Top Trends for 2026: Data center demand soars; global solar installations peak; and more (Ep. 226)

All right, welcome back to S&P Energy's energy sense podcast, which covers all topics on the intersection of energy and finance. I'm your host, Hylvaden here with the other host, Sam Humphrey. Sam, how's it going? It's very well. It's very well. I'm very well. I'm happy new year. This is the first of the year. It's doing a great start so far. This is the first year. How are you? We're still talking in 2025, and we've chosen again to do a list, a top 10 list, which is a big theme for research, shops like ours, getting top 10 predictions out. This one is based off of the, I'm going to read the official title, the S&P Global Energy Horizons, Top Trends for 2026. This is really focused on clean tech markets and was previously the clean tech top trends which we caught at last year. It's really kind of a, I don't know, I had my favorite things going through my head. I don't know if you're, we were talking about Julie Andrews yesterday. Good on Julie Andrews. We've got Francesco Devak, who is one of the lead researchers within the Saraisan's Clean Tech focus group, and he doesn't sing, but he does a good job describing, maybe his favorite things from the list. We don't go into everything. Hein at some of your favorite things, John Caltrain's also the other, my favorite things, which Julie Andrews. I kind of want to do it in song now, but I feel like people don't need to suffer that. But it was great. Like you said, this is a top 10, so not all of our themes that we put out as S&P Energy are 10s, but this one is, and we kind of touched on three or four of them really. And the interesting thing I thought was the relevance of China and sort of the US and Europe. Those two markets are very, very different and how the two are expected to evolve over the years. So we touched on solar and the markets there. Good monetization, electric vehicles and hydrogen. I didn't think we'd be talking about hydrogen this year. It's something we've sort of not spoken about for a while after a lot of conversations previously, but it's really interesting in how those two economies are approaching clean technology and renewables and the role that policy is still probably going to play in kind of bringing these into economies. What about you? What did you think? Yeah, I mean, I'll echo what you said. And I think just China is such a large force in this market. And combined, I think the other thing is the nuance that some of these things, for example, one of the predictions or one of the forecasts is that solar installation year-over-year global evil decline. And they rise pretty much everywhere else in the world but China on the kind of collective basis here of US, places like that. But because China has been such a large force here that the absolute value is decline. So I think getting into the details is important. I will note for everybody that the link to the full list, it's in the public domain and that is in the liner notes of the abstract here. So please click on it and we'll hand off to Francesco now. Enjoy. All right, Francesco, thank you for joining us as we wrap up the end of the year here in 2025 and look forward to 2026. These top 10 lists or top picture number lists that S&P publishes across the energy practice of what to look forward to in the coming year are always a highlight for Sam and me. And the clean tech one is one of the more interesting ones every year. And I think this year is no exception. And we're not going to go through all 10 of the top 10 items on the clean tech things to watch this year but I will note for listeners that the one that's available in the public domain and we'll put that link in the chat or the liner notes here. And two, it reflects contribution from across several different teams contributing to the clean tech themes so it's everything from electrons to molecules that is global in nature. And so Francesco, maybe if you can kind of describe or highlight some of the big themes that help to provide the structure of the top piece for the clean tech top 10 in the coming year 2026. Yeah, sure. And thanks for having me on. So yeah, as you said, this is an exercise that we all enjoy and love every year for Christmas we get together and get to talk about our favorite things and what we think are going to be the themes and discussions that are going to define the year ahead. And then the challenge obviously is to weave all of that into a coherent and consistent story, right? The way that we approach it this year really is to think of it in terms of two big shocks to the system. You have on the one hand, you have the one that everybody's talking about, you have growth, the power demand growth from AI as the demand shock and you have renewables coming into the system as the supply shark. And there is a twist to that story and that renewables are growing and can go a bit more deeply into that. But the key thing really that's going to happen or that we expect at the moment to happen that's going to define the next year is it for the first time ever the growth. So the increase of annual additions is going to drop for the first time that I have been looking at this sector which is way too long. And so that's kind of really a first for 2026. And these two shocks to the system have consequences, right? One of the consequences is that if AI growth is leveraged or power, power, greedy is leveraged on the ability of the grid to follow. And the other is that with that very high growth of demand and with that shock of increasing amounts of renewables, even if there's a slowdown, the way that kind of business models and the way that the power is paid for will have to change. We also looked into other sectors, you know, from hydrogen to other low carbon fuels to EVs. And really what's kind of the constant here is a shift east and the rise and the consolidation of the position of China in that clean tech, climate tech space. And then there are other things around carbon policy and climate policy and carbon accounting that are going to be important. And a final thing that I really want to stress, that's that all of this, everything we're talking about is happening in a physical environment and in a world where climate change is happening and it has financial consequences and these consequences have caused that companies