Technology Trends Outlook 2025 - McKinsey & Company

Energy and sustainability technologies encompass a broad spectrum of innovations aimed at transforming the global energy landscape toward a more sustainable and resilient future. This includes the spectrum of technologies transforming the global energy value chain, particularly focusing on clean electrons, electrification, and clean molecules. The trend—and why it matters Energy is the backbone of modern society, powering everything from industry and transportation to digital infrastructure and daily life, so the transformation of its production, storage, and distribution systems is one of the most consequential challenges and opportunities of our time. Our analysis of this trend examines the spectrum of technologies transforming the global energy value chain, particularly clean electrons, electrification, and clean molecules. While the broader trend encompasses everything from grid infrastructure to carbon management, our research primarily focuses on the innovations that enable the generation and use of low-carbon electricity and fuels.

Additionally, energy and sustainability technologies are far from uniform, having substantial variation in their cost profiles, maturity, adoption rates, and potential for future cost reductions. The energy transformation is unfolding against a backdrop of rising geopolitical tensions, shifting policies, and macroeconomic uncertainty, all of which shape investment decisions and technology deployment. Tariffs on clean-energy technologies, such as solar panels and electric vehicles, could increase costs and complicate global supply chains, while competition for critical minerals and components is intensifying among major economies.

Policy support for transforming energy systems is shifting in various countries, and infrastructure gaps are significant. At the same time, the explosive growth of data centers is driving up electricity demand, putting additional pressure on grids. As a result, the energy transition is a question of not only decarbonization but also ensuring that new systems are affordable, reliable, and globally competitive—objectives now at the forefront of policy and industry strategy. Key uncertainties are also shaping the trajectory of the energy transition. Beyond the “adoption problem,” defined as the complex set of barriers to scaling and commercializing new climate technologies, fundamental innovation challenges pose obstacles to developing breakthrough technologies that are cost-effective, reliable, and scalable. The need to rapidly build out critical infrastructure amid supply chain bottlenecks, labor shortages, and regulatory delays compounds these challenges. The availability and sustainable sourcing of key materials such as lithium, rare earth elements, and other critical minerals also pose potential obstacles to achieving global net-zero commitments.Finally, energy transitions differ regionally, with the “global north” working to manage rising energy demand and scale low-emission technologies while the “global south” faces the dual challenge of expanding energy access and decarbonizing across diverse, country-specific contexts.

Latest developments Recent developments in energy and sustainability technologies include the following: — The demand for electricity has surged significantly. Data centers alone have become one of the largest drivers of rising global power consumption, highlighting the urgent need to deploy low-emission power systems capable of meeting this growing demand. However, achieving decarbonization goals requires addressing several critical challenges, including ensuring flexibility in production and demand to balance baseload requirements, managing the intermittency of renewables 98 such as wind and solar, and tackling economic hurdles such as falling capture prices for renewable-energy sources. In Texas, for example, gas peaker plants and engines are springing up alongside battery energy storage systems to ensure energy availability during peak periods. Additionally, investments in renewable-energy sources increasingly rely on power purchase agreements backed by strong balance sheets to remain viable amid market volatility.

Without systemic fixes—such as new market mechanisms, streamlined permitting and construction timelines, enhanced peak power solutions, better optimization of existing infrastructure through smart-grid and time Technology Trends Outlook 2025 based contracts, and improved operational f lexibility—electric systems risk becoming a bottleneck in broader decarbonization efforts.
— Advances in measurement technologies, such as satellite imagery and light detection and ranging (LiDAR), have enhanced the ability to monitor and model environmental impacts with greater precision and lower costs. These tools enable more accurate emission tracking, land use changes, and ecosystem health, which supports better decision-making for climate initiatives and regulatory compliance. For start-ups developing climate technologies, these innovations provide critical proof points that validate environmental benefits, helping to secure long-term contracts and improve projections of technology performance and impact.

— Hydrogen is increasingly viewed as an important option for decarbonizing hard-to abate sectors, with ongoing technological advances and policy support laying the groundwork for future growth. Although high production costs and slow project progression continue to present challenges, innovations in electrolyzer technology and integration with low-cost renewables are gradually improving the outlook. Europe remains at the forefront in developing the hydrogen market, and China is rapidly expanding its electrolyzer manufacturing capacity, signaling growing momentum even as the sector works to overcome key barriers to large-scale adoption.

— Advanced biofuels and e-fuels are gaining traction, though challenges remain. Innovations in biofuel production, such as fuel from agricultural waste, are improving efficiency and reducing costs. Uncertainties remain in scaling production and reducing the gap between the costs of biofuels and conventional fossil fuels, which underscores the need for continued investment and supportive policies to accelerate adoption.

