Energy markets in 2025: a year of easing prices and persistent uncertainty

Anyone expecting 2025 to be a calmer year for energy markets was once again reminded how fragile global energy systems remain. While price levels eased compared to the extremes of previous years, markets continued to be shaped by geopolitical tensions, shifting policy priorities and structural challenges in the power system.

Geopolitics set the tone

From the very beginning of the year, geopolitical developments influenced commodity markets. Tensions in the Middle East supported higher prices in the first half of 2025. In April, US President Donald Trump’s announcement of broad-based tariffs on global trade triggered concerns about economic growth and weighed on commodity prices.

Further geopolitical events followed over the course of the year. A brief conflict between India and Pakistan in May was resolved without far-reaching market consequences. In contrast, the escalation between Israel and Iran in June led to renewed upward pressure on commodity prices. These episodes once again underlined how sensitive energy markets remain to geopolitical shocks, even in phases of otherwise easing fundamentals.

Power generation: lower renewables, higher gas use

In Germany, electricity demand in 2025 is expected to end broadly in line with, or slightly above, last year’s level. At the same time, the share of renewables in power generation declined from around 63 percent in 2024 to roughly 61.6 percent in 2025.

The main driver was significantly weaker wind generation over the year, which led to higher gas-fired generation despite comparatively strong solar output. Gas consumption in the power sector therefore increased compared to 2024, reinforcing the system’s exposure to gas price movements, particularly in the first half of the year.

This shift in the generation mix had direct price implications. Average day-ahead prices in Germany increased by around EUR 11 per MWh compared to the previous year. The impact was particularly visible during the winter months. While January and February 2024 saw average prices of around EUR 76 per MWh and EUR 61 per MWh respectively, prices in early 2025 rose sharply to around EUR 114 per MWh in January and EUR 128 per MWh in February.

Across Europe, the picture was mixed. Day-ahead prices declined in the Nordic region, while parts of Eastern Europe recorded moderate increases, reflecting regional differences in fuel dependency, weather conditions and renewable availability.

Commodity markets: easing prices, fragile fundamentals

Oil and gas markets saw a noticeable price correction in 2025. Oil prices declined by around 18 percent compared to December 2024, marking the weakest annual performance since 2020. Analysts attributed this to ample supply, sluggish global economic growth and persistent policy uncertainty.

Gas prices fell even more sharply, by roughly 33 percent year on year. Record LNG exports from the United States, stable Norwegian and pipeline flows and the absence of major supply disruptions contributed to the overall easing of prices. Nevertheless, market fundamentals remained delicate. In early February, temporary disruptions to Russian gas transit via Ukraine, following the expiry of transit arrangements, triggered short-term price spikes, illustrating how quickly risk premiums can return.

Coal markets remained subdued in Europe due to lower gas prices and rising CO₂ costs, while demand in Asian markets provided a stabilising effect at the global level.

Carbon markets regain momentum

After a weaker start to the year, prices in the European Emissions Trading System increased steadily from spring onwards. Analysts expect this upward trend to continue, with average EUA prices for 2026 projected at around EUR 92 per tonne, roughly 24 percent above average levels in 2025.

This development reflects a tightening supply outlook and continued confidence in the EU’s long-term climate targets, even as short-term fuel prices eased.

Grid constraints and system stability move into focus

Beyond prices and policy, 2025 once again highlighted the growing structural tensions within the German power system. Persistent congestion between northern generation regions and southern load centres continued to drive redispatch volumes and curtailment.

While grid expansion projects progressed on paper, physical bottlenecks remain a limiting factor for system efficiency. North to south transmission corridors and offshore to onshore connections emerged as critical elements, particularly with a view to the 2037 and 2045 system outlooks. Even with significant reinforcement of 380 kV and 220 kV lines, modelling results indicate that congestion and curtailment are likely to persist in parts of the system.

At the European level, congestion increasingly spills across borders, affecting neighbouring markets such as France, Austria and the Netherlands. This highlights the need for closer coordination between national grid planning and European market design.

Flexibility and storage: from side issue to system pillar

One of the clearest lessons of 2025 is that flexibility is no longer a marginal topic. With weaker wind generation, higher gas dependency and growing intraday price spreads, flexible assets gained relevance across the market.

Battery storage, demand-side response and short-term flexibility options increasingly shaped intraday trading and balancing needs. This trend was further reinforced by the introduction of 15-minute products in the day-ahead market from October 2025. Greater temporal granularity improved the alignment of market outcomes with physical system conditions, but also led to visible changes in trading patterns, including a decline in intraday auction volumes.

At the same time, uncertainty remains around the pace at which flexibility can scale. Regulatory frameworks, grid connection processes and investment incentives will play a decisive role in determining whether storage and flexibility can grow fast enough to support a power system with rising shares of renewables.

Policy shifts and market design debates

Energy policy in Germany saw a noticeable shift in focus in 2025. While previous years were dominated by accelerated renewable expansion, the new government placed greater emphasis on security of supply. Initial plans to add around 20 GW of new gas-fired capacity by 2030 were revised down to approximately 8 to 12 GW.

These capacities are intended to be hydrogen-ready, although the lack of a clear technical and regulatory definition continues to raise questions. At present, no commercially available gas turbine can operate fully on hydrogen, leaving uncertainty around the practical implementation of these plans.

Another key issue was the debate on bidding zone splitting in Germany. In April 2025, ENTSO-E published a bidding zone review recommending the division of the German market into up to five zones. The German government rejected the proposal, arguing that it would raise industrial electricity costs, harm investment conditions and create planning uncertainty. Instead, it reaffirmed its commitment to a single bidding zone, relying on grid expansion and operational measures to manage congestion.

Similar conclusions were reached in the United Kingdom, where the government decided to retain a single bidding zone, citing complexity, long implementation timelines and uncertain benefits.

Outlook 2026: calmer prices, persistent challenges

Looking ahead to 2026, forward markets currently suggest lower average power prices compared to 2025. Expectations of higher renewable capacities, easing gas markets and continued LNG availability support this view. However, differences between market expectations and fundamental modelling remain notable, reflecting ongoing uncertainty around weather patterns, demand growth and geopolitical risks.

What seems clear is that volatility will remain a defining feature. Even if average prices decline, short-term price swings driven by weather, outages or political events are likely to persist. For market participants, this reinforces the importance of robust procurement strategies, effective risk management and an increasing focus on flexibility.