, investment is accelerating

Start with oil. Brent crude fell below USD72 a barrel on 3 July — its lowest level since the war began — and traders read the decline as confirmation that the energy crisis was over. The physical evidence disagrees. The central shipping lane in the Strait of Hormuz remains mined; Lloyd’s war-risk insurance for tankers crossing the strait has not been restored; and shipbroker BRS estimates that mine clearance and a return to pre-war routes could take four to five months. Qatar’s two damaged LNG trains account for around 17% of total capacity and could take three to five years to repair. Prices have fallen, but risk has not disappeared. What traders are pricing and what insurers and shipping companies are pricing have diverged.

This gap between price and reality is turning into real demand for infrastructure. And the scale is bigger than the oil price suggests. Europe imported roughly EUR 340 billion of fossil fuels in 2025 alone, and has spent another EUR 50 billion above plan since the conflict started in March. It still gets 57% of its energy from imported fossil fuels — a dependence this expensive is exactly what's forcing governments to fund the alternative.

That's happening through two channels.

First: policy is accelerating. In April, the European Commission proposed AccelerateEU — a plan to cut energy costs, cut fossil fuel dependence, and speed up clean energy and electrification, all at once. EU Energy Commissioner Dan Jorgensen put it bluntly: grid capacity is "the biggest bottleneck in Europe's green transition." On 26 June, EU energy ministers agreed a negotiating position on the European Grids Package — a major step toward final talks with Parliament.

This isn't just crisis response. The question has changed. It used to be: can Europe buy enough oil and gas? Now it's: can Europe build its own power infrastructure fast enough? War made that second question impossible to keep delaying.

Second: consumers are changing behaviour. BloombergNEF expects EV sales to hit 27% of global car sales this year, up from 9% five years ago. BNEF says the war has "boosted consumer interest" in EVs — but adds it's still too early to prove the link. Europe's numbers are cleaner. The IEA reports European EV sales are up more than 30% this year, reaching 28% of the market, driven by tighter EU emissions rules. Every EV sold shifts demand off liquid fuel and onto the grid. More charging load. More pressure on local networks. More need for smart grid management. For GRID, that's the direct line from energy security to grid investment.

Policy is accelerating. Demand is growing. GRID's holdings sit right where these two forces meet.

The heatwave turned a long-term theme into an immediate issue

This wasn't bad luck. Europe's grid was built for a different climate — mild summers, cold winters, low air conditioning demand — and that grid just met a summer it wasn't designed for.

Heat pushed demand higher first. Cooling and heat-relief electricity use rose quickly across France, Italy, Spain and the UK, starting from one of the lowest air-conditioning penetration rates in the developed world — which meant demand climbed fast, from a base with little spare capacity to absorb it. National Grid, which operates the UK's regulated transmission network, and SSE, also a GRID holding, sat directly inside the system that needed the emergency margin notice described above.

The impact was not only caused by Europe's low air-conditioning penetration, which allowed cooling demand to rise quickly from a low base. More importantly, the heat also reduced available supply. French nuclear units were curtailed or forced offline after river water temperatures breached environmental limits. In other words, heat did not just increase electricity demand; it also took generation offline at the moment it was needed most.

Heat does not only strain generation. It also stresses transmission and distribution equipment directly, reducing the safe carrying capacity of lines and transformers under extreme temperatures. The result is a three-way squeeze: higher demand, less stable supply, and greater pressure on the transmission and distribution network all at once.

If similar conditions return, similar pressures will return with them. In short, the heatwave has turned what looked like a long-term grid modernisation theme into a present-day problem.

Europe needs more than additional power generation. It needs stronger transmission networks, more flexible storage, more efficient electrical equipment, and grid systems built to handle summer peaks the existing system was never designed for. This is the core of GRID's investment case. It is not an abstract "green energy story." It is exposed to the infrastructure layer that Europe's power system increasingly needs as heat, demand volatility and supply instability intensify.

AI is turning power infrastructure into a new layer of competition

The market usually thinks of AI competition as a race in models and chips. But that competition is moving down to a more fundamental layer: electricity.

First, capital is no longer the constraint. Hyperscaler capex is estimated by JPMorgan to exceed USD1.1 trillion in 2027. At that scale, spending power stops being the binding constraint on data centre deployment. The real constraint is whether operators can access enough stable, affordable power to run what they've already committed to build.

Second, the physical bottleneck is already visible. At least 57 off-grid gas-fired power plant projects are being developed in the US to support AI data centre electricity demand, according to Reuters reporting. Some of these projects are specifically designed to bypass permitting queues in the public grid altogether — and that choice is itself the clearest evidence of how strained the public grid has become. Hyperscalers are building and financing their own power plants rather than waiting for a grid connection. If the existing network could keep pace with AI-driven demand, this workaround wouldn't need to exist.