— Nuclear power is attracting attention because of its ability to provide stable baseload electricity. Several countries have initiated or expanded their nuclear fission programs, and 31 countries have committed to tripling global nuclear energy capacity by 2050. However, the sector faces persistent challenges, including high capital expenditures, lengthy construction timelines, and ongoing public concerns about safety and nuclear waste. Advances in small modular reactors (SMRs) and improved economies of scale could help lower costs and accelerate deployment, but the future role of nuclear remains highly uncertain. Depending on decarbonization pathways, policy support, and the pace of technological progress, nuclear power could account for anywhere from 8 to 43 percent of global electricity by 2040, with market revenues varying widely, potentially reaching $400 billion, though only under the most optimistic scenarios. In addition to proven f ission technologies, the promise of nuclear fusion for power generation is attracting investment, but significant technical challenges need to be overcome to make this technology a reality.

Adoption developments across the globe Adoption score: 3—Piloting. Organizations are deploying the technology in the first few business use cases, via pilot projects or limited implementation, to test its feasibility and effectiveness. But adoption rates of energy and sustainability technologies vary significantly, reflecting differences in technological maturity, economic viability, and enabling infrastructure. Some, such as solar-photovoltaic (PV) and wind power, are scaling rapidly in certain regions. Currently, China leads globally in solar PV manufacturing capacity, while India is scaling its production capacity and is expected to become the second-largest solar PV manufacturer by 2026. Other technologies, including green hydrogen and synthetic fuels, are in earlier stages of development. For some use cases, adoption is complicated because established low-emission technologies can’t deliver the same performance as high-emission alternatives.

Furthermore, the lack of established track records and other constraints have impeded deployment. Challenges beyond the technological include supply chain readiness, labor availability, and construction complexities. Without addressing these interconnected challenges holistically, achieving widespread adoption and maximizing the potential of various energy technologies will remain difficult. In real life Real-world examples involving the increasing demand for power and innovations in green electricity include the following:
—British solar-technology company Oxford PV achieved a milestone in 2024 by commercializing its perovskite tandem solar technology, shipping the first panels to a US-based customer. These panels provide as much as 20.0 percent more energy production than standard silicon panels and have a module efficiency of 24.5 percent, marking a significant advancement in solar technology.

—Enpal, a leading German solar-energy company, is investing in workforce development to scale solar-energy adoption. In June 2024, it launched Europe’s largest Heat Pump Academy in Blankenfelde-Mahlow, investing several million euros to train installers and specialists in heat pump technology. This initiative aims to create more than 1,000 additional jobs in the German heat pump sector to support Enpal’s ambition to become the market leader in heat pump installation.

—Boston Metal, a Massachusetts-based start-up, is using molten oxide electrolysis technology to revolutionize steel production and high-value metals extraction. Its process uses electricity instead of fossil fuels, with the potential to reduce by as much as 10 percent of global carbon emissions linked to traditional steelmaking. In 2025, the company successfully operated its largest reactor yet, producing more than a ton of steel in a single run. — KoBold Metals uses AI and data analytics to explore critical battery metals such as cobalt, nickel, copper, and lithium. By integrating large data sets from geological, geophysical, and geochemical sources, the company aims to improve the efficiency and accuracy of identifying potential mineral deposits.

KoBold collaborates with mining partners across various regions to support the sourcing of materials essential for electric vehicles and renewable energy technologies. Its approach can address some challenges in mineral exploration, though the long-term impact on supply chains and sustainability continues to evolve.

— Electrified heat solutions, such as Coolbrook’s RotoDynamic Heater, are gaining traction. These systems use electricity to generate very high heat to decarbonize industrial processes. The technology demonstrated its capabilities for use in high-temperature process heating, completing its first phase of large-scale pilot testing. Coolbrook says its RotoDynamic Technology could reduce global CO2 emissions by as much as 30 percent by replacing fossil fuels in energy-intensive industries such as steel, cement, and petrochemicals. The following is a real-world example of advances in measurement technologies: — Carbon Mapper, a not-for-profit coalition leveraging advanced satellite technology, launched the Tanager-1 satellite in 2024 to detect, pinpoint, and track methane and CO2 “superemitters” worldwide with unprecedented precision. The coalition makes facility-level emissions data publicly accessible to empower rapid mitigation and support global climate goals. By combining NASA JPL’s cutting-edge imaging spectrometer with Planet Labs’ agile satellite platform, Carbon Mapper’s open data helps governments, industry, and the public identify leaks and verify reductions. The following is a real-world example of advances in hydrogen: — China’s rapid expansion of electrolyzer manufacturing capacity, now accounting for about 60 percent of global output, has driven down equipment costs and positioned the country as a key supplier for the world’s emerging hydrogen economy, with projects expected to exceed national targets by the end of 2024. This surge is enabling more affordable green-hydrogen production globally and attracting international project developers, even as the sector continues to face challenges with project financing, infrastructure build-out, and alignment of renewable-energy supply with hydrogen demand.

