Eye on the Market 15th Annual Energy Paper
Mar 4, 2025
Heliocentrism: Objects may be further away than they appear
Michael Cembalest
Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management
Solar capacity is booming around the world, both utility scale and residential applications, and is often accompanied by energy storage whose costs are declining as well. Yet after $9 trillion globally over the last decade spent on wind, solar, electric vehicles, energy storage, electrified heat and power grids, the renewable transition is still a linear one; the renewable share of final energy consumption is slowly advancing at 0.3%-0.6% per year.
Our 15th annual energy paper covers the speed of the transition, electrification, the changing planet, the high cost of decarbonization in Europe, nuclear power, the Los Angeles fires, Trump 2.0 energy policies, renewable aviation fuels, superconductivity, methane tracking and the continually wilting prospects for the hydrogen economy.
Descriptive audio
Good morning, everybody, and welcome to the March 2025 Eye on the Market podcast. This is the one is entitled “Heliocentrism.” This is our podcast for the 15th annual Eye on the Market energy paper. And I want to start with a picture that I took of the red crab migration in Christmas Island, Australia, a few years ago. Millions and millions of crabs traverse the island every year.
Nobody knows exactly why, but it’s a kind of remarkable thing to see. And the whole island is overrun with these migrating red crabs. And I’m showing this because I started writing this energy paper 15 years ago. Also, for reasons that are unexplained, I just decided to do it. So like a red crab every year, I go through this three- to four-month migration process of researching energy and talking about energy and writing about energy.
And so, I enjoy it. Hopefully as much as the red crabs do. And this, this year’s piece is called “Heliocentrism.” Heliocentrism refers to the belief for few hundred years ago, which finally emerged that the world does, that the earth revolves around the sun rather than the sun revolving around the Earth. And the reason I picked it as a topic is because there’s a lot of people out there that are now so focused on the growth and solar power that they believe that solar power typically bolted on with some energy storage can represent the dominant share of where we get our energy from.
So let me just show you a few pictures, and then we can explore that thesis. One thing’s for sure, global solar capacity, both utility scale and rooftop, is exploding. And if the forecasts from several places are correct, you can see here on the first chart that we’re going to get another doubling or tripling of global solar capacity over the next just two to three years.
And if, if we think about it as a percentage of all the capacity that’s being installed, it’s already about two-thirds of all new generation capacity, and expected to reach about three-quarters of all generation capacity for the rest of the decade. So it’s kind of a remarkable transition to see solar advancing this much and this quickly.
Okay, this now, this is the part of the podcast when the buts start. So first solar, based on all the installations that exist to date, has a capacity factor of 15 to 20% around, in most places around the world, not all, but in most places where it’s been installed. So if we translate that into shares of electricity generation, solar accounts for around 6% of global electricity generation.
That, that number probably doubles over the next three years, which is impressive. But as we’ve talked about in this energy paper, endlessly, electricity is roughly only a third of all the energy that gets consumed. A lot of countries are electrifying at a very slow pace. So if we translate this solar power into the share of final energy consumption around the world, it’s only 2%, probably growing to 4 to 5% by the end of the decade.
So while that’s impressive growth from a low base, we obviously need to be more focused on the other 95% of where we’re going to get our final energy consumption from, and rather than just the solar on its own. So impressive growth in solar power, declining costs, declining cost of storage, but some of the narratives about heliocentrism have gotten a little carried away.
And because some of those, some of those people don’t believe that we need to either invest in or, either existing or new gas capacity, for example, which I think is a difficult argument to make. So one way to think about this and why it’s so important to understand the rest of the ecosystem is modern prosperity, in almost all places where it thrives, revolves around certain kinds of industrial products: chemicals, iron, steel, cement, food, paper, machinery, metals, textiles, and other kinds of industrial products, glass, rubber, things like that.
Those are the components of modern prosperity. It’s very difficult to find a prosperous country that doesn’t have those things in terms of either producing them or buying them from people that do. And if we look at the energy of that is used to create those industrial pillars, 80, roughly 80% of them, of the energy of the input energy is from fossil fuels, whether it’s oil, natural gas or coal directly, or the coal or natural gas that’s used to make electricity that is then used to produce those things.
So as things stand now, modern prosperity is highly reliant on fossil fuels, as we all know. But it’s interesting to kind of see the numbers and see the graphs laid out like this, so that you can appreciate just how the whole, the whole piece fits together. And so it’s while we should be trying to decarbonize as much as we possibly can, we have to be realistic about the pace at which this can be done.
And one of the, one of the, the subheads of this year’s piece is the objects may be further away than they appear. It’s the opposite of the thing that you see in your rearview mirror. And so here’s a chart that we’ve shown several times every year. The renewable share of electricity generation goes up in the U.S. and in many other countries.
Right. So every year the renewable electricity generation is going up, but the share of electricity used in final energy consumption isn’t budging in the U.S. China is making a lot of progress. A few other countries are making some progress, but in a lot more countries are like the U.S. than like China in terms of somewhat stagnant or very slow growth in electrification of energy consumption.
So, and so that’s a challenge in terms of decarbonization. And the most important chart, I think, in this year’s energy piece is this one, and I call it the Scorpion Bowl chart. If anybody remembers, the, the scorpion balls were these things that you could get at the Hong Kong Bar and Harvard Square, and they had, you know, tequila and rum and gin, and all sorts of things in them.
