Looking At The Whole Picture
Every year, J.P. Morgan publishes its Annual Energy Paper, with the 15th edition released in March 2025 titled “Heliocentrism“. It analyzes the US and global energy landscape and discusses extensively the status of the energy transition.
As a major investment bank and a trusted advisor to investors, it can be expected that this report is going to shape the investing community’s views on the energy sector.
A comprehensive overview of the report is needed, as cherry-picking data can lead to both biased arguments claiming renewables are taking over our energy system or that the energy transition is stalling, depending on one’s preference.
The overall picture is more complex, with a clear growth of solar energy as the future of energy, but also significant limits to all-solar-powered economies for decades to come.
Solar Dominance
Maybe the most important data point discussed in this report is how rapid is the rise in solar electricity generation. Not only has the growth rate in total capacity strongly accelerated in 2023, but almost 4/5th of the new power generation installed is now solar energy.
Source: J.P. Morgan
This also comes in total contradiction to the systematically wrong forecast of the IEA (International Energy Agency), which can honestly put into question the relevance of what was once a respected organization.
Source: J.P. Morgan
This also demonstrates that when we talk of a rapid rise in “solar+wind” power capacity, or renewables including hydropower, we are actually mostly talking of solar growth alone, catching quickly to the early head start of wind power.
Source: J.P. Morgan
Electrification and decarbonization are global, but progress is unequal depending on the regions, with Europe and China leading, while the USA and Asia, excluding China, lag behind.
Source: J.P. Morgan
Solar Limitations
This picture of solar energy dominance should not make investors ignore a few caveats.
The first one is that solar energy capacity factors are 15%-20%, meaning that actual energy production is lower than nominal capacity numbers.
The other important fact is that electricity production covers only 1/3rd of total energy consumption, with cooling, heating, transportation, and industrial production still massively relying on fossil fuels. So while solar energy is rising quickly as a percentage of total electricity production, it is only getting started as a percentage of total energy consumption.
Source: J.P. Morgan
As a result, oil, gas, and coal are still the immense majority of humankind’s energy consumption. This is especially true in industrial production, where only 24% of energy is used in the form of electricity. Fossil-fuel-hungry production of chemicals (including ammonia), steel, and cement represents 62% of the sector’s energy consumption.
Source: J.P. Morgan
This is why it is so important for new technologies to help electrify industrial production, for example, making cement production carbon-negative, or using green energy for iron ore refining.
“Until an energy use is electrified, it’s hard to decarbonize it using green grid electrons. And while grid decarbonization is continuing at a steady pace, the US has made little progress in increasing the electricity share of final energy consumption”.
However, electricity still needs to drop in prices, or carbon taxes to increase the cost of gas, for it to be a truly competitive option against fossil fuels, especially when accounting for the capital costs of retrofitting existing foundries and factories for electrification.
Source: J.P. Morgan
Misleading Narratives
Solar Is Not There Yet
J.P. Morgan analysts also rightfully lambasted misleading claims made about the energy transition. For example, when claiming that occasional moments where renewables cover most of the energy demand are representative of the overall year.
Source: J.P. Morgan
“Renewables plus storage met 75%+ of the load in California, but only in 26% of all hours in the year. So, while renewables do meet substantial shares of the load in California from time to time, in most hours of the year, California’s power demand is still highly reliant on fossil fuels, nuclear power, and electricity imports.”
At the core, this is a problem of all renewables, as their production is inherently intermittent. So claims made on the topic are indeed outright misleading and dishonest.
What about Stanford’s Mark Jacobson and his claim on LinkedIn that in California, “wind-water-solar electricity exceeded 100% of demand for a record 98 out of 116 days” from March to June 2024?
Jacobson includes in his count of 98 days any day when wind-water-solar accounted for 100% of demand for as little as 5 minutes (!!!) during that day.”
Batteries & Power Reserve
The analysts are also skeptical that the current scale of battery installation can be enough, even with another 38 GW by 2027 on top of 22.5 GW already in place.
To support this, they notice that grid operators like MISO (Midcontinent Independent System Operator) are warning of serious challenges to grid reliability due to increased exposure to wind/solar intermittency.
As it retires fossil fuel plants powered by coal and gas, the grid might see less and less production capacity reserves, to the point of endangering its reliability.
Source: J.P. Morgan
Alternatives like burning green hydrogen during peak demand and low solar production are also facing “cost and technological readiness issues as major constraints” according to MISO.
Grid Infrastructure
As solar generation scales up and the electrification of fossil-fuel-based consumption happens, more power transmission will be needed. This might be an issue in the US, where local and global industrial capacities are severely constraining infrastructure expansion.
For example, transformer equipment has seen delivery times extended from 4-6 weeks in 2019 to 2-3 years in 2025. And this was before supply chain disruption from trade wars and tariffs. Not helping is the fact that half of all US transformers are near the end of their useful lives and will need replacing, along with replacements in areas affected by hurricanes, floods, and wildfires.
