Smart Digital Reality

2025 will test the progress of the world’s energy transition and could forecast its direction for the next decade. 

With major economies pursuing budget cuts, it will be a year that challenges the economic viability of any publicly funded projects, with growing pressures to deliver faster and cheaper. For emerging technologies in particular, such as SMRs and green hydrogen, these cuts could lead to a chicken and egg problem: they must become cost-effective to attract funding but they need funding to achieve cost-efficiency. 

Governments will also seek new revenue sources to fund overdue investments, particularly in power grids. Expect new taxes, auctions, and privatizations of production and distribution companies —for example, in India. Lastly, they could be tempted to legislate their way into the energy transition, turning technologies for carbon capture and removal into big business. 

#1 Nuclear Will be Back in Fashion 

 Will 2025 finally mark the great comeback of nuclear energy? After years of stagnation in nuclear programs and media coverage focused on delays and cost overruns, enthusiasm for nuclear power is returning. 

 No case illustrates the trend better than Three Mile Island. The plant, the site of the worst nuclear accident in U.S. history, closed in 2019 due to competition from inexpensive shale gas. It is now planned to reopen in 2028 to supply Microsoft’s data centers. 

And the world is not only reviving the old but also building the new. Today, 65 reactors are under construction worldwide. While the majority is in China, several EMIA countries, including India, France, Turkey, Egypt and the UK, are also building multiple reactors.  

 These new projects will differ from those of nuclear energy’s earlier era by the technologies they integrate from the start. For instance, they will rely on large volumes of sensor data, federated by digital twins, to perform diagnoses and prognoses, deliver maintenance recommendations and achieve more autonomous operations. 

Another shift is that fewer of these projects should be backed exclusively by governments pursuing energy independence. Private firms, including Google and Amazon, are now committing resources to nuclear projects, particularly small modular reactors (SMRs). SMRs, with capacities of 300MW or less, are designed for quicker deployment and lower costs with the hope of avoiding the challenges that have plagued large-scale nuclear projects.  

However, with only a few SMRs in operation, doubts persist about their time-to-market and cost-effectiveness compared to other energy sources. To save time and resources, SMRs will need to adopt the methods and design tools honed by traditional nuclear plants, for example for piping design and pipe stress analysis. 

#2 Amid Cuts in Government Spending, Renewable Projects Will Need Faster Times to Profitability 

2025 should be more nuanced for Europe’s solar and wind sectors. Globally, renewable production capacity is projected to grow by an additional 250 GW and should overtake coal as the world’s largest source of electricity. However, the bulk of this new capacity will come from China.  

Growth will be more modest in Europe as renewable projects contend with high interest rates, lengthy permitting processes, supply chain bottlenecks and grid connection delays. The continent also experienced a record number of hours with negative electricity prices due to oversupply, raising concerns about the economic sustainability of the sector. This murkier outlook has made companies more cautious about the risks and “bankability” of new projects, with several offshore wind auctions finding no bidders, for example.  

In 2025, a drop in interest rates could inject liquidity into the market, but fiscal pressures may lead some European governments to cut subsidies and public programs. This could create uncertainty for investors, as seen in the Czech Republic, where investors have threatened to sue the government over its plan to cut subsidies. 

In this context, operators will prioritize investments and technologies that can get projects off the ground faster to secure quicker returns on investment. Technologies like digital twins that can connect projects with operations are expected to see growing adoption. The ability to leverage existing operational data for new projects will also be crucial, especially when it comes to modelling the impact of repowering projects —replacing older wind turbines or PV modules with newer and more efficient models. 

#3 The Power Grid Will Get Scrutiny as the Energy Transition’s Weakest Link 

In 2025, the greatest challenge to the energy transition will still come from the power grid, with bottlenecks delaying renewable energy projects just as electricity expands into sectors traditionally reliant on fossil fuels, such as heating and transport.  

In 2023, the International Energy Agency warned that 80 million kilometers of new or replacement grids would be needed by 2040—equivalent to rebuilding the current global grid. The IEA believes that annual investment in grids needs to double, which represents $600 billion by 2030. In the UK, National Grid plans to invest £30 billion over five years to upgrade its networks, but it has urged faster government action on planning reforms to meet 2030 targets. The country has already approved £4.3 billion for an “electricity superhighway” to connect Scottish windfarms to two million homes in England. 

In many countries, the challenge is significant at a time when the existing grid infrastructure and supply chains are already under strain to meet the growing electricity needs of data centers and electric vehicles, the dispersion of renewable projects and the challenges caused by climate change. Hitachi Energy, the world’s largest transformer producer, recently warned it was overwhelmed and unable to meet exploding demand, which could put renewable projects at risk. 

In 2025, grid operators are also placing great hopes on new technologies such as drones, AI-driven predictive maintenance and asset performance management tools to ease the burden. Already, one in four power employees reports using AI for tasks like monitoring, inspection and automated flows, with 86% believing it will positively impact their sector. However, AI will not eliminate the need for massive public and private investments. 

#4 Green Hydrogen Will Face a Moment of Reckoning 

Another energy source that should suffer from lower public funding and subsidies is green hydrogen. BP’s recent decision to abandon 18 early-stage hydrogen projects, while linked to the company’s strategic reset and financial needs, could also be the proverbial canary in the coal mine.  

Earlier this year, the European Court of Auditors warned that the EU’s targets for green hydrogen were out of reach and unrealistic, despite 18.8 billion Euros in public funding. 

This outlook should lead to several outcomes. First, it should cull the ranks, benefitting larger companies with a diversified range of uses for hydrogen, such as AirLiquide or Linde, and Middle-Eastern oil and gas companies. Governments could also broaden the notion of “low-carbon hydrogen” to include more cost-effective options, such as blue or grey hydrogen. Lastly, industry players should invest in technologies that help them make facilities more flexible, avoid downtime and drive costs down, such as IIoT, Machine Learning and Digital twins. 

#5 The Makeover of Conventional Plants Will Become Big Business 

 As renewable projects face crosswinds, retrofitting conventional power plants to lower their carbon footprint, for example, through carbon capture and storage (CCUS), will keep gaining momentum. At COP28, the planned phaseout of "unabated" fossil fuels left room for plants that capture and permanently store emissions to remain operational. The result is an abundance of new projects, with a total capacity that should more than double in the next two years. 

Beyond emissions mitigation, CCUS retrofits offer valuable flexibility for power networks increasingly reliant on variable renewable energy sources. Equipped plants can stabilize electricity grids by providing both short-term services, such as frequency regulation, and long-term solutions, like managing seasonal demand variations.  

In 2025, we expect governments to adopt policy decisions to mandate such technologies in conventional power plants and shape the market by expanding subsidies, tax credits and certification schemes. Such decisions will play a key role in strengthening an area where only a fraction of projects are fully funded. The UK, for example, has committed £22 billion in funding for CCUS projects.  

The private sector should also be driving the change. Notable 2024 deals, such as TotalEnergies’ acquisition of Talos, highlight growing investor interest. As several fossil fuel companies scale back on renewables, carbon capture and removal could provide a way to demonstrate environmental responsibility while staying closer to their historical business.