I call this the Scorpion Bowl chart because it’s, it also has everything in it. So when we produce a chart that says the renewable share of final energy consumption, it’s got everything. It’s got wind and solar displacing coal, it’s got lithium ion battery storage, rooftop solar. It reflects electrification of cars, trucks, busses, motorcycles, electrolytic green hydrogen, carbon capture, decarbonized production of steel and ammonia cement.
It includes electric heat pumps displacing residential, commercial, industrial furnaces and boilers. Biofuels. Biomass. Deep geo, critical G super critical, geothermal, synthetic fuels, hydro, etc., etc. So everything’s in here. And how’s it going? Well, after about $9 trillion in investment globally since 2010, what we have here is a linear transition in Europe at this, the shares growing at about half a percent a year.
In the U.S., it’s growing about 8.3% a year. So there’s progress being made. And for people that say that there’s no progress at all, they’re wrong. But the progress is very slow, which results in a lot of important discussions about the other kind of energy systems that you need to simultaneously be investing in in order to maintain your prosperity.
So for me, this chart is very important because, it’s important to understand the pace at which these things can change. A lot of the stuff I read on green tech media sites and things like that, and from the Rocky Mountain Institute are constantly talking about S curves and accelerating geometric adoption of renewables. When you look at it from this perspective, it’s not happening at that speed.
Now, there can be industrial transitions that occur more quickly. One example is this very rapid, energy-saving steel transition that took place in the 60s and 70s. And within around 20 years, almost all of the global steel production processes shifted from something called open heart furnaces to basic oxygen furnaces. Why did, but why did this happen so quickly?
You can’t just look at this chart and say, okay, sometimes industrial transitions can be rapid. It happened because the new technology cut steel production times to a tenth of what they used to be, allowing for 80 to 90% savings in energy costs. So when you have a transition that can pay for itself like this, it can happen rapidly.
But that’s not the case with the transition that we’re currently experiencing now. Just a few more exhibits and, and then I’ll let you go. I mean, the piece is 50, 54 pages. There’s a lot in there. And I would encourage anybody who wants to learn about energy, start with the executive summary, which is seven pages, and then pick the different topics that you find interesting.
But just a few charts here. It’s hard to electrify a country when the country itself is having so much trouble building transmission lines, and we’ve gone from about 4,000 miles of transmission lines being added each year to less than a thousand over the last couple of years. So this is going in the opposite direction of electrification.
The other thing to remember too, is electricity per unit of energy costs a lot more than natural gas. So for people that are focused on electrification of heat by industrial or residential or commercial users, yes, you can swap out your furnace or boiler for an electric heat pump that operates much more efficiently and uses less energy, but the energy that it uses can be anywhere from two to five times more expensive than the energy that you used to use because electricity is a lot more expensive than gas.
Not just in the United States, but in most countries. So that’s another important impediment to electrification. And by the way, just for good measure, if you looked at all of the 47 categories in the producer price basket in the United States, practically the highest rate of inflation over the last few years has been transformers and power regulators.
And we’re barely on this electrification journey. Right, so there’s a lot of supply chain questions related to the equipment. And do we have enough electrical engineers, etc., etc., to implement a lot of these electrification visions that people will talk about now, the, the people that run the independent system operators in the United States disagree with the Helios interests.
Remember, the Helios interests we’ve defined as the people that believe that you just need more solar, more storage, and you don’t need to invest in natural gas. The, the people that run the independent system, operators are screaming from the other side, like, please pay attention. Our reserve buffers during peak summer demand are shrinking because as we retire baseload power and replace it with renewables, we’re getting more and more close to the point where we might have some kind of brownout situation, and the Midwest, the Northwest, California, New England, are places where you’re seeing the most acute squeeze by the end of this decade.
Now, there’s a lot of discussion about data centers. I’m not going to get too hung up on it here. I just want to show you a couple of different forecasts that are out there. If you add up data centers, electrification of vehicles and electrification of heat through heat pumps, you can, you can sense some people are penciling in a combination of a 20% increase by 2030 and electricity demand, or as low as 7%, but it’s probably going to go up.
What’s the important context? The important context is about electricity demand in the United States has been flat for around 20 years, but for the 20 years before that, the United States was more than capable of adding a lot of electricity generation capacity. The difference was at the time, those were large natural gas and nuclear plants that were being added rather than today.
Smaller renewables facilities. I also want to remind you about this green dotted line, for all the people that are really hung up on the data center issue. In 2007, the EIA made a projection of U.S. electricity demand going up a ton, and since then, actual electricity advanced, but flat. There are times when people don’t appreciate increased efficiencies, and how that can sometimes offset increased demand and population growth.
I’m not going to spend too much time focused on the Trump policies. We have a couple of pages in the piece on what those energy policies are. But at the core of them, it’s important to understand that the U.S. has achieved energy independence for the first time in 40 years, and unlike China and unlike Russia. And this chart here looks at the imports of net imports of oil, gas and coal, and common energy terms.