need to adapt for. So in the context of everything else, adaptation is increasingly becoming an important strategy and not something that people look as kind of a plan B but something that more and more obviously is something that has to be part of plan A. So yeah, I think that kind of tells the high level story of we approach these trends this year. Let's start off with one of the points that you mentioned right at the start there was the sort of slow down of that addition of renewables into the system and again you kind of mentioned China as well to start with so one of the themes is relating to the growth of solar and the cell market. Can you dive in a little bit of what we are expecting to see next year in that space? So yeah, let me actually take a little step back because I think it's important to get the context right. I said that I've been looking at this for way too long. When I first started looking at this at the solar sector, my colleagues and I were excitedly tracking single digit megawatt project announcements because those were the largest system in the world just commissioned in southern Spain with 20 megawatts. Zoom forward to this year and we expect almost 500,000 megawatts or actually more than 500,000 megawatts of solar to be added in just one year. And we still analyze use lots of different numbers that's megawatt AC so that's the capacity that the grid sees. And that is just a story of absolutely incredible growth. The other important thing to notice and that's fairly obvious that China is a very, very important part of that story. So the past 10 years, 50% of solar additions were brought online in China. And so whatever happens in China has an outsized effect on the rest of the market. And so what we've seen this year is really that there have been kind of two halves where there was a policy change in June that everything that was commissioned before her kind of got a guaranteed price. And then after June there was a policy change that's linked to the wider power sector liberalization in China. which means that now a sort of projects have to compete. And so that led to a rush of installations in the first half of the year with amazing figures, like 90 gigawatts of projects added in May, and then a dramatic drop. And that's, you know, until the market kind of figures out how that works. So if, you know, until maybe there's policy that changes again, we think that that leads to a dramatic drop in additions overall, we expect about 300 gigawatts to be installed. This year in China and that drops to 200 gigawatts next year. So there's a 100 gigawatts drop that we currently anticipate that hits the market. And that's just too big for any other market to pick up, right? So even if you see the market still growing, the overall effect is that the annual addition, so the extra amount that we're installing every year is dropping for the first time that we are looking at this. And I should add that as analysts, this is the kind of predictions that always makes us very nervous because it's very dependent on policy and policy is very difficult to predict. And China has stepped in before to support its formidable industry. And so it is possible that that, you know, policy will change that. But talking to analysts on the ground right now, the mood is very pessimistic. Our current outlook might even be a little bit on the high side based on that. But again, as you said, I mean, a policy announcement can change that, of course. So I think one of the important contacts looking at this, what I'm hearing from you that China is just such this incredible force within the clean tech landscape that China's solar installations are going to fall in 2026 based on what we know right now. But solar installations in the US are going to grow year over year, solar installations in Europe are going to grow year over year. And then the rest of the world collectively, solar installations are going to grow year over year. So as much as anything, this, I think, A reflects a maturation of the solar business as a whole and B, the impact of China specifically on clean tech, which I know bleeds into some of our other items in the top 10 list, the electric vehicle space. And particularly, can you talk a little bit about, I guess, A, get confirmed or deny that I'm on the right track with this China as kind of a two-speed area and B talk a little about the EV prediction. Yeah. So maybe just back to China as being kind of the thing that the term has grown. I think it's important to recognize that what we talk about here is additions. So if we say additions are slowing, it doesn't mean we have less solar. It just we have slightly less than what we added last year. Even though we're saying that additions are dropping, it still means that the total installed base of solar is going to double over the next five years compared to the previous period. So I think that it's important to keep that in mind. And that's very similar to EVs. I mean, it's like comparing EV sales to the size of the fleet. But before I go into EVs, I think that the one thing that I would stress and the reason why we are picking this is a trend where we think it's important, is that the entire solar industry doesn't care about the size of the fleet. They care about how many modules they can sell. And it thrives on extremely high volumes and expectations of a growing market. Because a lot of the capacity that's added, it's added basically in advance of that market happening. And so really what's changing for the first time is that this assumption of a constantly growing market is being challenged. And that will have very deep impact on the dynamic of how the solar industry operates. Obviously, the big manufacturers there, they're all extremely mature and large companies that have anticipated this. But nonetheless, for the first time, it's actually materializing. I think it's kind of, as you said, it indicates that we're entering a new phase of maturity in the market. He switched EVs. The story is in many ways similar, but it's also quite different. We're just looking at, back at some of our previous outlooks. And in 2021, we published a EV or zero emission vehicle report that looked at our predictions. Right at the time where the world was giddy in announcements of net zero ambitions and zero emission vehicle and mandates and things like this, fast forward