Six energy themes for 2025

Six energy themes for 2025

Energy is a fundamental determinant of growth and prosperity. Here are six energy-related themes that we think merit attention.

• First, spending on renewable energy infrastructure will continue to boom. Large batteries, attached to the power grid, are needed to deal with the intermittency of solar and wind power. Grid-scale storage is growing rapidly but lags behind the capacity of the system to generate solar and wind power. It is a symptom of this mismatch that last year wholesale power prices dropped below zero for a record number of hours in Europe.

• The IEA estimates that global grid infrastructure spending, including but not limited to storage, rose to $400bn last year, and will continue to increase, rising to $600bn annually by 2030. This is reflected in the valuation of companies making the parts. Shares in Siemens Energy have quadrupled since the start of last year because of the German firm’s fast-growing Grid Technologies division. Shares in Hitachi, a Japanese conglomerate, have tripled in the last three years, boosted by the growth of its power infrastructure business.

• Second, economies of scale and the development of more efficient processes are collapsing the cost of key renewable technologies. In 1936, the American aeronautical engineer Theodore Wright observed that "The average time or cost per unit to manufacture a product declines the more units are produced". Scale and ‘learning by doing’ have driven down costs across manufacturing since the start of the industrial revolution and is having the same effect on the price of solar, wind power and battery technology.

• Batteries are becoming lighter, smaller, more powerful and cheaper. The price of lithium-ion battery cells has fallen by 97% in the last three decades. Researchers at Goldman Sachs predict that average battery costs are likely to fall further, by almost a third in the next three years.

• Third, European consumers and industry pay much more for energy than their US counterparts. European firms face natural gas prices 4–5 times US levels; electricity prices are 2–3 times US levels. The EU relies on imported fossil fuels, while the US is a net exporter of oil and gas. Turning natural gas into liquified natural gas (LNG), then turning it back into gas, requires expensive plants at each end. This hampers exports of gas, meaning that the US natural gas price runs well below European levels. Russia’s invasion of Ukraine, which forced Europe to switch from cheaper Russian pipeline gas to more expensive (LNG), has added to the problem.

• Europe has a higher share of renewables in its energy mix than the US. This has reduced carbon emissions and opens up the prospect of cheap, clean energy. But intermittency of supply from solar and wind, coupled with lack of storage, grid capacity and interconnectors between countries, tend to raise the retail price of renewables.

• Fourth, the oil price is likely to remain subdued, averaging below $80 a barrel this year. Soft demand for oil, due to lacklustre growth in China and subpar manufacturing activity globally, has overshadowed the risks to supply from conflict in the Middle East and OPEC+ production cuts.

• The US Energy Information Administration (EIA) forecasts that the Brent crude oil price will average $74/b this year, down from $81/b in 2024. Modest global demand is likely to be met with increasing supply with the reversal of OPEC+ production cuts and, under the new US administration, increased US oil output.

• Fifth, the large language models behind generative AI require huge computational energy. The boom in generative AI is adding to the already significant demand for data centres, which provide the infrastructure to store, process and distribute data—tasks crucial for AI systems.

• Last week, US president Donald Trump announced an initiative for several technology firms to invest $500bn in data centres in the US, saying the project would build the “physical and virtual infrastructure to power the next generation of advancements in AI, and this will include the construction of colossal data centres”. Amazon, Google and Microsoft are reported to be considering using nuclear power to provide the energy for future AI and data storage demand. 

• The International Energy Agency (IEA) estimates that the energy consumed by data centres could reach a level equivalent to the total electricity consumption of Japan by next year, double the level of 2022. AI systems account for a small proportion of data centre use at present, but this is growing rapidly—Goldman Sachs expects AI to account for a quarter of demand by 2030.  In some parts of the world the energy system has been unable to keep up. Ireland introduced an effective moratorium on the construction of data centres in the greater Dublin area in 2021 because of energy constraints. 

• Six, despite concerns about affordability, government subsidies, range and charging infrastructure, sales of electric vehicles (EVs) are still rising. Last year a number of carmakers, including GM and Ford, scaled back plans for EV production and new launches. But while global sales growth has slowed, 2025 is likely to have been another record year for EV sales. Consultancy Rho Motion estimates global EV sales rose 25% in 2024, with strong growth in China and, to a lesser extent in the US and Canada, offsetting a 3% decline in Europe. In China, the world’s largest market, sales of all types of EVs, including hybrids, rose more than 40% last year. Sales of petrol and diesel-powered vehicles fell 17% and account for just over half of overall new car sales in 2024.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 2.0% at 8,674, reaching an all-time high and recording its best month since November 2022, in part because the index benefited from investors moving away from US technology stocks.

