Six energy themes for 2025
Spending on renewable energy infrastructure will continue to boom and the oil price is likely to remain subdued.
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 be 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.
A personal view from Ian Stewart, Deloitte's Chief Economist in the UK. To subscribe and/or view previous editions just google 'Deloitte Monday Briefing'.