And this administration is extremely focused on energy policy, which is paying very close attention, attention to energy independence and national security. And obviously those priorities have, have shifted a lot versus the prior administration. And it’s important to understand why. And this, this chart helps explain that. And I’m just going to close, I’m going to close this podcast by showing you a chart on the performance of renewables versus traditional energy.
So this looks at the performance of a composite of different renewable indices compared to traditional oil, gas and pipeline investing. The renewables crushed everything else in 2020 during the free money period from the Fed, and has been getting absolutely decimated ever since, and somewhere around, roughly around a 40%, underperformance since the beginning of this chart.
And I wish sometimes people would then pay more attention to the fundamentals behind the energy things they invest in. So I want to show you just a couple of things on sustainable aviation fuels, and then we’ll close. This spaghetti chart gets people very excited because when they see the individual pieces of this on a term sheet or in a in a green energy blog, or in a YouTube video, they get all excited about the ability to create sustainable jet fuel.
And of course, who wouldn’t want sustainable jet fuel to replace traditional jet? According to this diagram, there’s lots of different ways using food oils, corn, cellulosic biomass. Or you can use electrolysis. There’s a lot of different pathways through which you can create sustainable aviation fuel. The problem is they’re all really expensive, and, and, and then a lot of them have an energy deficit.
I, one of the things that we discuss in here is that one of these, one of these pathways, if people were just paying attention, the thermodynamics are clear. It takes 150 megajoules of energy to go into the thing, and you get 50 megajoules of energy out of the thing. So there aren’t too many successful businesses that our clients run that have a negative energy deficit like that.
And so I just think that people should pay more attention to that kind of thing. The renewable jet fuel cost estimates across the board, no matter how you do it, are much higher than traditional jet fuel estimates, which is why so many of the biofuel companies have been getting crushed because once their processing costs meet the light of day, investors don’t like them quite so much.
Anyway, the, our 15th annual energy paper starts with an executive summary on heliocentrism and, and solar power and the speed of the transition. We have some comments from forklifts, mill and a lot of charts on how the planet is changing. We have a long section with 70 essential charts on the energy transition that we update every year, a section on Trump’s energy policies and how the pendulum is swinging again. We have a section on the high cost of European decarbonization, Europe as the world’s transition leader. But it’s also paying the highest price for that decarbonization. We discuss the nuclear renaissance of interest in nuclear that’s happening in the OECD. We introduce our new grid optimization model to understand how you can deeply decarbonize U.S. grids and how much it would cost. There’s an important section on the LA fires. Climate change is an important part of understanding why it took place with respect to wind and rain and drought.
But that’s not the whole story, particularly when you look at the breadth and depth of the damages. There’s a lot of political issues as well. That’s important to understand. Again, we have a section on renewable jet fuel. We look at methane tracking, from U.S. basins and how satellites are helping on that effort. We, yet another section on the disintegrating prospects for the hydrogen economy.
An important discussion on superconductivity. And then a brief review of topics that we might get into detail on next year. So that’s the end of this podcast. Please enjoy the energy piece. And thank you for listening, and look forward to connecting with you in April, probably on healthcare. Thank you. That is, unless I get either measles or polio by.
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Logo: J.P. Morgan. Text: Eye on the Market.
A man speaks in an office where the J.P. Morgan logo is displayed. Title slide. An image of the Sun rising behind Earth in space. Text: Energy Paper. March 2025. Heliocentrism.
(SPEECH)
Good morning, everybody, and welcome to the March 2025 Eye on the Market podcast. This is the one is entitled "Heliocentrism." This is our podcast for the 15th annual Eye on the Market energy paper.
And I want to start with a picture that I took of the red crab migration in Christmas island, Australia a few years ago.
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New slide. Text: Red crab migration, Christmas Island, Australia. In a photo, many red crabs are in many undulating lines.
(SPEECH)
Millions and millions of crabs traverse the island every year. Nobody knows exactly why, but it's a kind of remarkable thing to see. And the whole island is overrun with these migrating red crabs.
And I'm showing this because I started writing this energy paper 15 years ago, also for reasons that are unexplained. I just decided to do it. So, like a red crab, every year, I go through this three to four-month migration process of researching energy, and talking about energy, and writing about energy. And so I enjoy it hopefully as much as the red crabs do.
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New slide. Text: Solar. Chart: Global solar capacity. The y axis of the chart is labeled G.W. and increments from 0 in increments of 500, with 4,500 the highest number at the top. The x axis of the chart has years: 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027. A solid line curves up from left to right, rising more sharply from 2023 to 2027. It becomes a dotted line with circular points between 2023 and 2027.
(SPEECH)
And this year's piece is called "Heliocentrism." Heliocentrism refers to the belief a few 100 years ago, which finally emerged, that the Earth revolves around the sun rather than the sun revolving around the Earth. And the reason I picked it as a topic is because there's a lot of people out there that are now so focused on the growth in solar power that they believe that solar power, typically bolted on with some energy storage, can represent the dominant share of where we get our energy from.
So let me just show you a few pictures, and then we can explore that thesis. One thing's for sure-- global solar capacity, both utility scale and rooftop, is exploding. And if the forecasts from several places are correct, you can see here on the first chart that we're going to get another doubling or tripling of global solar capacity over the next just two to three years.