The following is a real-world example of advances in biofuels and e-fuels:

— E-fuels—synthetic fuels made from renewable electricity—are emerging as a promising technology for decarbonizing sectors such as aviation, shipping, and heavy-duty road transport. The Swiss company Synhelion and others are developing e-fuel production processes that skip traditional steps, potentially reducing costs. In 2024, Synhelion inaugurated DAWN, the world’s first industrial-scale plant that produces synthetic fuels using solar heat, in Jülich, Germany. Synhelion’s process uses concentrated solar energy to achieve temperatures as high as 1,200°C in a thermochemical reactor that produces synthetic gas directly from CO2 and water. This could reduce production costs and improve overall efficiency. Real-world examples of advances in nuclear power include the following: — Small modular reactors (SMRs) promise to lower costs and accelerate deployment for nuclear fission plants, with efforts underway in both the United States and Europe. In the United States, companies such as Oklo, X-energy, TerraPower, and Kairos Power are racing to develop commercially viable SMRs and secure domestic fuel supply chains. Microsoft, Google, and Amazon have announced agreements with operators and developers of nuclear power plants to help meet the growing demand by data centers for power.

— A new wave of companies and public initiatives is racing to make nuclear fusion a practical source of clean energy. Commonwealth Fusion Systems and UK-based Tokamak Energy are building different designs of tokamak-based reactors using powerful superconducting 102 Technology Trends Outlook 2025 magnets, while Helion is developing a linear, pulsed system. Government-backed projects such as ITER in France, KSTAR in South Korea, and EAST in China are pushing the boundaries of plasma science. However, all these efforts remain experimental, and fusion’s promise of abundant, carbon-free power is uncertain until the technical challenges are overcome.

Underlying technologies The technologies that power energy and sustainability technologies include the following:
— Nuclear fission. This low-carbon energy source provides baseload power, contributing to grid stability and emissions reduction.

— Renewables. Clean-energy sources such as solar, wind, and hydropower are essential for decarbonizing the electricity sector. — Advanced solar-PV systems. These are next generation solar technologies that improve efficiency and reduce costs. — Hydrogen. As a versatile energy carrier produced from renewable sources, hydrogen could decarbonize hard-to-abate sectors. — Sustainable fuels. These are low-carbon alternatives to conventional fossil fuels, including biofuels and synthetic fuels, for reducing emissions in transportation and industry. — Batteries.

Energy storage devices enable the integration of intermittent renewable energy sources and support electrification of transportation. — Energy storage. These technologies store energy for later use, thus balancing supply and demand in renewable-energy systems. — Heat pumps. These efficient heating and cooling systems transfer heat from one location to another, reducing energy consumption in buildings. — Smart-grid technologies. Advanced electrical grid systems optimize energy distribution, enable integration of distributed energy resources, and incorporate demand-side f lexibility solutions to balance supply and consumption patterns. — Measurement, reporting, and verification (MRV) systems. These tools and processes accurately quantify and track emissions and removals, ensuring the effectiveness of climate mitigation efforts. — Energy-efficiency technologies. This set of technologies comprises technologies and practices that reduce energy consumption while maintaining or improving the level of service provided.

Examples include high-efficiency appliances, improved insulation, smart systems for building management, and optimized industrial processes.

— Carbon capture or direct air capture (DAC). These technologies are designed to capture CO₂ emissions either from point sources (for example, power plants or industrial facilities) or directly from the ambient air. The captured CO₂ can then be stored permanently underground or used in various industrial processes. — Long-duration storage. These energy storage technologies can store energy for extended periods (ranging from several hours to days or even weeks), addressing the variability of renewable-energy sources and ensuring grid reliability. Examples include advanced batteries, pumped hydro storage, compressed air energy storage, and hydrogen storage. — Thermal energy storage. These technologies store energy in the form of heat or cold for later use. This can include storing heat from solar thermal collectors, industrial-waste heat, or excess electricity for heating or cooling applications. — Adaptation solutions. These are measures taken to adjust to the actual or expected effects of climate change. Adaptation encompasses a wide range of actions, from building more resilient infrastructure and developing drought resistant crops to implementing early-warning systems for extreme weather events and managing coastal retreat. Key uncertainties The major uncertainties affecting energy and sustainability technologies include the following: — Grid resilience and flexibility. The ability of power grids to handle increasing amounts of variable renewable energy while maintaining stability and reliability is a major uncertainty in the energy transition.