2025 Predictions

Welcome to Edition 2 and thanks for some nice feedback on Edition 1 – much appreciated! 

After last week’s 2024 review, today we share our 2025 energy predictions (I know what you’re thinking, 3 weeks late to that party is stretching it a bit, but bear with us, we’re just getting started here). These will set up the next editions to evaluate energy companies’ and funds’ 2024 performance and assess their prospects for 2025 (not forgetting that overall energy trends and corporate performance are two very different things). 

Forecasting is hard, especially about the future 

The world is not black and white but endless shades of grey, so it’s always tempting to be vague or equivocal. As independent analysts, we can claim to be objective and unconflicted, but all sorts of biases can creep in. Like recency bias, predicting something will remain roughly the same as it is now. 

To be useful, a forecast should be SMART: specific, measurable, achievable, realistic and time-bound. That brings a health warning: the more specific, the more likely to turn out precisely wrong, if not approximately right. 

But enough with the caveats, let’s dive in:

Thematic context:

1. Energy affordability amid high living costs and interest rates

2. Energy security and reducing import dependency

3. Great power bifurcation and dual-speed Energy Transformation: the US spluttering forward with the hand brake on as China accelerates away  

4. Global vs local: boosting domestic industries and reshoring supply chains vs importing cheaper energy equipment  

5. Political polarisation: “we can’t afford transition” vs “we can’t afford no transition”

Common thread: When compiling this outlook, a recurring feature was the expectation of lower prices. Not just in solar and batteries, where the trend is well established, but also in hydrocarbons too (albeit more for oil than gas) as well as other markets like carbon credits and EVs. Clearly not everything in energy will get cheaper this year (nuclear still seems to be getting more expensive) but it could be a notable trend of 2025. 

Solar: Solar will continue to dominate new renewable capacity, with 700 GW additions bringing total installed capacity towards the 3 TW mark. This will be another new record, but a slower growth rate than recent years given a higher baseline, maturing key markets and more focus in China on limiting oversupply. Critics may use this as evidence of a failing transition. Globally, solar generation will exceed 2500 TWh, rising very fast but still under 10% of total electricity generation. Solar will increasingly hand the exponential capacity growth baton to: 

Batteries: It’s going to be a big year for batteries as the focus increasingly shifts from renewable capacity additions towards optimisation of that capacity. In fairness, 2024 was already mega, with 53% output growth to 205 GWh. Renewables’ rapid rise brings more variable output, price volatility, grid instability and bottlenecks. But these challenges are opportunities for battery energy storage systems (BESS) - especially as they get cheaper (90% in the last 15 years) and more efficient. Lithium-ion battery pack prices will drop below $100/kWh. New global capacity will hit 50 GW, of which 5-6 GW will be in Europe. Total output could top 300 GWh, while grid-scale BESS FIDs (new project sanctions) will also hit new highs. Average durations will also rise, with 3-4 hour projects increasingly common. 

Wind: New capacity additions will reach ~100GW/pa for a total installed capacity of ~1.2 TW by year end. Solar and wind will jointly account for >90% of global generation capacity additions. 

Grid: There is “no transition without transmission”, but grids have become a key obstacle to clean energy progress. Grid investment will see double digit growth to ~$450bn in the push to improve renewable utilisation rates, reduce curtailment and limit reliance on fossil generation. 

EVs: Uptake of game-changing technologies is notoriously unpredictable (“There’s no chance that the iPhone is going to get any significant market share” said former Microsoft CEO Steve Ballmer in 2007). But it’s already clear that China will sell more EVs than ICE cars annually for the first time this year, hitting that 2035 target a decade early. In Europe, BYD will rocket up the EV sales charts while Tesla will plummet, as EVs get ever more politicised. Straight line growth would see global EV sales at around 20m this year, but the rollout of ever cheaper models makes 22m more likely. 