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New slide. Text: Solar. Chart: Solar share of global electricity generation capacity additions. Near the y axis, text: Percent of new gigawatts installed. The y axis of the chart begins at 35% and increases of increments of 5%, with the highest number being 80% at the top. The x axis of the chart has consecutive years from left to right, beginning with 2019 and ending with 2027. A solid line moves upward from left to right. Slightly above the 60% mark, there is a circular point near 2023, where the line becomes a dotted line. The dotted line increases sharply from near 2023 to near 2024, where it meets another circular point. The dotted line's progress is more flat from then on, with circular points near 2025, 2026 and 2027.
(SPEECH)
And if we think about it as a percentage of all the that's being installed, it's already about 2/3 of all new generation capacity and expected to reach about 3/4 of all generation capacity for the rest of the decade. So it's kind of a remarkable transition to see solar advancing this much and this quickly. OK, now, this is the part of the podcast when the "buts" start.
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New slide. Text: Solar. Chart: Solar shares of global electricity and final energy. The y axis of the chart is labeled Percent. The y axis begins at 0% and increases in increments of 2%, ending with 16% at the top. The x axis of the chart has years from left to right: 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027. A blue line is labeled solar share of electricity generation. A gold line is labeled solar share of final energy consumption. The lines rise from left to right. The blue line is higher. Both lines have a circular point at 2023, where they become dotted lines with more circular points. Both lines rise more sharply after 2023, but the blue line rises more sharply than the gold line does.
(SPEECH)
So, first, solar, based on all the installations that exist to date, has a capacity factor of 15% to 20% in most places around the world-- not all, but in most places where it's been installed. So if we translate that into shares of electricity generation, solar accounts for around 6% of global electricity generation. That number probably doubles over the next three years, which is impressive.
But as we've talked about in this energy paper endlessly, electricity is roughly only a third of all the energy that gets consumed. A lot of countries are electrifying at a very slow pace. So if we translate this solar power into the share of final energy consumption around the world, it's only 2%, probably growing to 4% to 5% by the end of the decade.
So while that's impressive growth from a low base, we obviously need to be more focused on the other 95% of where we're going to get our final energy consumption from rather than just the solar on its own. So impressive growth in solar power, declining costs, declining cost of storage. But some of the narratives about heliocentrism have gotten a little carried away because some of those people don't believe that we need to either invest in either existing or new gas capacity, for example, which I think is a difficult argument to make.
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New slide. Text: Industrial energy and the pillars of modern prosperity. Chart: The fossil fuel intensity of global industrial production. A pie chart also has fragmented areas around the border of inner pie wedges. Areas are labeled with percentages. The inner wedges are labeled: Coal, 30%. Oil, 20%. Nat. gas, 19%. Elec dash F.F., 14%. Elec dash Z.C., 10%. Biomass, 7%. The outer areas are labeled: Chemicals, 28%. Iron and steel, 23%. Cement, 11%. Food, 5%. Paper, 4%. Machinery, 4%. Metals, 3%. Textiles, 2%. Mining, 2%. Other, 18%.
(SPEECH)
So one way to think about this and why it's so important to understand the rest of the ecosystem is modern prosperity, in almost all places where it thrives, revolves around certain kinds of industrial products-- chemicals, iron, steel, cement, food, paper, machinery, metals, textiles, and other kinds of industrial products-- glass, rubber, things like that. Those are the components of modern prosperity. It's very difficult to find a prosperous country that doesn't have those things in terms of either producing them or buying them from people that do.
And if we look at the energy that is used to create those industrial pillars, roughly 80% of the input energy is from fossil fuels-- whether it's oil, natural gas, or coal directly, or the coal or natural gas that's used to make electricity that is, then, used to produce those things.
So, as things stand now, modern prosperity is highly reliant on fossil fuels, as we all know. But it's interesting to kind of see the numbers and see the graphs laid out like this so that you can appreciate just how the whole piece fits together. And so while we should be trying to decarbonize as much as we possibly can, we have to be realistic about the pace at which this can be done.
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New slide. Quote, Objects may be further away than they appear, unquote. Chart: U.S. grid decarbonization outpaces electrification of energy use. Near y axis, text: Percent. The y axis of the chart begins at 5% and increases in increments of 5%, with 35% as the highest number at the top. The x axis of the chart has years from left to right, beginning with 1990 and progressing in increments of 5 years, with 2025 as the right-most year. A blue line is labeled electricity share of final energy consumption. A green line is labeled renewable share of electricity generation. The blue line is higher than the green line. The green line increases from around 10% at 2010 to between 20% and 25%, between 2020 and 2025.
(SPEECH)
And one of the subheaders of this year's piece is that objects may be further away than they appear. It's the opposite of the thing that you see in your rearview mirror. And so here's a chart that we've shown several times. Every year, the renewable share of electricity generation goes up in the US, and in many other countries, right?
So every year, the renewable share of electricity generation is going up, but the share of electricity used in final energy consumption isn't budging in the US. China is making a lot of progress. A few other countries are making some progress. But more countries are like the US than like China in terms of somewhat stagnant or very slow growth in electrification of energy consumption. So that's a challenge in terms of decarbonization.
