Clean energy trends to watch in 2025

The clean energy sector is going through a period of considerable transformation. Much of 2024 was dominated by discussions around the impacts of the grid connection reform, including how this would work alongside other flagship initiatives, such as the Review of Electricity Market Arrangements ("REMA").

Along with wider geopolitical instability, this has resulted in reduced levels of fundraising for renewable energy and, in the UK, fewer and slower transactions as developers and investors alike have consolidated their portfolios and sought to get projects progressed. In 2025, the sector will continue to see the impact of these reforms as further details emerge.

In this article our energy experts highlight some of the key trends for the energy sector in 2025 as identified through discussions with various clients and shareholders.

Technology mix

The Clean Power 2030 Action Plan anticipates that the UK will need a mix of different clean energy technologies to achieve clean power by 2030. The plan specifically states that "a Clean Power system will require mass deployment of offshore wind, onshore wind and solar"; these are mentioned alongside pumped hydro storage, long-duration storage and first-of a kind low carbon technologies such as hydrogen to power. Battery Energy Storage Systems ('BESS') still have a role to play in this plan, albeit a limited one and only for the first phase of clean energy deployment (between now and 2030), as shown in the 'Clean Power 2030 Action Plan: Connections reform annex'.

For developers that have focussed on BESS or co-located solar and BESS (particularly at larger scales) for the past three to four years, the news has been less than welcome. Projects that are sufficiently advanced will benefit from the protections introduced under NESO's proposals, but it is worth noting that the extent and nature of protection afforded to such projects depends on the 'Protection Clause' that a developer is looking to rely on. As such care needs to be taken when assessing a BESS project pipeline against the potential protections. Where co-location has been pursued, each element is treated separately and there is a real prospect of one element being able to progress where the other cannot – this will no doubt put pressure on capex costs and call many such projects into question. Additionally, industry analysis has shown that there are enough protected BESS projects to provide the entirety of the BESS capacity set out in the Clean Power 2030 Action Plan, so un-protected BESS projects are likely to be the most negatively affected by the reforms.

Compressed timelines, funding challenges and bringing projects to fruition

Under NESO's proposals, projects that are able to demonstrate that they can connect earlier than the connection date that is included in their current grid connection offer, are able to request 'Acceleration'. We anticipate that NESO will see a large number of projects seeking to bring their timeline forward to pre-2030. Depending on the scale of the projects, the availability of workforce and material needed to construct these projects, we anticipate that construction timeframes will be compressed, which, combined with the limited availability of contractors to take on such projects, is likely to push EPC prices up. We expect that there will also be resourcing pressures at TSO and DSO level as these entities deal with queue management and then adjustments to those projects that do progress.

Additionally, NESO's latest CUSC Modification proposal (CMP448) intended to introduce a 'Progression Commitment Fee' that will apply to projects that do not progress from a Gate 2 Offer to Queue Management Milestone 1), is likely to introduce further funding challenges for certain clean energy developers (although the new fee will not apply to projects from day one, and will only be implemented once a system-wide 'trigger' has been met).. The proposal is currently under consideration, but we would anticipate that it is likely to be adopted, as NESO has been signalling for a while that a financial instrument would be required to further enhance its ability to prioritise those projects that can serve the Government's clean power ambitions. For more information on the detail of the proposal, please see our previous article.

Investors

Despite regulatory uncertainty and challenging market conditions, there is still an appetite for investment in renewables, particularly in technologies such as solar and onshore wind that have a strong track record of being a cost-effective solution to rising demand for low-carbon power. That said, the investment opportunities being pursued are beginning to change, with investors looking to take positions that come with some of the benefits of development risk, investing into established development teams and platforms. We are also seeing diversified portfolios beginning to emerge, with a mix of technologies and a project spread across the UK and Europe (particularly in Poland, where the market appears very buoyant), and also more instances where operating assets and development assets are packaged together. Infrastructure investors are also looking at investment through a 'long-term' lens, adopting asset-holding strategies, such that returns can materialise across a period of 10 years or more.

In 2025 we expect to see continued investment in either pipeline of projects with a diverse technology mix (solar, onshore wind, BESS and e-mobility), or a blend of operating and development assets, in businesses that are able to bring such pipelines to fruition and thereafter operate the assets, as well as businesses that bring new products to the market, such as sustainable aviation, shipping fuel products or agri-voltaics.

In this context it is important to recognise that the availability of capital comes with increased scrutiny, particularly where investors have been stung by the changing regulatory landscape impacting their pipelines. In 2025 investors will be placing even more emphasis on the manner in which project assumptions are built, considering whether developers have completed a robust risk analysis over the key phases of development (capturing pricing, construction and regulatory risk) and the level of ambition shown. In this context, tempering ambition and focussing on the deliverability of a strong asset pipeline is key to building a long-term relationship between investors and developers that allows both parties to take advantage of the opportunities in the sector whilst mitigating risk.

Management of assets and risks

Alongside the rate of asset deployment, management of existing assets is key to realising value. When it comes to asset management, investors are looking at companies that can provide additional 'value'. This could come through the manner in which assets are operated, for instance; do they incorporate asset monitoring technologies that can predict the level of preventative maintenance required prior to such need arising? Are there opportunities to monetise additional revenue streams, such as offering Biodiversity Net Gain units? In this context, the existence of a framework agreement between the asset owner and the provider of services could create economies of scale and increase the rate of learning across the portfolio of assets, which could ultimately benefit investors. Expect investors to be driving these kinds of conversations.

Hybrid power-purchase agreements ("PPAs") and the changing landscape of PPAs

Europe, particularly countries in the Nordics, have seen a rise in hybrid PPAs and this trend is expected to continue in 2025. This is largely driven by the desire of investors to finance multi-technology projects. Curtailment of production as a result of negative pricing has also been a contributing factor as well as the fact that energy buyers are becoming increasingly sophisticated and are looking at solutions that incorporate multiple technologies.

In the UK the first hybrid PPA was concluded in 2023 with the support of Pexapark for a combined solar pv and BESS system and provides for the sale of electricity and optimisation services across a 10 year period. Otherwise, hybrid PPAs have not been as common in the UK market.

Hybrid PPAs aside, the PPA market in 2025 is changing. With the Contract of Difference ("CfD") auctions taking place on a yearly basis, the window for corporate off-takers to secure a PPA in 2025 is becoming narrower. Additionally, corporate off-takers are placing an increasing emphasis on the supply chain involved in the clean energy project, the provenance of the materials and the practices employed by the generator/developer and those involved in their supply chain.  

2025 is promising to be an exciting transitional year for the energy market, with the key trends highlighted above coming to 'life' over the next five years as the new regulatory regime settles into place. There is still considerable space for investment and growth in the energy space and an opportunity for developers to diversify their offering in the market.

If you would like to discuss any of the issues identified in this article, please get in touch with our team of experts below.