five years, the mood of it has changed quite a lot, not only in the United States, but also in Europe right now, the ice of the internal combustion engine sales band is being questioned. And people in this wider environment of a policy reset world, people are questioning or pushing the limits or introducing flexibility to all of these mandates that have been announced. Yet if you look at the total sales of EVs that we have seen, they have actually much higher than what we had predicted than it is here. And the reason is China. China just grew much more rapidly than we had anticipated. It has reached a level where electric vehicles are price competitive with ice vehicles. And I think that tells you already one important thing is that the US isn't really a sufficient guide if you want to understand global EV dynamics. But it also tells you that China is not the only guy, right? Because China might be a big driver, but I think it's not the only one. And this is where I think there's a key difference between solar modules and EVs. Solar modules are essentially a commodity. And you can discuss about local supply chains and countries wanting to be reluctant to install solar modules. But EVs are a bit of a different commodity. And so what we're seeing more and more is that especially in the case of EV trade restrictions are increasingly important factor in determining whether markets are speeding up EVs or not. It's not only about economics. It's not only about net zero policies. It's also about if you have very strong domestic industry, people are attached to brands and things like this. Those are very important for EVs and also determined for uptake. So yes, China is a main driver, but it's not the only lens through which you can understand the rise of EVs. So if we move away a little bit from China, because you've kind of touched on it there, the differences between the solar and EV markets and China's influence. And instead, maybe look at the US or Europe and looking at the grid. So this is something that we have talked about before on the podcast. And it's the ability of the grid to accommodate, you know, rise in demand, a power and stuff. And the influence of renewables onto that system, can you talk a little bit about what we're expected to see in that landscape this year? Next year, this year. Yeah, almost this year. I think we can say this year. Yes, I completely agree here. Grid is not like it's a new topic and saying that this is a trend for 2026. It's, you know, OK. I think what changes a little bit in the context of the AI growth in particular is that before grids, we're kind of seen as the enabling in this infrastructure was necessary to put into place to support the growth of renewables. Now, you know, if you link the entire, you know, economic growth is kind of leveraged on AI in the States, the whole AI dominance. Agenda is really leveraged on power. And so if you then consider that the build out and the strengthening and the modernization of grids is part of what keeps the power sector back, then suddenly grids become not only an enabling factor for renewables, but they really become an issue of national competitiveness. And so I think that's because of AI, to a large extent, that's that will, that would mean that grids are shifting much more into the center of the conversation. And grids obviously there, it's a vast topic and we can do several podcasts on this. It's not all about, you know, accommodating more renewables. There's also decades of uninvestment. You know, it's really a mostly faceted topic. The one thing that I would highlight here though is that it's not just about, you know, building more stuff. There's also a lot about what can we do more with what we already have. It takes, you know, 10, 15 to more, 20 years to build new infrastructure. I think people are increasingly realizing that there are a lot of things that you can do to leverage what we already have. I mean, none of this is new. We have had great and hands-on technologies. We have had VPPs. But I think 2026 is going to be a year where a lot of people, because of this centrality of the topic, a lot of people will be relooking at this, rethinking about the incentives, rethinking about the policy frameworks, just because it's such a vital part of making sure that sector can grow. So kind of zooming out a little bit, a lot of what you're talking about, feels to me and I've already used the word maturation. once, but that the policy dependence of some of the clean tech supply seems to have lessened as the cost of decline around some of these technologies, solar and particular, and allowed that shift and focused to move more toward grid, which is more based on transportation rather than supply new supply generation. And I get the sense that 2025 was kind of a year where the physics and economics took over the policy conversation for some of these technologies. Do you think that is the right way to think about it? And really, 2026 we're moving into kind of a mature clean tech space where yes, the rate of growth slows because anything growing from a small base grows quickly. But now there's a lot of installation and maybe the absolute volumes continue to be meaningful, but that year, we're percentage is getting smaller up here. Does that make sense? Yes, yeah, I think that it makes sense there. There may be a few points I would like to maybe react to. The first is that when the most, you know, don't need policy, maybe not as in terms of support, but as as as an able. So I don't think, you know, policy is still very relevant and clearly with policy going against renewables or with just a lot of uncertainty, it is still going to have an impact on growth. So you can't say that, you know, it's just, you know, the physics and the economics. All of this happens in an environment of incentives that are largely shaped by a policy and also in an environment of regulations, right? That really can drive and inhibit the updates. But the first thing I would say is that policy is still relevant. If anything, it becomes more relevant. I think it's still a crucial part. And the second part about maturity is yes. I mean, I'm sitting here in Europe where markets are so inundated in a sense with renewables that the basically economics start to stop making sense, and which is one of the reasons why we where we choose PPAs and contextual structures