Key energy issues: 2025 in review and the 2026 outlook
The global energy landscape in 2025 has been characterised by surging electricity demand, rapid renewable expansion, and mounting pressures on aging infrastructure.
As we look toward 2026, the sector faces a pivotal moment where energy security, affordability, and decarbonisation must be balanced against geopolitical tensions and unprecedented technological change.
To close out 2025, here’s an overview of the most pressing energy issues emerging for 2026 and beyond, with particular attention to Australia’s unique position in this global transition.
1. Growing electricity demand
Electricity demand surged by 4.3% globally in 2024, the largest absolute increase ever recorded (outside of recession recovery years). That rate of increase eased in 2025, estimated by the International Energy Agency to be around 3.3%. The IEA projects global electricity demand to rise by 3.7% in 2026.
The key drivers include:
- Electric vehicle adoption
- Manufacturing sector expansion
- Data centres and artificial intelligence computing
- Increased air conditioning use due to extreme heat
Data centre investment was projected to reach $580 billion in 2025, surpassing the $540 billion being spent on global oil supply.
The electricity consumed by data centres is projected to triple by 2035, though this represents less than 10% of total global demand growth, it’s highly concentrated geographically in the US, China, and the EU.
Australia has experienced similar pressures on its electricity system. Currently, 43% of Australia’s power comes from renewable sources such as wind, solar, and hydro, up from 30-35% in 2023. However, the pace of transition remains insufficient to meet the government’s 82% renewable energy target by 2030.
The draft 2026 Integrated System Plan (ISP) indicates that Australia needs to deliver at least four times more capacity of large-scale solar and wind than currently being installed annually. The pressure is compounded by Australia’s aging coal fleet, with more than 90% of coal-fired power stations due to retire within the next decade.
2. Infrastructure constraints and grid modernisation
A pivotal issue for electricity security is the speed at which new grids, storage, and other sources of power system flexibility are put in place. The mismatch between rapidly growing electricity demand and aging infrastructure has become a critical bottleneck globally.
Blackouts in Chile and the Iberian Peninsula in 2025 underscore the economic and social costs of inadequate grid capacity.
Investment in electricity supply and end-use electrification already accounts for half of global energy investment, reflecting the sector’s central role in the energy transition. However, a surging demand for electrification is colliding with aged infrastructure, while the rapid adoption of artificial intelligence is adding unprecedented pressure on energy systems.
Australia faces particularly acute grid challenges. AEMO’s Transmission Cost database, updated in 2025, shows an increase in the range of 25-55% in real costs for overhead transmission line projects compared to 2024 estimates. These cost escalations stem from global supply chain issues and workforce shortages.
3. The progress of renewable energy deployment
Renewables accounted for 38% of the growth in total energy supply in 2024, the largest share among all energy sources, followed by natural gas at 28%. Solar PV capacity expansion broke records, and nearly all increases in electricity demand were met by low-emissions sources.
However, in 2025, wind and solar investments fell. Policy changes, including the rollback of clean energy tax credits in the US, created uncertainty.
Lengthy permitting and interconnection processes have been among the biggest bottlenecks to faster renewables growth globally.
While data for the calendar year is incomplete, Australia’s investment in renewable energy projects appears to have been on the rise. Q1 2025 saw $3.6 billion in funding, representing a 56% increase from the previous year.
The Clean Energy Finance Corporation invested a record $2.3 billion in renewable energy projects and grid infrastructure during the 2024-25 financial year, a 2.5-fold increase from the previous year. The CEFC also committed $3.5 billion to renewable energy projects and grid infrastructure.
Overall, 82 renewable energy projects are either currently being built or have been confirmed, which will add 12,544 MW of capacity.
However, it’s estimated that Australia needs an additional 43,000 workers by 2030 in critical roles such as engineers, electricians, and project managers.
4. Energy storage and dispatchable power
Battery storage has emerged as the fastest bridge to 24/7 clean power, while clean baseload options like nuclear, enhanced geothermal, and natural gas with carbon capture take years to develop. By October 2025, US operating storage capacity reached 37.4 GW, up 32% year to date.
Hyperscalers driving unprecedented demand for firm, low-carbon power have made storage integration a top priority. The United States hosts 90% of hyperscalers’ global carbon-free energy contracts, with renewables supplying 78% and nuclear providing the rest.
The Australian government introduced the Cheaper Home Batteries Program in July 2025, expanding the Small-scale Renewable Energy Scheme to accelerate household battery uptake. Due to high demand, the government has just announced that the Program will be expanded by $5 billion to a total rebate pool of around $7.2 billion over four years.
The Capacity Investment Scheme was also expanded from 32 GW to 40 GW in 2025, comprising 23 GW of renewable generation capacity and 14 GW of clean dispatchable electricity.
5. Critical minerals and supply chain security
Critical minerals have become central to energy security discussions in 2025.
China is the dominant refiner for 19 of 20 strategic minerals analysed, holding an average market share of around 70%. A sustained supply shock for battery metals could increase global average battery pack prices by 40-50%. This vulnerability has prompted policy responses worldwide, with the US adding copper, silver, and potash to its critical minerals list in 2025.