And
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New slide. Text: The scorpion bowl chart. Chart: Decarbonization is a linear industrial transition. Near y axis, text: Renewable share of final energy consumption. The y axis of the chart begins at 2% and increases in increments of 2%, with 16% as the highest number at the top. The x axis of the chart has years from left to right, beginning with 1990, increasing in increments of five years, with 2025 as the right-most year. Colored lines on the chart are labeled: Europe, China, U.S., Asia ex-Japan slash China. Where the lines end on the right side of the chart, from highest to lowest, the lines are: Europe, China, U.S., Asia ex-Japan slash China. Text: Quote, it's in there, unquote: drivers of the transition that are included in the renewable share of final energy consumption. Wind and solar displacement of coal on the grid. Li dash ion battery storage displacement of gas peaker plants. Rooftop solar power co-located with batteries. Electric cars, trucks, buses, vans and motorcycles. Electrolytic green hydrogen displacing brown hydrogen. Decarbonized production of steel, ammonia and cement. Electric heat pump displacement of residential, commercial and industrial furnaces slash boilers. Biofuel displacement of fossil fuels for transport. Biomass and waste heat used for district heating. Deep supercritical geothermal systems. Synthetic fuels created from green hydrogen and C.O. 2 sourced from direct air carbon capture. Pumped hydro formations. Iron air batteries, vanadium redox batties and other forms of long duration energy storage.
(SPEECH)
the most important chart, I think, in this year's energy piece is this one. And I call it the Scorpion Bowl chart. If anybody remembers, the scorpion bowls were these things that you could get at the Hong Kong bar in Harvard Square, and they had tequila, and rum, and gin, and all sorts of things in them.
I call this the Scorpion Bowl chart because it also has everything in it. So when we produce a chart that says the renewable share of final energy consumption, it's got everything. It's got wind and solar displacing coal. It's got lithium ion battery storage, rooftop solar. It reflects electrification of cars, trucks, buses, motorcycles, electrolytic gene hydrogen, carbon capture, decarbonized, production of steel, and ammonia, and cement.
It includes electric heat pumps displacing residential, commercial, and industrial furnaces and boilers, biofuels biomass, supercritical geothermal, synthetic fuels, hydro, et cetera, et cetera. So everything's in here. And how's it going?
Well, after about $9 trillion of investment globally since 2010, what we have here is a linear transition. In Europe, this share is growing at about half a percent a year. In the US, it's growing at about 0.3% a year. So there's progress being made.
And for people that say that there's no progress at all, they're wrong. But the progress is very slow, which results in a lot of important discussions about the other kind of energy systems that you need to simultaneously be investing in in order to maintain your prosperity.
So for me, this chart is very important because it's important to understand the pace at which these things can change. A lot of the stuff I read on greentech media sites and things like that, and from the Rocky Mountain Institute, are constantly talking about s-curves and accelerating geometric adoption of renewables. When you look at it from this perspective, it's not happening at that speed.
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New slide. Text: Can industrial transitions occur more quickly? Chart: Rapid energy-saving steel transition of the 1960s slash 1970s. Near y axis, text: Percent of global steel production. The chart's y axis begins at 0% and increases in increments of 10%, with 90% as the highest number at the top. The chart's x axis has years from left to right, beginning at 1920 and increasing in increments of 20 years, ending with 2020 as the right-most year. The chart has two vertical dotted lines, with one each at 1960 and 1980. A blue line is labeled basic oxygen. A gold line is labeled electric arc furnace. The red line is labeled open hearth. From left to right, the blue line begins between 1940 and 1960, and ends as the highest line. The gold line ends as the next-highest line. The red line begins as the highest line, but ends as the lowest line. Text: The catalyst: new technologies cut steel production times to less than a tenth of open hearth furnaces, allowing for 80% dash 90% energy savings.
(SPEECH)
Now, there can be industrial transitions that occur more quickly. One example is this very rapid energy saving steel transition that took place in the '60s and '70s. And within around 20 years, almost all of the global steel production processes shifted from something called open hearth furnaces to basic oxygen furnaces.
Why did this happen so quickly? You can't just look at this chart and say, OK, sometimes industrial transitions can be rapid. It happened because the new technology cut steel production times to 1/10 of what they used to be, allowing for 80% to 90% savings in energy costs. So when you have a transition that can pay for itself like this, it can happen rapidly. But that's not the case with the transition that we're currently experiencing.
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New slide. Text: Transmission line growth is stuck in a rut. Chart: U.S. transmission line growth. Near y axis, text: Miles added per year. The y axis begins at 0 and increases in increments of 1,000, with 10,000 as the highest number at the top. The x axis has years, beginning at 2013, increasing in increments of 2 years, and ending with 2035 as the right-most year. A line has blue circular points. It begins at 4,000 at 2013. The right-most point on the line is between 0 and 1,000, at 2023. A red dotted line between 5,000 and 6,000, and near 2023 to between 2029 and 2031 is labeled D.O.E. 2030 target. A red dotted line near 10,000, and near between 2021 and 2023, to 2035, is labeled D.O.E. 2035 target.
(SPEECH)
Now, just a few more exhibits, and then I'll let you go. I mean, the piece is 54 pages. There's a lot in there. And I would encourage anybody who wants to learn about energy, start with the executive summary, which is seven pages, and then pick the different topics that you find interesting. But just a few charts here.
