Our Energy Predictions for 2025

As we kick-off 2025, we start looking ahead and set out below our predictions for the year ahead across a number of different sub-sectors within the energy industry.

Renewables and decarbonisation technologies

Offshore and onshore wind

• The Global Wind Energy Council ten year outlook to early 2030s predicts that with the right frameworks in place, offshore wind capacity could reach 487GW by 2033 (up from 75GW). In this context, we predict particular growth in Europe and the UK, Australia, Asia and Latin America.
• While onshore wind has seen less growth in recent years (as compared to offshore wind), we predict renewed interest in onshore wind, as many governments across the globe continue to focus on developing a lower carbon and nationally secure energy mix and adopting policies that support that growth. In the UK context, the new Labour Government has recently taken steps to remove the de facto ban on new onshore wind development, which is expected to fuel renewed interest in onshore wind. A similar story can be seen in Australia, where the Australian Government's Capacity Investment Scheme is playing a role in accelerating investment in renewables, including established technologies such as onshore wind and solar.

Solar

• According to the IEA, solar PV alone is forecast to account for 80% of the growth in global renewable capacity between now and 2030. Much of this growth will be driven not just by the desire to decarbonise, but also the fact that solar PV, together with onshore wind, are the cheapest electricity generation technologies. Demand for agrivoltaics is likely to continue to grow, especially in continental Europe. Overcapacity in the manufacturing industry will continue to drive start-up prices down. Combined with the growth in electricity demand as a result of AI and EV markets expanding, solar can be expected to continue to grow through 2025.

Nuclear

• While renewable energy technologies become cheaper and more established, the intermittent nature of renewables means that nuclear will play a key role in supporting the energy mix in many jurisdictions across the globe. We can expect to see significant growth in the number of reactors becoming operational in China and India. In the UK, 2025 is forecast to be an important year for nuclear: the Sizewell C project is scheduled to reach financial close, and negotiations with the shortlisted bidders in the UK's Small Modular Reactor (SMR) programme will be taken forward.

Battery energy storage systems (BESS)

• We expect to see a continued increase in interest in BESS from developers, funds and lenders. Investors continue to view this technology as a growth market as well as a key means of reducing (or countering the impact of) energy demands on the transmission and distribution systems. We therefore predict an increased amount of investment into batteries (and energy storage more generally) globally throughout 2025.

Energy from Waste (EfW)

• With predicted continued global growth in municipal waste, there is significant potential for growth in EfW in energy-hungry markets such as Asia, exemplified in the strategic goal of Hanoi, Vietnam to recycle 80% of its household waste into power in 2025. The Asia-Pacific market is likely to be a major area of growth.
• Technological advancements and increased digitisation within the waste industry are likely to increase efficiency within the EfW sector. Digitisation technologies including Programmable Logic Controller and Supervisory Control Data Acquisition will further centralise control of projects for energy production. New technologies such as hydrothermal will continue to provide opportunity for growth in the market by speeding up the EfW process and increasing energy yields in comparison to geothermal conversion.
• A significant amount of activity in the EfW space over the next few years will come from owners/shareholders gearing up for the expansion of emissions trading schemes to cover EfW facilities (e.g. by 2028 in the UK). In order to future-proof the existing facilities across the UK, owners will increasingly be looking at how to fund carbon capture plants or, alternatively, considering a trading strategy and how to pass on additional costs to their waste/fuel suppliers.

Heat networks

• In Europe, where heat networks already play a key role in delivering heat, we will see a continuing trend in district heating becoming decarbonised, to meet the EU's decarbonisation targets. Investment will be needed to facilitate meeting those targets.
• The Asia-Pacific market will continue to develop its extensive utilisation of district heat networks.
• In the UK context, decarbonisation of the heat sector is a key part of the UK Government's strategy to achieve net zero. Significant regulatory changes are planned for 2025 to support the growth of the sector through (1) the introduction of "heat network zones" (which are designated geographic zones where heat networks are expected to be the lowest cost solution to decarbonise heat), plus (2) the introduction of a new regulatory regime (which will see heat networks being regulated by the regulator Ofgem, not unlike gas and electricity networks). We expect that the new legislation will unlock heat networks in the UK as a growing area for future investment – heat networks currently provide about 3% of total UK heat and the Government believes that heat networks could provide up to 20% of total UK heat by 2050.

Hydrogen

• 2024 has been a year of change in hydrogen. There is a much greater focus on specific, clearly economically viable projects with secure offtakes.
• 2025 will likely see the result of this increased focus leading to more consolidation in the sector as investors that see the role hydrogen can play in the energy transition look to acquire interests in those projects that have clear pathways to profitability.
• We also expect potential market participation by "complementary" players such as midstream and downstream infrastructure players (including shippers) and traders (of produced commodities) will increase in 2025 as hydrogen transport and storage projects develop to support the new hydrogen (again, where there is a clear path to economic sustainability).

