A high degree of uncertainty, resilient fossil fuel markets adapting to changing conditions, energy consumption going up in AI and data centers, and China taking a lead in clean energy technology are some of the key findings of S&P Global Commodity Insights’ 2025 Energy Outlook.
The recently released report also touched on increased refocus on the nuclear energy sector.
RE and China
China’s position as a leader in renewable energy is not new, as it is the largest producer and consumer of electric vehicles (EVs), batteries, solar panels, wind turbines, and green hydrogen electrolyzers.
While the deployment of clean energy technology continues to accelerate in China, the deployment of clean technologies is facing considerable headwinds in the West. This S&P attributes to, “not least pledges from US President-elect Trump to roll back subsidy provisions in the IRA and already-reduced subsidies in parts of Europe.”
The bankruptcy of Northvolt is the latest example of a Western cleantech company unable to compete with low-cost Chinese equipment. In both the US and Europe, policymakers are utilizing tariffs on Chinese clean technologies, particularly EVs, to protect domestic industries. Limiting access to price-competitive Chinese-made clean technology equipment increases the risks that the US and Europe will fall farther behind China and slow emissions reduction progress.
Meanwhile, China is leveraging its cleantech industry to reduce its fossil fuel demand. As its EV sales penetration is pushing above 50% in light-duty vehicles sold, S&P Global Commodity Insights projects that China’s oil demand for passenger vehicles will begin to decline in 2025.
The country’s EV exports are helping countries electrify transport, particularly countries that are net oil importers and have no sizeable domestic vehicle brands.
Outside of Southeast Asia, Brazil has already become one of the top importers of Chinese EVs. Two major Chinese EV producers, BYD and Great Wall, have made significant investments in EV manufacturing in Brazil.
Additionally, China’s rapid growth of renewable generation is limiting growth of domestic coal and natural gas demand. It exports 200+ GW solar panels annually. 2025 likely will be highlighted by an even greater degree of polarization of clean technology between China and the West.
Dave Ernsberger, Co-President, S&P Global Commodity Insights, said: “There are emerging technological and fundamental trends that will clearly have an impact on markets over the coming year, although how significant their impact will be is uncertain.”
Rapid growth of artificial intelligence is accelerating power demand for data centers, although the timing, tenor, and location of the resulting incremental demand are somewhat difficult to predict. The potential boom in electricity demand has already revived interest in nuclear power, but despite the backing from big technology firms, it is uncertain whether a nuclear renaissance will occur.
Mark Eramo, Co-President, S&P Global Commodity Insights, said: “Fossil fuel prices in 2025 will be shaped by how markets adjust to growing supply and generally soft demand growth.”
Gap in clean energy supply and energy demand to push emissions higher
The primary challenge of the energy transition is
- Developing enough clean energy supply to meet overall energy demand
- Inadequate capacity addition to displace existing fossil fuel demand
- Unable to reverse growth in energy-related carbon emissions because of the shortfall
Total primary energy demand has been growing above trend since the pandemic, and growth will remain robust in 2025. Between 2000-2019, primary energy demand increased on average by 5.4 million barrels of oil equivalent per day (boe/d). S&P Global Commodity Insights projects that primary energy demand will increase by approximately nine million boe/d in 2024 and will grow by more than eight million boe/d in 2025.
The supply of clean energy is growing faster than it ever has in history (over five million boe/d), but not fast enough to curtail the growth in fossil fuel demand. As a result, demand for fossil fuels is expected to increase by more than three million boe/d in 2025, and CO2 emissions associated with fossil fuel combustion will reach a new record high.
AI and data centers to spike power consumption
Widening adoption of AI and an expanding fleet of data centers are expected to alter the trajectory of global power demand. S&P expects that power demand for data centers will grow between 10-15% per year between now and 2030. And that data centers could account for up to 5% of total global power demand by 2030.
Next page: Nuclear energy gaining ground
Nuclear Energy Making a Comeback?
As per the report, nuclear energy has been showing signs of gaining traction, especially in North America. The technology is reliable, stable, and carbon-free. It is increasingly being looked at as an option as companies try to decarbonize their portfolios. Microsoft, Google, and Amazon all signed nuclear power purchase agreements in 2024 totaling more than three gigawatts (GW). Restarting previously retired large-scale reactors has gained traction, with Holtec International aiming to restart the Palisades nuclear plant (Michigan, USA) sometime in 2025 and Constellation working to restart their Three Mile Island plant (Pennsylvania, USA), with the latter supported by Microsoft in the PPA.
The year 2024 also marked the first new large-scale nuclear plant commissioned in North America since the mid-1990s with the Vogtle plant in Georgia. However, many point to the cost of more than $36 billion for the two new units (more than double the projected cost) as an indication that nuclear power remains an outsider in terms of new capacity additions in North America. Although China continues to grow nuclear capacity significantly.
This interest from the technology companies has geared toward the development of small modular reactors (SMRs). While this technology is still fairly nascent, the level of interest and development of SMRs in 2025 will be a key indicator of the potential magnitude of a nuclear renaissance. Key projects to monitor in 2025 are the Linglong-1 power plant in Hainan, China, which would be the first commercial onshore SMR to go online (schedule for 2026), and the X-energy SMR project at Dow Chemical’s Seadrift petrochemical manufacturing site, which would provide both power and heat for the facility. Success at this facility would represent a significant milestone in the efforts to decarbonize downstream chemical operations.
Will coal consumption start to decline in 2025?
Maybe, but probably not, says the report. Despite renewables installations consistently hitting new record levels, global coal demand has continued to grow, hitting new records in both 2023 and 2024. Even in China, where wind and solar installations have been ~300 GW in both 2023 and 2024, coal-fired generation has hit new record highs in both years.
In 2025, S&P expects Chinese renewable installations to slip a bit, yet remain well above 250 GW. And the coal-fired generation will once again be higher year on year and hit a new record.
In several other developing economies, coal demand will continue to move higher in 2025, but most notably in India, where the growth in renewables supply is dwarfed by growth in electricity demand.
Despite over a decade of consistent declines, coal demand in the US is expected to rebound significantly in 2025. Heightened US LNG exports will pull on domestic natural gas supply and push prices higher, which should spur some gas-to-coal switching.
As China represents nearly 60% of global coal consumption, if coal demand in China grows again, demand in developing nations remains on its upward trajectory. And if demand in the US temporarily rebounds, it is highly likely that global coal demand will once again paint a new record higher, even if demand in Europe and other developed economies contracts in 2025.