It's hard to electrify a country when the country itself is having so much trouble building transmission lines. And we've gone from about 4,000 miles of transmission lines being added each year to less than 1,000 over the last couple of years. So this is going in the opposite direction of electrification.
The
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New slide. Text: Another impediment to electrification. Chart: Electrification is expensive compared to gas. Near y axis, text: Electricity cost per M.J. divided by natural gas cost per M.J., 85% industrial and 90% residential furnace efficiency. On the y axis, from bottom to top, labels: Florida Residential, China Industrial, Germany Residential, Texas Residential, Germany Industrial, Louisiana Industrial, California Residential, U.K. Residential, California Industrial, Texas Industrial. Each label has a blue bar. The blue bars increase in size from bottom to top. The x axis has labels: 0 x, 1 x, 2 x, 3 x, 4 x, 5 x.
(SPEECH)
other thing to remember, too, is electricity per unit of energy costs a lot more than natural gas. So for people that are focused on electrification of heat by industrial, or residential, or commercial users, yes, you can swap out your furnace or boiler for an electric heat pump that operates much more efficiently and uses less energy.
But the energy that it uses can be anywhere from two to five times more expensive than the energy that you used to use, because electricity is a lot more expensive than gas-- not just in the United States, but in most countries. So that's another important impediment to electrification.
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New slide. Text: inflation. Chart: Producer price inflation: core goods. Text near y axis: percent increase versus 2018 for each of the 47 core goods categories. The y axis has labels starting with negative 10% at the bottom, increasing in increments of 10%, with 80% as the highest number at the top. The chart has many blue circles in a decreasing line from left to right. The second-highest circle is red and is labeled Transformers and power regulators.
(SPEECH)
And, by the way, just for good measure, if you looked at all of the 47 categories in the producer price basket in the United States, practically the highest rate of inflation over the last few years has been transformers and power regulators. And we're barely on this electrification journey, right? So there's a lot of supply chain questions related to the equipment, and do we have enough electrical engineers, et cetera, et cetera, to implement a lot of these electrification visions that people will talk about.
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New slide. Text: Reserve margins. Chart: Generation capacity buffer during peak summer demand. Near y axis, text: Anticipated reserve margin. The y axis has labels beginning at 0% at the bottom, increasing in increments of 5%, with 45% as the highest number at the top. The x axis has years, beginning with 2025, increasing in increments of 2 years, with 2035 as the right-most year. Colored lines are labeled, in order of their final position on the chart, from highest position to lowest position: ERCOT parentheses Texas close parentheses, S.P.P. parentheses Plains close parentheses, Southeast, P.J.M. parentheses mid-Atlantic close parentheses, New England, New York, California, Northwest, M.I.S.O. parentheses Midwest close parentheses.
(SPEECH)
Now, the people that run the independent system operators in the United States disagree with the heliocentrists. Remember, the heliocentrists we've defined as the people that believe that you just need more solar, more storage, and you don't need to invest in natural gas. The people that run the independent system operators are screaming from the other side, like, please pay attention.
Our reserve buffers during peak summer demand are shrinking because, as we retire baseload power and replace it with renewables, we're getting more and more close to the point where we might have some kind of brownout situation. And the Midwest, Northwest, California, New England are places where you're seeing the most acute squeeze by the end of this decade.
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New slide. Text: Electricity demand. Chart: U.S. electricity demand forecast. Near the y axis, text: T.W.h. The y axis begins with 2,500, increases in increments of 500, and ends with 5,500 as the highest number at the top. The x axis has years, beginning with 1985 on the left, increasing in increments of 5 years, with 2023 as the right-most year. A blue line with blue circular points is labeled electricity demand, generally increasing from left to right. A dotted green line increases sharply from the blue line, beginning near 2005 to between 2020 and 2025. The green line is labeled E.I.A. 2007 projection. From highest to lowest between 2025 and 2030, a vertical red line with red circular points has circular points which are labeled: plus Heat pumps, plus Elec vehicles, plus Data centers, 2023 demand. There is a vertical gold line with gold circular points to the left of the line with red circular points. A red line segment with a circular point is labeled: High end plus 19%. A gold line segment with a circular point is labeled: Low end, plus 7%.
(SPEECH)
Now, there's a lot of discussion about data centers. I'm not going to get too hung up on it here. I just want to show you a couple of different forecasts that are out there. If you add up data centers, electrification vehicles, and electrification of heat through heat pumps, some people are penciling in a combination of a 20% increase by 2030 in electricity demand or as low as 7%. But it's probably going to go up.
What's the important context? The important context is that electricity demand in the United States has been flat for around 20 years, but for the 20 years before that, the United States was more than capable of adding a lot of electricity generation capacity. The difference was, at the time, those were large natural gas and nuclear plants that were being added, rather than today's smaller renewable facilities.
I also want to remind you about this green dotted line. For all the people that are really hung up on the data center issue, in 2007, the EIA made a projection of US electricity demand going up a ton. And since then, actual electricity demand has been flat. There are times when people don't appreciate increased efficiencies and how that can sometimes offset increased demand and population growth.