In October 2025, the US inked a deal with Australia for both countries to invest $3 billion in critical minerals projects by mid-2026.
Australia possesses over 40 minerals identified as critical by the US Geological Survey, positioning it as a key partner in diversifying global supply chains away from Chinese dominance.
However, Australia faces its own challenges. The market for green hydrogen and ammonia has contracted sharply, both in Australia and globally, in response to challenging project and market economics. Several flagship Australian hydrogen projects, including the $14 billion Central Queensland Hydrogen Project, were cancelled in 2025.
Australia’s strength lies in mining, but developing processing capabilities remains a challenge. The country’s abundant lithium, rare earths, and other critical mineral resources could support domestic manufacturing of batteries and clean energy technologies, but significant investment in processing infrastructure would be needed.
6. Fossil fuel transition and natural gas dynamics
Global oil demand growth slowed markedly in 2024, with oil’s share of total energy demand falling below 30% for the first time ever, 50 years after peaking at 46%. Oil demand from global road transport fell slightly, driven by declines in China and advanced economies, though aviation and petrochemical demand grew.
Final investment decisions for new LNG projects have surged in 2025, with an unprecedented 300 billion cubic meters of new annual LNG export capacity scheduled to start operation by 2030, a 50% increase in available global LNG supply. Around half is being built in the United States, with a further 20% in Qatar.
LNG exports accounted for 83% of Australia’s gas output in the first half of 2025, though exports declined over the last year. Domestic gas demand continues to fall in both Western Australia and the eastern states.
Federally, the Labor Government announced an interim 2035 target of 62-70% emissions reduction below 2005 levels, while the Coalition parties announced they would drop Australia’s net zero by 2050 target and would not introduce interim targets.
7. Policy uncertainty and political dynamics
Energy policy in 2026 prioritises execution over ambition, with less focus on headline-grabbing net-zero declarations and more on whether grids, factories, and ports actually get built on time.
Global greenhouse gas emissions reached record highs in 2025, further widening the gap between modelled scenarios and the pathway that could limit global temperature rise to 1.5°C above pre-industrial levels. Expected temperature change by 2100 has risen in all major scenarios by approximately 0.1°C compared to previous projections.
The 2025 Australian federal election saw Labor win in a landslide, with energy policy a critical divide between the major parties. The federal government’s commitment to renewables is backed by mechanisms like the Capacity Investment Scheme, which expanded from 32 GW to 40 GW in 2025.
However, state-level dynamics remain complex. Queensland’s new LNP government is extending coal plant lifespans to 2046 while also investing in renewables. Western Australia reaffirmed its commitment to closing coal plants by 2030.
The federal government’s energy bill subsidies, which provided $75 per quarter for all households and cost taxpayers almost $7 billion, expire this month and will not be extended. This will expose households to the full cost of energy, testing public support for the transition.
Looking forward to 2026 and beyond
The year 2026 will be defined by several critical themes:
1. AI and data centre energy demand: Balancing the energy needs of artificial intelligence with decarbonisation goals will require innovative solutions and unprecedented grid investment.
2. Grid and storage infrastructure: The pace of grid modernisation and energy storage deployment will determine whether countries can maintain reliability while transitioning to variable renewables.
3. Supply chain diversification: Reducing dependence on Chinese critical mineral processing through strategic partnerships and domestic development will be essential for energy security.
4. Pragmatic policy frameworks: Governments will focus on cost-competitive, bankable energy solutions rather than aspirational targets, with affordability, reliability, and emissions reduction forming the core energy policy triangle.
5. Trade and industrial policy: The energy transition will increasingly be shaped by industrial competition, with countries racing to build factories and secure supply chains rather than simply deploying generation capacity.
In 2026, the projects that move fastest will be those that combine resilience with a compelling local story: cleaner air, stable bills, and visible economic benefits.
Australia’s path forward
Australia faces a decisive decade. The country must:
1. Accelerate project approvals: Streamlining permitting processes, particularly in NSW, is essential to meeting deployment targets.
2. Address workforce shortages: Coordinated government and industry efforts are needed to train and attract the tens of thousands of workers required.
3. Invest in transmission: The cost increases for grid infrastructure are substantial, but delays will be even more expensive.
4. Leverage critical minerals advantage: The US-Australia partnership on critical minerals represents a significant economic and strategic opportunity that must be captured through downstream processing development.
5. Maintain policy certainty: Despite political divisions, consistent long-term policy frameworks are essential for investor confidence.
6. Balance transition costs: With energy bill subsidies ending, ensuring affordability during the transition will be critical for maintaining public support.
Australia has extraordinary clean energy potential, abundant critical minerals, and a stable investment environment. However, significant implementation challenges have to be overcome to turn our advantages into a successful energy transition.
The global energy landscape in 2026 will be characterised less by grand declarations and more by the hard work of building the infrastructure, supply chains, and workforce needed for a resilient, affordable, and cleaner energy system.