At the start of each year, we ask experts from our Climate team which trends they’re most excited about for the year ahead. In 2025, the themes are clear: data centers driving decarbonization, a surge in mergers and acquisitions, the evolving role of the Inflation Reduction Act, and significant growth for Virtual Power Plants (VPPs).
Here are some of the biggest trends in climate heading into the new year and beyond.
1. Data centers and their customers will be the leading voices encouraging utilities to decarbonize in 2025
Over the past few years, utilities have faced increasing pressure to both mitigate and adapt to climate change. Advocates include the general public, government entities, and a myriad of industries, all calling for reduced emissions and improved resilience through the adoption of clean energy technologies and improved transmission infrastructure. However, in 2025, we will see the voice of hyperscale data center operators rise above all others in being the driving force behind meaningful clean energy deployment and grid reinforcement.
In fact, data centers may account for 30-40 percent of all net new energy demand between 2024 and 2030. The hyperscaler data centers driving this growth are racing to meet the needs of major data-producing companies such as Amazon, Google, Meta, and Microsoft. These tech companies also have ambitious net-zero targets, and are demanding that their data center energy is coming from low-emission sources.
This demand will not only drive the transition to cleaner energy but also necessitate significant upgrades to the grid to ensure reliability. In 2024, we saw what these changes may look like, with the embrace of nuclear power co-located alongside data centers being one of the most significant developments. With the power and data demands of AI showing no signs of slowing down, we can expect a rapid uptick in new solar, wind, and nuclear projects in 2025.
By: Carlos Villacis, Vice President, Climate
2. Virtual Power Plants are gaining traction to fill the gaps in our power grid
Virtual Power Plants (VPPs) have emerged as a critical solution to address the vulnerabilities in the U.S. power grid, which struggles with aging infrastructure and increased strain from extreme weather events. In 2024 alone, 24 climate disasters caused $1 billion in losses each, underscoring the urgent need for grid modernization. The Los Angeles wildfires are poised to be some of the most expensive in U.S. history, with projected losses exceeding $135 billion, according to BBC News.
Last year also showed us that challenges remain in scaling VPPs, including wholesale market participation, metering, and unfavorable state and federal regulations even with the Federal Energy Commission’s (FERC) Order 2022 in place to allow DERs to operate in markets run by regional transmission operators. Nevertheless, all predictions point to VPP market growth and expansion in 2025. The Department of Energy (DOE) estimates current VPP capacity in the U.S. to be at 30 to 60 GW with adoption on track to increase capacity to 80 – 160 GW by 2030. To support this growth, incentives for VPP participation and mandates for utilities to source energy from VPPs will be key, with state-level initiatives further accelerating adoption.
By: Jacquie Kane, Vice President, Climate
3. The climate ecosystem will see a wave of mergers and acquisitions
The climate tech ecosystem will experience a surge in mergers and acquisitions, driven by the contraction in venture capital markets, widening finance gaps between growth rounds, and growing corporate interest in scaling proven climate technologies.
Last year, higher borrowing costs and uncertain economic conditions took their toll on climate tech investing globally. PwC reported that climate tech financing dropped 29% during the Q4 2023 – Q3 2024 period, compared to the prior year. As funding becomes increasingly scarce, especially for companies in the later stages of growth, the “finance gap” widens, leaving many companies unable to raise the capital needed to scale. This challenging funding environment is likely to trigger a wave of shutdowns among weaker players, paving the way for the most viable companies to survive and thrive.
At the same time, we’re seeing a growing number of major corporations use acquisitions as a means to reach their ambitious sustainability goals. Some notable examples from 2024 that highlight this growing trend: IBM acquired Prescinto to expand its energy and utilities expertise; Generac strengthened its microgrid and energy storage offerings by acquiring Ageto; and Kraken enhanced its ability to streamline heat pump and geothermal installations through the acquisition of Kwest.
Together, these factors will create an environment in which M&A is not only a strategic move but a necessary one to accelerate innovation and decarbonization.
By: Reed Haeckel, Senior Director, Brand Strategy & Growth
4. The IRA may evolve, but is here to stay
Huge investments and green job growth in red states and districts, a thin congressional majority, and a long list of bigger policy priorities make fighting to curtail the IRA a losing proposition for the new administration. Indeed, 18 Republican Congresspeople already asked Speaker Johnson to preserve key elements of the IRA.
That said, President-Elect Trump has an opportunity to align the IRA with his policy objectives while achieving bipartisan support. He could push to expedite permitting and cut reviews of IRA-backed projects. He could leverage the IRA to grow U.S. manufacturing capacity. He could promote blue-collar job training to provide the electricians, welders, and skilled tradespeople the sustainability industry (and the economy at large) needs. If we frame our industry’s priorities as critical to economic growth, we could find the White House ready to help achieve our policy objectives.
By: Neal Urwitz, Senior Vice President & Kimberly Setliff Barnes, Chief of Staff