Gas & LNG: Average 2025 realised gas prices will be: TTF €40/MWh, NBP 100p/therm, Henry Hub $3.40/MMBtu, JKM $13/MMBtu. Since last March, gas prices rose steadily on both sides of the Atlantic, reaching €50/MWh / 125p/therm in Europe by early January as a colder winter unwinds inventories faster than usual. Further upside seems limited as LNG capacity additions will rebound this year to >20bcm while high prices and falling power sector gas consumption will keep European demand stagnant. But with steadily increasing demand for gas in Asia, a price collapse seems equally unlikely until trans-Atlantic supply cranks up properly from 2026 onwards. For Henry Hub, any bullish effect of higher LNG exports should be offset by rising domestic production amid the new US administration’s “national energy emergency” (how would they describe Europe with gas prices 3-4x higher?!). In Europe, gas’ increasing shift to flexibility provider will drive continued short-term price volatility. 

Oil and products: While the US aims to turn up the taps on an already well supplied market, demand looks tepid as China’s economic growth slows and EVs increase market share. This should pull Brent from its early year highs around $80/bbl to below $60/bbl, driving further industry consolidation (M&A). Crude consumption is still rising, partly thanks to petrochemical demand, but transport is a different story. This year global gasoline demand will peak. 

Coal: Global consumption will continue to nudge up towards 9 billion tonnes. 

Carbon: High gas prices in Europe incentivise gas-to-coal switching, in turn driving up carbon credit demand. Given this gas-carbon price correlation, we expect EUAs not to sustain their current peaks of ~€78/MT, but average in the €65-70/MT range for the year. 

AI: AI hardware will get more energy efficient, mitigating fears around its energy demand. AI will also help to optimise infrastructure performance, boosting energy efficiency more broadly. Rapid growth in AI demand will drive all-of-the-above power supply strategies, driving a consistent stream of new CCGT, renewables, nuclear and hybrid investment announcements this year. 

Rising themes: The need to unlock grid bottlenecks, smooth volatility and increase renewable utilisation rates will boost interest and investment in: 

• Clean flexibility (more on this soon)

• Co-location projects

• Interconnectors

• Grid optimisation technologies

• Self-generation (behind-the-grid) and micro-grids

• Demand side response (DSR)

• Virtual power plants (VPPs)

• Vehicle-to-Home and/or Grid (V2H / V2G)

• Advanced geothermal

Falling themes: With renewed focus on value for money, the more expensive, commercially unproven energy/carbon segments will struggle for momentum: 

• Carbon Capture & Storage (CCS)

• Sustainable Aviation Fuels (SAF)

• Green hydrogen

• Direct Air Capture (DAC)

UK nuclear: We expect Sizewell B’s 2035 decommissioning date will be extended this year. Hartlepool (COP: 2027), Heysham 1 (2027), Heysham 2 (2030) and Torness (2030) were all extended in late 2024. The start-up date for Hinkley Point C, currently 2030, will get further deferred. And as for costs, Sizewell C appears to be doubling in price from £20bn to £40bn already… 

UK power: Total UK power demand will decline to 265 TWh (peak: 406.5 TWh in 2005) on a flat economy, deindustrialisation and high prices. The supply mix will evolve from that shown in NESO’s chart below to: 

1. Wind 33% (2024: 30%)

2. Gas 23% (26.3%)

3. Imports 15% (14.1%)

4. Nuclear 13% (14%)

5. Solar 7% (5%)

6. Biomass 5% (6.8%)

7. Hydro 2% (2%)

8. Storage 2% (1.2%)

9. Coal 0% (0.6%)

This will pull UK power carbon intensity to a new low below 100 gCO₂/kWh (2024: 125). Front-month power prices will average in the £80-85/MWh range. Intraday volatility will increase with negative prices for >350 hours or 4% of the time (Germany will see 500 hours) alongside some wild price spikes (the first one already reached £2,900/MWh on 8 January).