Source: ChinaTalk
Transformers are made with grain-oriented electrical steel (GOES),2 but there is only one domestic manufacturer, who is unable to meet domestic demand. Contributing factors include the destruction of the Azovstal steel plant in Mariupol and sanctions against Russian steel producers.
Rising demand for non-oriented electrical steel, a key ingredient in EVs that comes from the same manufacturing facilities, will also increase supply tension.
Source: ChinaTalk – Gridlocked: Transformer Shortage Choking US Supply Chains
The addition of more transmission lines is also stalling instead of growing, and falls very short of the Department of Energy’s goals.
Source: J.P. Morgan
Why So Slow?
This contrasted picture raises an important question. Why is the energy transition so slow compared to other technological revolutions, like for example the switch away from steam power or less advanced steel-making method, which took less than 30 years to be mostly a done deal?
Source: J.P. Morgan
The answer lies in the economic and technological advantages of these new technologies. New steel-making methods were allowing production times to be cut to less than a tenth of
open hearth furnaces, saving 80%-90% of energy demand. Meanwhile, electricity for mechanical power was more flexible, reliable, and efficient than steam.
So unfortunately, renewables are still less reliable than fossil fuel, and not significantly cheaper. So while previous industrial transitions “paid for themselves”, green energy has not yet reached this point (but might soon, see below).
“Fast historical industrial transitions financed themselves via returns accruing to innovators and early adopters, while the gradual and linear renewable transition shown on the prior page has required $9 trillion of global spending since 2010 to move along.”
It is likely important to note that while criticizing green energy blind enthusiasm (or outright lies by omission), J.P. Morgan analysts are fully on board with the need for decarbonization, acknowledging not only global warming but also ocean acidification due to the absorption of CO2.
Making Accurate Predictions
Observing the current limits of the energy transition is important to form an informed opinion. But it is only relevant to make accurate predictions.
Investors will need to know a few things to accurately navigate this challenging environment and pick the winner of the energy transition.
Chinese Solar Dominance To Stay
In the short term, solar panel production is going to stay a China-dominated industry. Two key reasons are driving this conclusion.
First, polysilicon, the main component of solar panels, has seen its prices plummet in 2024 and 2025. This puts any polysilicon producer without scaled-up production at a disadvantage compared to cheaper Chinese manufacturers, which are able to survive these low prices. Tariffs could boost domestic producers, but at the cost of making solar panels less competitive and slowing the adoption curve.
Source: J.P. Morgan
Another factor is that other components in the renewables and EV supply chain, from raw materials to finished products, are massively dominated by Chinese manufacturers.
Source: J.P. Morgan
Replacing them will require years, or maybe even decades of investment. In 2024, 60GW of solar capacity was imported, and only 9GW was produced domestically. Even if fully ramping up nameplate capacity, only 40GW production would be achieved, likely only several years in the future.
So overall, it will take time for the West to stop relying on China if it wants to sustain momentum in transitioning to solar energy.
Source: J.P. Morgan
Electrifying Everything?
The bank analysts note that heat pump sales have been stagnating since 2022, in large part due to declining gas prices compared to electricity prices, negating heat pumps’ higher energy efficiency. The same can be said for electricity use in industries, where gas is often 2x-5x cheaper per MJ (megajoule).
Energy transition in transportation is more of a success story than industry and heating. EVs make up more than 1/5th of global new vehicle sales, and are quickly growing as a percentage of the total vehicle fleet, with China recording both the highest percentage in absolute terms and in growth rate.
Source: J.P. Morgan
The driving force of this transition has been the Lithium-ion battery pack price, divided by 8 since 2013, and is still falling. Lithium iron phosphate (LFP) battery cells and other upcoming innovations like solid-state batteries are likely to permanently push EVs as the default option not only for cars, but even heavier transports like trucks and buses (potentially using battery swapping).
Source: J.P. Morgan
So overall, electrification is in full swing for transportation, but barely getting started for heating and industries.
Nuclear Renaissance In Limbo?
The bank analysts are skeptical of the narrative around a nuclear renaissance, using the catchphrase “Wake me when we get there”.
On one hand, they acknowledge the growing stream of innovative companies in the sector, including SMR companies.
On the other hand, it is true that almost all the new nuclear capacity to come online until 2030 is from developing countries, with the top 5 being China (by far the largest), India, Turkey, Egypt, and Russia.
Source: J.P. Morgan
And so far, SMR projects have failed to achieve their intended decrease in costs, which might only materialize when produced at a much larger scale.
“There are three operating SMRs in the world (two in Russia and one in China), and another under construction in Argentina. The cost overruns32 on the China SMR was 300%, on Russian SMRs 400%, and on the Argentina SMR (so far) 700%.