Economics

• US president Donald Trump signed an executive order to impose 25% tariffs on all goods from Mexico and Canada, with 10% tariffs on Canadian oil imports, as well as 10% tariffs on goods from China
• Canadian prime minister Justin Trudeau announced tariffs on US goods, worth approximately $107bn, in retaliation
• The US Federal Reserve maintained interest rates at 4.25%–4.50%, in line with expectations. Fed chair Jay Powell commented that “we do not need to be in a hurry to adjust our policy stance”
• The US Fed’s preferred inflation measure increased to 2.6% in the year to December, from 2.4% in November
• US GDP grew by 2.8% in 2024, marginally lower than the 2.9% recorded in 2023, according to official estimates
• US technology stocks fell early last week on the news that Chinese company DeepSeek produced an AI model to rival US products but at a much lower cost. Technology stocks have recovered some ground since
• Gold shipments to the US have surged in recent months due to fears of potential US tariffs and higher prices on the US futures exchange. Gold prices hit a record high last week
• The Bank of Canada estimates that US tariffs of 25% on all trading partners, followed by subsequent retaliation, would reduce Canada’s GDP by nearly 2.5 percentage points compared to a no tariff scenario
• UK chancellor Rachel Reeves announced a range of government proposals to boost economic growth, including building homes and transport links in the Oxford-Cambridge growth corridor and backing a third runway at Heathrow Airport
• The UK’s population is expected to increase by five million between 2022 and 2032 to 72.5m, driven solely by net migration to the UK, according to official estimates
• The UK government is expected to ease restrictions on businesses’ use of surpluses in corporate defined-benefit pension schemes in a bid to boost investment
• UK house prices rose by 4.1% in the year to January, down from 4.7% in December, according to Nationwide
• UK car production decreased by 14% in 2024 compared with 2023, amid weaknesses in key global markets and a transformation of production lines to make electric vehicles
• The UK government is planning to subsidise electric vehicle purchases by guaranteeing consumer loans in a bid to boost uptake, the FT reports
• Initial estimates suggest that euro area growth stagnated in the fourth quarter last year, leading to an annual growth rate across 2024 of 0.7%
• The European Central Bank cut interest rates by 0.25% to 2.75%, the lowest level since February 2023, warning that the euro area economy still faces “headwinds”
• The euro area unemployment rate increased marginally to 6.3% in December
• Germany continues to import up to 9% of its gas supply from Russia via other EU countries, despite not receiving direct gas supplies, according to a report by Belgian, German and Ukrainian think tanks and non-government organisations
• China’s manufacturing activity unexpectedly declined for the first time in five months in January, according to surveys of purchasing managers

Business

• Household water bills are expected to increase by an average of 26% across England and Wales this year, with the additional revenue used to fund £20bn of infrastructure investment, according to analysis by lobby group Water UK
• Telecommunications company Vodafone announced it has made the UK’s first satellite-enabled video call using technology that could soon be used to provide service in areas currently without mobile phone signal
• Amazon announced plans to begin delivering goods via drone to customers in the UK town of Darlington, subject to approval from the Civil Aviation Authority
• Lloyds Banking Group announced it will close 136 UK high street branches by March 2026 as part of cost-cutting and digitalisation plans
• HSBC announced plans to scale back investment banking operations in the UK, Europe and North America as part of its global restructuring plan
• UK supermarket Tesco announced 400 jobs cuts due to increasing industry competition, while Morrisons announced plans to accelerate its cost-savings programme in part due to the upcoming increase in employer National Insurance Contributions
• Pharmaceutical manufacturer AstraZeneca cancelled its plan to build a £450m vaccine manufacturing plant in Liverpool
• The new chair of the Competition and Markets Authority, Doug Gurr, said the regulator will make investigations “as simple and rapid as possible” to encourage investment 
• Spanish shipbuilder Navantia, owners of UK shipbuilder Harland and Wolff, announced plans to invest £100m–£200m in the UK company, triple its workforce and deliver three support vessels for the Royal Navy
• Aerospace manufacturer Boeing reported an annual loss of $11.8bn in 2024, the second largest in its history, amid production issues and industrial action
• The Chinese subsidiary of car manufacturer Tesla filed a lawsuit against the EU over tariffs on electric vehicles imported from China

Global and political developments

• President Trump has signed over 40 executive orders so far, including asking the defence secretary Pete Hegseth to submit proposals for a US “iron dome” missile defence shield
• The US paused the imposition of 25% tariffs on imports from Colombia after the country’s president Gustavo Petro allowed US military flights carrying deported migrants to enter the country 
• A report by the US Central Intelligence Agency concluded with “low confidence” that the likely source of the COVID-19 virus was the Wuhan Institute of Virology lab in China
• An underwater data cable in the Baltic Sea that connects Latvia and Sweden was significantly damaged
• A commercial plane carrying 67 passengers collided with a US military helicopter near Washington. Rescuers believe there are no survivors

And finally… scientists in the US attached QR codes to thousands of honey bees as part of a study to provide unprecedented insight and understanding into how far they travel to collect food – hive-tech analysis