2025 Energy Outlook: Key predictions shaping the global landscape

Posted by | Michael Ratcliffe , Rauf Mammadov

1. Electricity is becoming the world’s most critical commodity

Electricity demand is surging, driven by the global push towards electrification. The growth in demand for electric vehicles (EVs), the demand for massive AI data centers, and the electrification of everyday systems are driving this shift, resulting in electricity becoming the backbone of modern energy systems. China is leading the charge with its rapid adoption of EVs, while AI is increasingly being used to manage the increasingly complex energy supply networks. 

• Natural gas growth

Natural gas is emerging as the fastest-growing fossil fuel for power generation, particularly in Europe where energy security has become a priority following Russia’s invasion of Ukraine. Its flexibility and reliability make it a key solution for managing the intermittency of wind and solar power. Natural gas is also playing a key transitional role in transportation sectors that are attempting to move away from using more polluting fuel, such as deep-sea shipping.

• Cautious EV investments

Major energy companies are treading carefully when it comes to investing in EV technology, such as charging infrastructure and other EV-related businesses. They are prioritizing investments in critical mineral supplies support. Exxon’s lithium ventures and Aramco’s recent lithium discoveries are clear signs of this strategic shift. 

Meanwhile, China’s EV and battery technology industries are expanding globally, which is already having major strategic implications for international transport markets.

Germany’s largest auto manufacturer, VW, already struggling with a shrinking share in the global small passenger car market due to difficulties in developing successful EV model, is now considering multiple factory closures. Likewise, Japanese auto manufacturers that had previously been focused on hybrids rather than EVs, are also under pressure. Japan’s Ministry of Economy, Trade and Industry (METI) has forced Honda and Nissan to consolidate in 2025, in an attempt to address significant financial issues that threaten these traditional automakers’ survival.

• IEA’s electricity demand outlook  

Short-term: Electricity demand is estimated to have grown by 4% annually in 2024, with emerging economies like China and India driving much of the increase. 

Long-term: By 2050, global electricity demand could increase by 75% to 150%, depending on the strength of climate-focused policies.  

2. Wind and solar will continue to grow and work together to provide a viable clean electricity solution

Offshore wind and solar are showing that together they can provide a viable solution to traditional electricity generators. Offshore wind peaks in the early evening and solar during the day which, when combined, provide a reasonably steady supply of electricity, especially when grid-level storage is added to help balance inevitable variability in both wind and solar.

• Hydropower as a renewable alternative to wind and solar

For a few lucky countries, hydropower is the sole provider of green electricity. Norway sources nearly 90% of its electricity from hydro, while Ethiopia is going fully renewable following the completion of a massive new dam on the Blue Nile. This has allowed the Ethiopian government to decree that only EVs will be imported in the future.

3. Nuclear and geothermal will challenge wind and solar for dominance in low-carbon energy

As the search for reliable low-carbon energy sources intensifies, nuclear and geothermal power are gaining momentum. 

• Nuclear’s comeback 

Small Modular Reactors (SMRs) are paving the way for a nuclear revival, offering scalable flexible baseload power that complements renewable energy sources. Nuclear’s historical struggles with cost overruns and delays, however, raise doubts about its near-term potential.  

• Geothermal energy expansion 

Innovations in drilling technology and greater integration with low-carbon energy systems are making geothermal power a more viable and reliable renewable energy source. 

• Carbon sequestration integration 

The use of carbon capture technologies in coal and gas power generation is expanding, particularly in fossil fuel-rich regions. While these projects aim to balance energy demand with decarbonization, some high-profile failures of major projects to meet CO2 storage targets have raised questions about the pace of progress. 

4. Hydrogen could spark the next energy arms race

Hydrogen has yet to emerge as a key player in the energy transition, as major challenges around price remain.

• Hydrogen’s role in heavy industry 

Hydrogen is still seen an attractive solution for decarbonizing heavy industry, supported by technological advances and increased investment, but is facing a future where the cost of green electricity continues to drop while the price of green hydrogen remains stubbornly high. For hydrogen to compete with electricity, its cost must drop significantly. We are already seeing interest starting to shift in the heavy truck market away from hydrogen towards electricity as well as LNG/CNG as a bridge solution. 

• China’s leadership in PEM electrolyzers

China leads the global market in Proton Exchange Membrane (PEM) electrolyzers, driving rapid cost reductions similar to those seen in solar PV and battery production.

• Blue hydrogen investments 

Major energy companies are focusing on blue hydrogen, which is produced using natural gas with carbon capture and storage (CCS). This approach is particularly important for industries like steel and cement, where decarbonization is more challenging. 

• White hydrogen

The realization that there could be massive reserves of naturally occurring hydrogen could be a game changer for the energy market. However, major investments are needed to commercialiaze these reserves, but they offer a near instance resolution to the major hurdle to the creation of a hydrogen economy.

• Electrolyzer expansion 

Installed electrolyzer capacity reached 1.4 GW in 2023 and is set to grow significantly, with announced projects targeting a capacity of 520 GW by 2030.  

5. Energy sector consolidation is reshaping the competitive landscape, which will favor larger players

As energy companies reposition themselves, consolidation is becoming more prominent.

• Industry consolidation 

The oil and gas sector is expected to consolidate into fewer, larger players as companies merge resources to sustain profitability and navigate the energy transition.

• IOCs’ targeted acquisitions 

International Oil Companies (IOCs) are increasingly acquiring firms specializing in niche renewable sectors, such as geothermal energy and EV value chains, to align with their decarbonization strategies.  

• Non-core divestments 

Some IOCs are refocusing on hydrocarbons, moving away from ambitious New Energy initiatives. This has led to divestments of non-core businesses and increased investment in lower-emission solutions like natural gas and LNG/CNG for transportation.

6. Interconnected grids will become the Achilles’ heel of global energy systems

The growing demand for electricity and renewable energy capacity is putting pressure on grid stability. 

• Grid-level storage demand 

Grid-level battery storage is becoming essential to manage the variability of renewable energy from wind and solar. In the short-run it is already offering a cleaner, cost-effective alternative to expensive natural gas-powered peaker plants. Domestic battery systems linked to roof-top solar are increasingly being linked together to create Virtual Power Planes (VPPs) and themselves linked into regional grids. AI-based management systems are needed to balance the growing complexity of electricity supply and also provide sophisticated trading systems maximizing overall supply efficiency.

• Grid overloads 

Rising cross-border or cross-regional grid system electricity flows, such as those from Germany to Poland, highlight the challenges of managing supply surpluses and shortages.  

• Market distortions 

Price inefficiencies caused by differing market structures, like those between Sweden and Germany, emphasize the need for reforms to improve trade and integration.  

7. Renewables alone won’t be enough to power the future

While renewables are expanding, their intermittency continues to pose challenges. 

• Intermittency challenges 

Seasonal and geographic variability in wind and solar power generation requires backup systems, such as natural gas plants or energy storage. Grid managers also face difficult decisions about where to supply during renewable energy surges, which could affect consumer adoption of solar installations. 

• Storage solutions 

Ongoing investments in advanced battery and long-duration storage technologies are critical for grid stability and ensuring a reliable power supply. As a result, we are seeing an exponential growth in large grid-level battery systems around the world.

• Fossil fuels

The inevitable conclusion is that, unless some major new technology is commercialized, such as white hydrogen, the world is going to have to continue to rely on traditional fossil fuels into the near-to long-term to some degree.

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Tags: Energy, Innovation, Renewables, Sustainability