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New slide. Text: The U.S. has achieved U.S. energy independence for the first time in 40 years. Chart: Energy dependence and independence. Near the y axis, text: Net imports of oil, natural gas and coal in million tonnes of oil equiv. The y axis has labels beginning at negative 800 and increasing in increments of 200, with 1,200 as the highest number at the top. The x axis has years, beginning with 1980 and increasing in increments of 10 years, with 2020 as the right-most year. Near the top left of the chart: text: Net importer, up arrow. Near the bottom left of the chart, text: Net exporter, down arrow. A gold line is labeled Europe. A red line is labeled China. A light blue line is labeled U.S. A dark blue line is labeled Russia. The entirety of the dark blue line is below a straight line extending from left to right at the number 0 on the y axis. From top to bottom, the ending point of the lines are China as the highest, Europe, U.S., and Russia as the lowest. The line for U.S. extends below the zero line slightly before 2020 on the chart.
(SPEECH)
I'm not going to spend too much time focused on the Trump policies. We have a couple of pages in the piece on what those energy policies are. But at the core of them, it's important to understand that the US has achieved energy independence for the first time in 40 years, unlike China and unlike Russia.
And this chart here looks at the net imports of oil, and gas, and coal, and common energy terms. And this administration is extremely focused on energy policy, which is paying very close attention to energy independence and national security. And, obviously, those priorities have shifted a lot versus the prior administration.
And it's important to understand why. And this chart helps explain that. And I'm just going to close this podcast by showing you a chart on the performance of renewables versus traditional energy.
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New slide. Text: Renewables underperformance. Chart: Renewables versus traditional energy: annual outperformance. Near the y axis, text: Renewables composite return minus traditional energy return. The y axis has labels beginning at negative 75%, increasing in increments of 25%, with 200% as the highest number at the top. The x axis has years, beginning with 2016, increasing in increments of 1 year, with 2025 as the right-most single year. After 2025, there is a label 2016 dash 2025, as the right-most label on the chart's x axis. The chart has text near the top left: Renewables composite parentheses equal weighted close parentheses: NASDAQ Clean Edge. Wilderhill Clean Energy. F.T.S.E. Renew slash Alt Energy. S. & P. Global Clean Energy. M.A.C. Global Solar. The chart has text near the top right: Traditional: M.S.C.I. World Energy Index parentheses oil, gas and pipelines close parentheses. Each single year on the chart's x axis has a blue bar extending either up or down from 0% on the y axis. The 2016 to 2025 label has a gold bar extending down from 0% on the y axis.
(SPEECH)
So this looks at the performance of a composite of different renewable indices compared to traditional oil, gas, and pipeline investing. The renewables crushed everything else in 2020 during the free money period from the Fed and has been getting absolutely decimated ever since-- somewhere around roughly around a 40% underperformance since the beginning of this chart.
And I wish sometimes people would pay more attention to the fundamentals behind the energy things they invest in. So
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New slide. Text: Biofuels. Chart: Sustainable jet fuel pathways. White boxes on the chart are labeled: Food oils. Corn, sugarcane. Cellulosic biomass. Water plus electricity. Ethanol, butanol. Biogenic C.O. 2. Green H. 2. Methane. Syngas. Methanol. Olefins. Jet fuel. Blue circles o the chart are labeled: Direct air carbon capture. Fermentation. Hydrolysis, fermentation. Anaerobic digestion. Electrolysis. Gasification. Hydrotreating. Electrolysis of C.O. 2 arrow C.O. Reverse water gas shift. Dehydration. Methanol synthesis. Methanol to olefins. Fischer Tropsch. Oligomerization. Elements of the chart are linked by arrows.
(SPEECH)
I want to show you just a couple of things on sustainable aviation fuels, and then we'll close. This spaghetti chart gets people very excited, because when they see the individual pieces of this on a term sheet, or in a green energy blog, or in a YouTube video, they get all excited about the ability to create sustainable jet fuel.
And, of course, who wouldn't want sustainable jet fuel to replace traditional jet fuel? According to this diagram, there's lots of different ways, using food oils, corn, cellulosic biomass, or you can use electrolysis. There's a lot of different pathways through which you can create sustainable aviation fuel. The problem is they're all really expensive.
(DESCRIPTION)
New slide. Text: Biofuels. Chart: Production of 1 kg of e-methane via Sabatier reaction. Near the y axis, text: Megajoules. The chart's y axis begins at 0 and increases in increments of 25, with 150 as the highest number at the top. The chart's x axis has two labels: energy in, energy out. The Energy in label has a bar that extends up from 0 to 150, with three sections, from largest at the bottom to smallest at the top: a grey section labeled Electrolysis for green hydrogen, a gold section labeled Sabatier reaction, a blue section labeled D.A.C.C. for atmospheric C.O. 2. The Energy out label has a bar that extends up from 0 to slightly above 50. It is pink and is labeled: Synfuel: e-methane. A box in the chart's upper right area has text: D.A.C.C.: 366 kWh of electricity and 5.25 G.J. of thermal heat per ton of C.O. 2. Sabatier reaction: 75% efficiency. Electrolysis: 55 kWh of electricity per kg of H. 2.
(SPEECH)
And a lot of them have an energy deficit. One of the things that we discuss in here is that one of these pathways, if people were just paying attention, the thermodynamics are clear. It takes 150 megajoules of energy to go into the thing, and you get 50 megajoules of energy out of the thing.
