Crunch Time: Renewables Market Predictions for 2025

We're nearly halfway through the decade, and the various 2030 renewables targets set by energy transition leaders over the past few years are starting to loom rather dramatically on the horizon. The next five years will be crunch time; a critical period that will define how far we get towards these goals.
 
And yet, predicting how 2025 will shape up for renewables is no easy task. This year has seen significant governmental changes take place (or about to take place) either side of the Atlantic, with loud plans to alter energy policy; we’ve also faced another year of high severity extreme weather events; meanwhile, technological innovation in energy infrastructure has continued at pace.

What has been clear from the start of this decade however, is that the pace and scale of renewables growth is only moving in one direction. Up. So, as we prepare to ring in the New Year, here are a few key global trends that we expect to be most influential for the renewables sector in 2025 - and that will be keeping its insurers awake at night.
 
1. Demand for cheap power and domestic industry will be more decisive for US renewables than the Trump Factor
 
The return of Donald Trump to the White House armed with a plan to scrap offshore wind on ‘day one’ and with a mantra to ‘drill, baby, drill’ will do little to stir the enthusiasm of US renewables developers and investors. It remains to be seen how much of the IRA Trump will look to dismantle and whether those efforts will prove to be effective.
 
Even so, there are three good reasons to believe that this noise will not hamper development as much as might be feared:
 
1)     The America-first approach Trump favours will not exclude but rather depend on the renewables sector – which has already established itself as one of the nation’s leading drivers of employment and domestic industrial growth.
 
2)   The US needs to generate more power and achieve this as quickly as possible. There is a body of evidence in the US to demonstrate that this is best achieved with renewable energy projects that are faster and cheaper to develop at scale.
 
3)   So long as interest rates stabilise, or even drop, there will be no lack of investment flowing into the development of renewables projects.
 
2. Solar development will outstrip wind in the US
 
The asset class that stands to be most tested by Trump’s return is offshore wind. It is worth pointing out however, that regardless of political pressure, US offshore wind has become increasingly challenging for developers in response to the shortage of necessary vessels and the rising capex cost involved.
 
Until signs emerge that offshore wind development in the US can be a more economically viable proposition, solar projects will carry on offering the most desirable opportunities for renewables developers. The appetite for US solar is vast. In fact, there is a fair argument to say that this space is oversubscribed because…
 
3. Lenders will continue revising their coverage requirements in response to consecutive years of Nat Cat losses
 
The combination of consecutive years of Nat Cat incidents and the rapid development of solar projects in higher-risk areas, like Nebraska, Texas, the UAE and Saudi Arabia, has prompted lenders to scrutinise the levels of insurance coverage more carefully before approving financing.
 
With developers eager to expand solar capacity and low-risk locations becoming scarce, site selection has occasionally involved risky decisions. This has left larger, more vulnerable projects exposed to extreme weather. As a result, insurers are now imposing stricter insurance requirements on solar projects which is focusing the hand of lenders to share in more risk.
 
While this shift may eventually lead to the adoption of more sophisticated insurance strategies, the short-term effects have been challenging, with insurers and lenders finding it difficult to agree on the right levels of coverage. In some cases, stricter terms and conditions have pushed developers to scrap their projects altogether due to the unviable costs of acquiring coverage.
 
4. The insurance market will need to take more calculated risks to best support the energy transition
 
The shift in Nat Cat coverage is a good example of how insurance risk calculation directly impacts the progress of the energy transition. Not enough caution – as with solar projects in perilous locations in Texas – can ultimately lead to prohibitive insurance pricing. Too much caution can hold up the pace we need to move at to meet those 2030 targets.
 
The insurance market can do more to support the energy transition, but ‘more’ must not mean that insurers continue to underwrite the R&D for others or guarantee the output of a prototypical piece of equipment. Instead, doing ‘more’ will involve backing up appetite for renewables projects with a clearer understanding of, and commitment to, the risk involved – especially for nascent technologies – to cultivate a sustainable long-term insurance environment.
 
5. BESS project pipelines will continue to boom globally
 
The booming market for Battery Energy Storage Systems (BESS) highlights the benefits of thorough insurance risk calculation. When we first entered the space over a decade ago, we encountered significant claims. We had to patiently learn from these experiences and from increased data to now be at the point where BESS is a much more mainstream and financially stable industry to insure.
 
That the global pipeline of BESS projects will continue to expand is a simple prediction based on its recent progress. But what is interesting are the key factors driving this demand. In the US, BESS projects will be critical in stabilising the ageing grid and will be essential supporting infrastructure for the uptick in datacentre construction. Handling grid headaches will be a massive driver for BESS growth around the world, whether that be in the UK to manage increasing electricity demand; in South Africa to mitigate the challenge of load shedding; or in Australia to capitalise on high irradiance and build out grid resilience in more far-flung locations.
 
6. European OEMs will have to work on product quality and reliability to fend off Chinese competition
 
In the past few years, European OEMs have had to raise their prices and contract the scope of their warranty to ensure that they cut their cloth. This year’s more rosy financial outlook for Europe’s wind majors shows the value of the corrections that they made. Their Chinese competitors, however, have started to catch up.
 
To stay competitive, European manufacturers will benefit most from focusing their efforts on doubling down on product quality and reliability – the main priority for investors making decisions over which models to use for their projects. More important than matching rival turbines for size will be outperforming rival turbines on lifetime efficiency.
 
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Despite the uncertainty we all have moving into 2025, there are some factors that give us cause for ongoing optimism. The increasingly enthusiastic global appetite for renewables development is showing no signs of going away. And with 2030 deadlines looming, we expect the next five years to be among the most productive our industry has ever seen.
 
We look forward to supporting you all in 2025 and beyond! In the meantime, on behalf of the entire team at GCube, I wish you all the best for the festive season.
 
Fraser