Third, this makes power infrastructure the base layer of the AI stack. AI competition is not only about who has the strongest model, the most GPUs, or the largest data centre. It is also about who can access stable, affordable, and connectable electricity the fastest. Data centre electricity demand is forcing other industrial users and technology companies to compete for the same scarce resource: power. AI needs chips; chips need data centres; data centres need electricity; and electricity needs stronger grids, transformers, storage, and electrical equipment.

That is where GRID becomes relevant. GRID is not a bet on any one AI application or model company. It is a bet on the infrastructure layer that AI buildout cannot avoid: transmission networks, distribution equipment, transformers, storage, grid automation, and grid connection capacity. As AI capex spreads from chips into physical infrastructure, the grid is no longer just an energy-transition theme. It is becoming part of the AI competition itself.

What has not changed is valuation

Since our 4 June article, the evidence supporting the GRID thesis has continued to accumulate. Earnings data already points in the same direction. GRID’s holdings recorded weighted-average 1Q26 revenue growth of 14% and weighted-average earnings growth of 27%, excluding Schneider Electric, which did not disclose 1Q earnings, and National Grid, which reports on a semi-annual/full-year cycle.

Related article: The energy security trade the market has not priced yet

More importantly, six of GRID’s top 10 holdings have raised full-year guidance, while Schneider Electric, E.ON and Prysmian reaffirmed or confirmed their full-year targets. This suggests that the thesis is already showing up in company numbers, not only in long-term policy targets or climate-transition narratives.

Holding	Weighting	Revenue Growth (YoY)	Earnings Growth (YoY)	Guidance
Eaton Corporation Plc	8.3%	17.0%	14.7%	Raised
Schneider Electric SE	8.3%	11.2%	-	Reaffirmed
ABB Ltd	8.1%	18.0%	21.7%	Raised
Quanta Services, Inc.	8.0%	26.3%	50.6%	Raised
Johnson Controls International Plc	7.8%	8.2%	45.1%	Raised
National Grid Plc	4.2%	1.8%	8.3%	Provided constructive guidance
E.ON SE	4.0%	-13.0%	6.3%	Reaffirmed
Prysmian SpA	3.9%	9.4%	53.8%	Reaffirmed
nVent Electric plc	2.9%	53.5%	62.7%	Raised
Hubbell Incorporated	2.7%	11.1%	16.3%	Raised

Source: Company presentations, iFAST Estimates;

Data as of 31 March 2026

Notes: National Grid Plc reports on a UK fiscal year ending 31 March and does not publish standalone quarterly figures. Its FY2025/26 revenue growth is shown on an adjusted basis, excluding the prior-year contribution from the UK Electricity System Operator, which was subsequently separated/disposed, to improve comparability.

Schneider Electric does not disclose comparable prior-year quarterly EPS in its Q1 trading updates.

Management commentary also supports this view. Quanta Services raised full-year expectations after record backlog of USD48.5bn, citing stronger visibility across utility, generation and large-load markets. Hubbell pointed to strong demand in utility transmission and distribution, with load growth driving transmission and substation markets and ageing infrastructure supporting distribution investment. nVent also raised guidance after record sales and backlog, citing broad-based data-centre growth and strong backlogs in data centres and power utilities. Even before the full impact of grid failures, heat shocks and AI-driven power demand is reflected in reported earnings, management teams are already signalling confidence.

What has not changed is valuation. GRID currently trades at around 21 times 2028 estimated earnings, broadly unchanged from three weeks ago. Valuation has not fully reacted to the evidence that emerged in the second half of June, and remains below our reasonable valuation midpoint of 25 times — implying around 18.85% upside and a target price of around USD228 for GRID over a two-to-three-year horizon.

Risks remain, but we view them as manageable rather than thesis-breaking. Higher interest rates are a real headwind, particularly for regulated utilities and capital-intensive infrastructure companies. The UK Ofgem regulatory framework places contractual limits on how much network costs can be passed through to consumers, which partly, though not fully, limits the earnings risk from rising financing costs. LNG supply normalisation, as well as private-credit pressure faced by institutions such as Ares and Apollo, are timing risks worth monitoring, but they are not reasons to abandon the investment thesis.

Table 1: Projections for GRID
	2025	2026E	2027E	2028E
EPS	63.27	75.30	86.00	98.30
EPS growth	16.63%	19.01%	14.21%	14.30%
PE Ratio	32.68	27.46	24.04	21.04
Upside Potential (fair pe of 25x)	-	-	-	18.85%
Target Price  (USD, GRID ETF)	-	-	-	228
Source: Bloomberg Finance L.P., iFAST Estimates
Data as of 30 June 2026

Declaration

For specific disclosure, at the time of publication of this report, IFPL, through its connected and associated entities, and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation. The content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

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