UK: An Introduction to Energy & Natural Resources: Power, Renewables & Alternative Energy

Set against an increasingly volatile political backdrop, both globally and regionally, 2024 was another year of dynamic growth for the energy sector, and this trend is set to continue through 2025. Ongoing conflicts, changes in political administrations in key jurisdictions and enduring socio-economic uncertainty present challenges to all stakeholders in the energy sector. Alongside the demonstrated resilience of the power, renewable and alternative energy segments, the climate change agenda, ESG pressures, technological advancement and electrification all serve as major drivers for growth.

The world of power, renewables and alternative energy is drawing on the skills of every legal practice area, as projects expand in size, solutions are delivered on a cross-border basis, transaction structures become more complex and technologies emerge and scale up. Aligned with this, regulatory regimes are having to develop at pace and cater for new means of generation, transmission, storage and end use. This is often done with reference to established markets, such as the UK, leaning on lessons learned, though in the context of the local specifics in any given market.

The energy sector is in transition, and transitions take time. The world will not stop utilising fossil fuel resources in the near or medium term. However, the falling costs of renewable and other sustainable technologies, the increased electrification of commercial and industrial processes and the advancement in storage (and capture) solutions are helping to move this transition forward at a faster pace than many thought possible.

Renewable energy remains a growth story globally, with the UK legal market a world center of excellence, leveraging (and increasingly exporting) decades of experience and know-how.

Solar is still the most deployed (and deployable) technology, and saw a steep growth curve in both developed and emerging market economies in the last 12 months. Its upward trajectory looks set to continue in 2025. Along with IPP development, the commercial and industrial sectors are increasingly adopting solar to deliver behind the meter, private wire or other power supply solutions, helping to meet decarbonization targets and gain greater control of their exposure to volatile market prices.

Onshore wind has not matched solar in terms of growth, but is also seeing a resurgence. The UK is not alone in encouraging deployment of onshore wind and looking at ways to streamline the development process. It is a sector that is mature, well understood and fully bankable. This also brings opportunities in the context of end-of-life extensions or full repowering solutions, notably on the older sites that were developed over 20 years ago, often with the best wind speeds.

Offshore wind is the solution for delivering renewable power at scale. Turbine size continues to increase, and the next generation of projects coming through in the more mature markets are pushing new boundaries in terms of size. Floating offshore wind will see a “coming of age” in 2025, with meaningful sized projects coming to market, moving the technology into the mainstream. The offshore wind sector consolidated its status as a truly global sector in 2024 this will become more apparent in 2025, as more jurisdictions deliver their first awards and others see their first round of projects move into construction or commissioning. The UK remains a global market leader in the sector and the market here continues to strongly inform the shape of the sector globally and the precedents for the legal documentation and regulatory regimes.

Could 2025 be the year for other nascent renewable and alternative technologies? Certain tidal technologies have been quietly advanced and tested in recent years, while biomass, biofuel and recycling technologies are all being used to generate energy. Small modular reactor technologies have received meaningful investment in 2024, and regulators are spending an increased amount of time consulting on the inclusion of these technologies in the energy mix.

Linked to all of this is the rapid scaling up of energy storage capacity. As the energy mix becomes increasingly intermittent, so the ability to store electricity and deploy at the times of greatest need becomes more critical. Battery storage is the front runner, and the UK is beginning to mirror the US and Australia in scaling up deployment, both in terms of number of projects and the size of these solutions. This has been supported by a clear regulatory framework, though it has taken time to get to this point (with battery storage being the foreseen game changer for UK power for nearly a decade). Batteries are not the only solution, and face their own supply chain challenges. As such, 2025 may see some other storage solutions begin to gain traction.

No discussion on energy in 2025 is complete without the mention of hydrogen, which will be part of the solution, in its various colours of the rainbow. Many governments have announced, or are consulting on, targets and associated support regimes to encourage the development of green hydrogen, and hydrogen production saw continued growth in 2024. This will almost certainly be a continuing trend, and 2025 could see increased activity in the space. However, the hydrogen economy will need to be multi-national in nature. Projects cannot be developed in isolation without the infrastructure necessary for transmission and export and a wider, cross-border legal regime that enables the movement of hydrogen around the globe. At a time when national politics is becoming increasingly insular in focus, full potential for the transition to hydrogen may not be achieved in the timescales that would otherwise be possible.

To return to the opening points, the energy sector is in transition and the development of conventional power generation will continue, both in the UK and with UK sponsors, lenders and investment driving this development around the world. Governments are moving towards carbon capture as they seek to ensure they have the right balance on the grid and developers remain keen to develop projects that fall within corporate net zero policies. In addition to providing a balanced electricity grid, the rise in demand driven by AI and technology industry alone will also contribute to continued development of reliable, conventional power generation.

The liquidity is there, and debt and equity markets for the sector are more diversified than ever. A wide variety of lenders and investors are seeking good projects in stable jurisdictions, and 2024 did not prove to be the year that traditional risk allocations changed. Grid also remains a key challenge in the UK and various other jurisdictions. The power grids are outdated in many places and struggling to manage the pace of development. Connection times (and queues) reached all-time highs last year, and while work is in progress to bring down wait times and enable the required upgrades of the grid, addressing these issues this will be a key focus across the sector.

Power, renewables and alternative energy requires a new kind of collaboration if targets are to be achieved. This is the case on a government-to-government basis, between projects and sponsors and across different industries and sectors. These efforts that were being made in 2024 will continue into, and grow stronger in, 2025.