Carbon capture and storage (CCS)

• 2025 is set to see continued growth in CCS across the globe. Positive government policies and funding for CCS projects across Europe will increase the viability of developing projects. In the UK context, the first commercial CCS project – the NEP project – reached financial close and was granted a licence under the new CCS regulatory framework. As CCS projects in the UK and other jurisdictions reach financial close, we predict increased confidence from investors in other geographies.
• We expect further development of regulation in the Asia-Pacific market to facilitate CCS development in 2025 and beyond.

Upstream oil and gas

Strategic growth and consolidations

• 2024 saw a multitude of announced or closed M&A transactions in the upstream and midstream oil and gas sector, driven by strategic plays by oil and gas companies during a period of relatively stable oil and gas prices, and more convergence on views on demand.
• In 2025, we expect to see sustained M&A and consolidation activity as companies continue seeking strategic acquisitions, divestments of non-core or legacy assets, and partnerships/combinations with others to maximise synergy realisation, investment growth and shareholder returns.
• In particular, companies buoyed by the level of M&A activity in 2024 will look to double down on prioritising investments with high yields, maintaining capital discipline, and all whilst seeking to maximise production and operational efficiencies and making strides towards adopting lower carbon technologies and processes. We also see that some E&P companies will focus their sights on gas as a transition and/or feedstock fuel for downstream infrastructure and customers.
• We expect to continue seeing companies exit non-core assets in 2025 as IOCs look to focus their attention on key growth markets. We are seeing many full or near-full country exits, particularly in West Africa and in the UK. This provides opportunities for those who see upside and longevity in these assets, particularly gas.

Diversification and continued commitment to decarbonisation

• To create more diversified portfolios and to balance objectives in the traditional fossil fuels sector versus achieving net zero and lower carbon footprint commitments, we also expect to see NOCs and sovereign wealth funds (particularly in the Middle East) utilising their profitable upstream oil and gas businesses to rapidly scale up investments in low carbon technologies, platforms and expertise, including harnessing the prospects of AI and other digital technologies. In addition, the oilfield services sector will continue to diversify, including through strategic M&A or buy-ins from global energy/trading companies, to capture the increasing opportunities in the low carbon technology and infrastructure space (particularly as it relates to carbon capture and storage (CCS) and hydrogen opportunities).

More contingent consideration in M&A

• While hydrocarbon prices have remained relatively stable in 2024 despite ongoing and increased geopolitical tensions and changes of government, in 2025 we expect that buyers and sellers will continue to bridge gaps in valuation expectations through contingent or deferred consideration structures and other similar structures forming key elements to M&A transactions.

Upstream financing continuing to evolve

• We expect to see more commercial banks, particularly in the Western world, who have been the "traditional" lenders of choice for oil and gas companies, shifting away from providing further financing to oil and gas businesses and M&A transactions.
• We expect to see in some parts of the world, particularly in Africa, a continued growth of alternative lenders (such as commodity traders, debt funds and private investors) stepping in to fill the gap left by the traditional commercial banks. Many of these alternative lenders have greater appetite and flexibility in providing finance for M&A transactions in the upstream oil and gas sector, particularly where they are a part of a syndicate of lenders or when they can strike a deal to obtain offtake from producing fields. All of this will continue to drive the evolution of upstream financing where we expect to see more multi-tiered financing structures, involving senior, mezzanine and junior lending and also quasi-equity structures. We also expect to see vendor financing featuring in M&A transactions where traditional lenders may not be willing to participate.

LNG

Role of LNG in the energy transition

• LNG makes up an important part of the current global energy mix and, as it provides a flexible and lower emissions alternative to traditional fossil fuels such as oil and coal, LNG is expected to continue to play a vital role in the energy transition. As a result, global LNG demand is expected to increase, with much of that demand growth concentrated in Asia. Core drivers of the demand growth in Asia are likely to be decarbonisation of industrial sectors through coal-to-gas switching, economic growth and declining domestic production. While LNG demand in Europe is expected to remain stable (and possibly decline), LNG is still expected to remain an important fuel in Europe's energy mix, driven by energy security concerns and the need to diversify energy sources and replace Russian gas volumes.

Increased focus on decarbonisation of LNG industry

We expect that efforts to decarbonise the LNG industry will continue to gather pace. This may be done through a multitude of methods, many of which are being actively explored or implemented by industry players (both at new or planned terminals or retrofitted at existing projects). The measures may include:

• integrating CCS technology into LNG projects to capture CO2 from upstream and liquefaction processes;
• using renewable energy or nuclear power to power LNG liquefaction operations;
• using carbon credits to offset the emissions associated with LNG liquefaction and transportation; and
• exploring the production of bio-LNG and synthetic LNG, which can be used in existing LNG infrastructure without the need for any modifications.