as one of our trends, because in the markets so mature as you say, you know, we have to think about new business models on how we can renew, you can re-enumerate these renewables. The other thing though that I would say is that that's not true everywhere in the world. There are markets that are still, you know, very mature and very small. And I think one of the other things that we are going to see and that relates to this overall trend of things moving east is that with the combination of slowing demand in China and an ongoing pressure to find homes for all the modules that won't be installed there, there will be a lot of equipment that will be pushed into emerging markets. Pakistan was the big story of the past years. I think we're going to see more of those in the coming years. So, the debt won't look mature at all. The debt will look messy, it will look fast, it will look crazy. And I expect that we're going to see really a mix of mature markets and of really fast growing markets of policy maturing and of things happening completely beyond the scope of policy. If you think about Pakistan and a lot of these markets, a lot of this is happening behind the meter. It's just happening because it's a much cheaper option than to run a decent generator. And whatever policy does, it's still happening. So it really is going to be multi-dimensional, multi-speed. Okay. So one thing I kind of want to go back to a little bit is this conversation of China and the difference we are seeing or expecting to see this year between the markets there and the markets elsewhere. And one of those things, one of those items that you kind of mentioned in this report is hydrogen. Now, green hydrogen was something that was really hot topic a few years ago. And appetites seem to slide away. But that doesn't seem to be the case in China. Again, it's this story of China going ahead with technology at a pace that we haven't seen elsewhere in the world. So can you kind of just enlighten us a little bit on that story? That is different to the rest, particularly like US and Europe. You can try. Hydrogen is fine. High level is fine. So I think the story about hydrogen, as you said, is kind of the rest of the world is reassessing a little bit. This strategy has put into place. And there are many factors behind that. I think what I hadn't realized when I went into this person, what I learned with talking to my colleagues is that China is getting very serious about hydrogen. If you look at all, if you sum all the operational under construction and sanctioned hydrogen projects in the world, 60% of those are in China. And I think what we're really seeing is that China has decided that this is a long-term strategic sector that they want to play in, that they want to play in, that for a number of, you know, you cannot, Mark Reckon or make it, sectoral reasons. This is an area where they want to invest in. And not just for selling electrolyzes, not just for selling the kits and the technology, but also potentially for selling low carbon to green molecules. And so really what we expect in next year to see, and I think this is something that, I don't think many people fully realize is that China is going to establish itself as kind of the focal point for the production of both the technology, but also of low carbon molecules by hydrogen. All right. Well, I'm watching time, Francesco. And we've picked on the predictions around solar, around hydrogen, around grid modernization, around electric vehicles. We've left to the side some of the discussion around a new, I guess, hybrid PPA, it's just a sophistication of the PPA market, sustainable aviation fuel, that there's a bunch of other things in there and I encourage anybody listening to click on the link provided to learn more about the remaining items on the list as well as the ones we've covered. But Francesco, we're going to put you on the spot. We always like with these lists to understand what was left off the list that maybe you think is another thing that we could watch. I'm inspired by a spinal tap whose speakers all go to 11 rather than 10. So I like it. If other blocs need to go one more hire, they don't have anywhere to go, right? But spinal tap always had one more way to go. So if other blocs can't go all the way to 11, what would be your 11th or what would be the one missed on the list? Well, first of all, what I missed so far is your obscure culture reference. So I'm glad that we got there. You don't know spinal tap? Sorry, I'm going to interrupt for a digression. Rob Reiner died yesterday or two days ago. So it's also very timely and sad. All right. OK, you lost me now. No, yes. So the thing that was left off, I think, I mean, it's not incredibly original to say this, but I think the one trend that we haven't called out specifically is batteries. The fact is that our expectation for battery growth is it's going to grow very rapidly. One of the numbers that our team looks at is the ratio between storage and solar and sedation, so the attached rate. And if you take Europe as an example, over the past couple of years, it's always been that ratio has always been like 10 to 20 percent. So 10 to 20 percent of solar came with some kind of storage. 2026-2027, that ratio goes to 50 percent. So as we add more and more renewables, batteries are clearly to grow very, very rapidly. The reason why we haven't included this as a separate trend, and maybe that speaks to the theme that we've through this discussion on maturity, is that kind of batteries are now a part of everything. Right? They're a part of PPA. They're part of how of the data center discussion, they're part of the grid discussion because they can, you know, they're grid assets. So yeah, if there's one trend that didn't make it, but also really made it into all the trends, it is the increasing wall that batteries and energy storage going to play. Okay. That's a good one that also lines up with the overall kind of China theme as well, right? This China has just such a line share of market within the battery space, where it relates to the upstream minerals, the processing or the manufacturing. Technology, innovation, everything. Yeah. All right. Well, Francesco, we really appreciate you're doing this, and we look forward to 2026 to seeing how these items play out, and it's just always fun to look forward to a new year. (upbeat music)