I’m still skeptical of the ability to modularize and shrink the world’s most capital-intensive projects; some Western SMR projects may cost between $15 and $20 million per MW by the time they’re completed.”
They also point out the US dependence on foreign supply for uranium and HLEU (High Assay Low Enriched Uranium) fuel. Here, too, it will take time to rebuild the industrial capacity before any significant increase.
Oil & Gas Versus Renewables Investments
For investors interested in the energy sector, transition data and technological knowledge are not everything. Relative valuation and performance can also impact financial returns.
The J.P. Morgan report recognizes that since 2021, the US shale period of losses has ended, and fossil fuel investment outperformed investment in the renewable sector.
Source: J.P. Morgan
It should be however noted that shale’s free cash flow has collapsed into negative territory again in 2024, and that was before Trump’s tariff-induced crash in oil prices.
Tariffs & Trade War
In theory, the second Trump administration is looking to give favor back to fossil fuels, with “expected reduced EV credits, a smaller expansion of wind/solar production/investment tax credits, reduced 45x manufacturing tax credits (mostly EV battery projects) and a decline in certain renewable spending categories”.
Permitting of new wind projects (offshore and onshore), ending DoE efforts to ban gas appliances, and less aggressive carbon emission targets are also likely.
In practice, it is unlikely that the US oil industry can go “drill baby drill” with lower oil prices. The gas industry might also suffer from collapsing US LNG exports, with more gas saying at home and pushing domestic prices lower.
In parallel, massive tariffs on Chinese goods might entirely kill imports of China-made solar panels. This could have many conflicting effects on the green transition, with investors having to pick only the winners in this situation:
- Installers might be short of panels to install for several months or years.
- Local manufacturers now have a protected domestic market, as little non-Chinese production exists elsewhere in the world, even in lower-tariff countries.
- The energy transition speed might slow down, but local suppliers of raw materials will be in high demand and could collect a “supply chain safety” premium for their products.
Future Technologies
While mostly discussing immediate energy-related concerns, the report also touches on the bank’s view on several future technologies.
In the opinion of J.P. Morgan, superconductivity at high or even room temperature is not coming anytime soon, which is likely in the sense that even the most promising new discoveries like tungsten-selenium or samarium-europium-calcium-nickel oxide superconductors will take time to reach mass production.
Decarbonization of shipping is also something that will take time even if some companies are ordering fuel able to run on methanol or ammonia, in part because being “ammonia ready” does not mean it will stop using fossil fuel, in part because most ships in the oceans today will still operate for decades to come.
Sodium-ion batteries might have potential, but more for low-end EVs and stationary energy storage.
Conclusion
The energy transition is a bit of a Rorschach test for many investors. Green enthusiasts want to see it happening as fast as possible, and sometimes ignore signs that it is not that quick, nor that simple.
At the same time, skeptics tend not to realize, or refuse to acknowledge, that solar is now the dominant new form of energy being installed, and that, for example, EVs are reaching the point of becoming economically superior to fuel cars in all price ranges.
Some restrictions are going to be difficult to solve, like, for example, a shortage of transformers and too little investment in the grid for too long a time to reverse course quickly. In the same way, China’s dominance over green energies will likely last at the very least another decade, irrespective of the policies chosen today.
At the same time, the decrease in costs for battery storage and solar panel prices, stemming from both technological innovation and economies of scale, could radically change the equation around the competitiveness of electricity versus gas or the difficulty of balancing renewable intermittency.
By 2030 and beyond, mass deployment of utility-scale batteries should help significantly compensate for the limits of renewables and likely put the coal industry in terminal decline. The slow-moving nuclear renaissance should also start to kick in by the mid-2030s, helping to further decarbonize our energy mix.
Because the energy transition is highly politicized, involves literal trillions of dollars, and affects very complex and technical systems, it is not surprising that a clear understanding of it is often lacking. In that regard, this J.P. Morgan report is illuminating in bringing a lot of data and facts for investors to make better decisions in the energy sector.
Energy Transition Company
NextEra Energy, Inc.
NextEra Energy, Inc. (NEE +1.02%)
NextEra is a massive utility company, having no less than 72 GW of power generation capacity, of which more than half is renewables, as well as some low-carbon nuclear power from seven nuclear power units in Florida, New Hampshire, and Wisconsin.
Source: NextEra
In 2024, the company added 6GW of renewable and storage capacity and also expanded smart grid technology to 2.7 million customers in Florida. The backlog of future projects also increased by 12GW in 2024.
This should ensure a steady growth of 6%-8% for NextEra’s earnings per share until 2030.
Thanks to its almost ideal geographical location, NextEra could be a clear winner in the push for switching to renewable energy and “decarbonizing America” and in making Florida a “green” state. The company also provides an above 2% dividend yield in addition to the expected growth.
We covered NextEra in deeper detail in our Spotlight article “NextEra Energy (NEE): Powering the Trump-Driven Reindustrialization“.