So there aren't too many successful businesses that our clients run that have a negative energy deficit like that. And so I just think that people should pay more attention to that kind of thing. The
(DESCRIPTION)
New slide. Text: Biofuels. Chart: Renewable jet fuel cost estimates. Near the y axis, text: U.S. dollar sign per gallon. The y axis begins at 0 dollars and increases in increments of 5, with 25 dollars as the highest number at the top. The x axis has labels from left to right: H.E.F.A. parentheses food oils close parentheses, Alcohol-to-jet fuel, Power-to-liquids, Gasification. A red line extends from left to right between 0 dollars and 5 dollars. The red line is labeled Fossil jet fuel. Extending up from each label is a gold bar and a blue bar. The bars have black circles inside them. Blue bar label: 3rd party estimates. Gold bar label: N.R.E.L. estimates.
(SPEECH)
renewable jet fuel cost estimates across the board, no matter how you do it, are much higher than traditional jet fuel estimates, which is why so many of the biofuel companies have been getting crushed because once their processing costs meet the light of day, investors don't like them quite so much.
(DESCRIPTION)
New slide: Text: Biofuels. Chart: Biofuel company returns. Near the y axis, text: Index parentheses 100 equals 1 slash 1 slash 2022 close parentheses. The y axis begins at 0 and increases in increments of 20, with 180 as the highest number at the top. The x axis has labels with years: 2022, 2023, 2024, 2025. A dotted line extends from left to right at the 100 label on the y axis. Several colored lines are labeled: R.E.X., Future Fuel, O.P.A.L., Neste, Aemetis, Gevo, Green Plains.
(SPEECH)
Anyway,
(DESCRIPTION)
New slide. Text: Heliocentrism: 15th Annual Energy Paper. Bullet points. Text: Executive summary: Heliocentrism and the speed of the energy transition. Comments from Vaclav Simil and charts on a changing planet. Essential charts on the energy transition. Trump 2.0 energy policies: the pendulum swings, yet again. No good deed goes unpunished: the high cost of European decarbonization. A nuclear renaissance in the O.E.C.D. question mark. Wake me when we get there. Our grid optimization model: the cost and configuration of deeply decarbonized U.S. grids. The Los Angeles Fires: climate change is not the entire story. Renewable jet fuel: costs, constraints and chemical reactions. Space Mountain: tracking methane accumulation from U.S. gas basins via satellites. Frydrogen: the cancellation of green hydrogen projects when exposed to the sunlight of energy math. The superconductivity scandal at Nature: another one bites the dust. Topics for 2026: demand response, shipping, geologic hydrogen, sodium ion batties and fusion parentheses maybe close parentheses.
(SPEECH)
our 15th annual energy paper starts with an executive summary on heliocentrism, and solar power, and the speed of the transition. We have some comments from Vaclav Smil and a lot of charts on how the planet is changing.
We have a long section with 70 essential charts on the energy transition that we update every year, a section on Trump's energy policies and how the pendulum is swinging again. We have a section on the high cost of European decarbonization.
Europe is the world's transition leader, but it's also paying the highest price for that decarbonization. We discuss the nuclear renaissance of interest in nuclear that's happening in the OECD. We introduce our new grid optimization model to understand how you can deeply decarbonize US grids and how much it would cost.
There's an important section on the LA fires. Climate change is an important part of understanding why it took place with respect to wind, and rain, and drought. But that's not the whole story, particularly when you look at the breadth and depth of the damages. There's a lot of political issues as well that's important to understand.
Again, we have a section on renewable jet fuel. We look at methane tracking from US basins and how satellites are helping on that effort. We have yet another section on the disintegrating prospects for the hydrogen economy, an important discussion on superconductivity, and then a brief review of topics that we might get into detail on next year.
So that's the end of this podcast. Please enjoy the energy piece.
(DESCRIPTION)
Title slide. An image of the Sun rising behind Earth in space. Text: Energy Paper. March 2025. Heliocentrism.
(SPEECH)
And thank you for listening, and look forward to connecting with you in April, probably on healthcare. Thank you-- that is, unless I get either measles or polio. Bye.
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Logo: J.P. Morgan.
Click here for important information.
Dive deeper into the report
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1Executive Summary: Heliocentrism and the speed of the energy transition
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2Comments from Vaclav Smil and charts on a changing planet
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3Essential charts on the energy transition
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4Trump 2.0 energy policies: the pendulum swings, yet again
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5No good deed goes unpunished: the high cost of European decarbonization
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6A nuclear renaissance in the OECD? Wake me when we get there
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7Our grid optimization model: the cost and configuration of deeply decarbonized US grids
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8The Los Angeles Fires: climate change is not the entire story
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9Renewable jet fuel: costs, constraints and chemical reactions
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10Space Mountain: tracking methane accumulation from US gas basins via satellites
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11Frydrogen: the cancellation of green hydrogen projects when exposed to the sunlight of energy math
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12The superconductivity scandal at Nature: another one bites the dust
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13Topics for 2026: demand response, shipping, geologic hydrogen, sodium ion batteries and fusion (maybe)
Read or listen to more about the 15th Annual Energy Paper
About Eye on the Market
Since 2005, Michael has been the author of Eye on the Market, covering a wide range of topics across the markets, investments, economics, politics, energy, municipal finance and more.
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