Rystad: low carbon markets to flourish but hydrogen faces reality check in 2025

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Battery and solar PV markets are likely to remain oversupplied, while regional biofuel markets show recovery potential as blending obligations take effect, according to Rystad Energy.

With several new ambitious climate plans emerging from the COP29 summit in Baku last year, the exponential growth scenarios for low-carbon energy is very much on the agenda this year, according to Rystad Energy. However, 2025 could be another reality check for hydrogen, renewables and cleantech, with shifting policies favoring fossil fuels, green energy stocks under pressure, and uncertainty about funding and subsidies, the consultant said in a recent 2025 outlook report.

Battery and solar PV markets are likely to remain oversupplied, while regional biofuel markets show recovery potential as blending obligations take effect, according to Artem Abramov, Head of Clean Tech Research at Rystad Energy.

The EU’s carbon market will take some big steps toward maturation with accelerated free allowance phaseouts and implementation of the Carbon Border Adjustment Mechanism (CBAM). This paves the way for final investment decisions on projects involving low-carbon hydrogen and carbon capture, utilization and storage (CCUS).

Despite headwinds, solar PV is set to grow by about 600 TWh in 2025, matching oil’s annual primary energy growth for the first time. Given solar's superior efficiency over crude oil, this represents two-to-three times more useful energy than oil. Falling capture prices remain a challenge, but record-low battery storage costs offer timely solutions.

Reality check for hydrogen with cancellations rising

However, the hydrogen sector is bracing for a downturn this year, according to Minh Khoi Le, Head of Hydrogen Research at Rystad Energy.

While some key FIDs were made in 2024, project cancellations have also been on the rise. Key auctions in Europe and Japan will support the progress of selected projects in 2025, but others will continue to face challenges and cancellations.

According to Rystad Energy, this year will provide more clarity on political support and commitment for hydrogen, especially with President Trump returning to the White House in the US and with elections looming in Germany – two major markets for clean hydrogen. “We expect a more pragmatic approach in the clean hydrogen sector, as the cost premium for renewable hydrogen and derivatives remains largely unchanged. Additionally, 2025 will see continued progress from China and India, as they advance their clean hydrogen and derivatives agendas,” Minh Khoi Le said.

A defining year for the global climate conversation

By February, countries must submit their “nationally determined contributions” (NDCs), outlining climate actions through 2035 aimed at limiting global warming. COP30, to be held in Belém, Brazil next November, will test whether these plans translate into measurable progress, especially amid challenges like political shifts, inflation and competing priorities, according to Lars Nitter Havro, Head of Energy Macro Research at Rystad Energy.

While $300 billion annually in climate finance by 2035 was pledged at COP29, this tally falls far short of the $1.3 trillion needed. Finalising rules for carbon trading under Article 6 will be key to boosting credibility and unlocking new markets. Tools like Amazon Bonds and embedding climate goals into economic planning will also be in focus. Set in the Amazon, COP30 will serve as both a progress report and a chance to align ambition with action, driving the energy transition, mobilising capital and the path to a sustainable future.

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