Energy Musings - November 17, 2025

Despite having to backtrack on its peak oil call, the IEA's World Energy Outlook 2025 report emphasizes how well renewables are doing and with electrification they will push fossil fuels out.

Promoting The Green Revolution’s Success

With COP30 underway in Belém, Brazil, the International Energy Agency (IEA) released its long-awaited World Energy Outlook 2025 (WEO). We had written about the rumored change in the IEA’s scenarios for projecting future energy demand, with significant implications for fuel mix and emissions. The IEA, some say, cowed by criticisms by U.S. Energy Secretary Chris Wright and threats of possible U.S. funding cuts, reinstated its Current Policies Scenario (CPS) for energy market planning. CPS was sidelined about six years ago in favor of more aggressive emissions-cutting scenarios, in keeping with the IEA’s alignment with the U.N.’s push for a net-zero emissions world by 2050.

As drafts of the WEO 2025 report were circulated, reviewers often went public with their observations on what the report would predict about future energy markets. They cautioned that the final report might differ from the draft they were reviewing. The IEA had been wrong about its coal peak consumption scenario for years. Therefore, the IEA’s statement that coal consumption would rise for a couple of more years before plateauing and then declining didn’t seem like a radical change.

The most controversial and consequential IEA prediction of the past few years was its call for a peak in oil consumption by 2030. Therefore, according to the IEA, there was little need for additional oil exploration and development spending as renewable energy sources would supplant fossil fuels in the foreseeable future. Unsurprisingly, international energy companies and OPEC pushed back on the forecast that their businesses were about to decline.

The politicians who wholeheartedly embraced the IEA’s outlook were quick to implement policies that ensured that the forecast came true. Fossil fuels were constrained and penalized at every opportunity. To the contrary, every green energy source was rewarded with preferential regulatory treatment along with hefty taxpayer subsidies. Renewables were praised for leading the global “energy transition,” however, the reality is that they were adding energy to meet the needs of growing economies. Despite rapid growth in renewable power capacity additions and increased electricity output, the contribution of fossil fuels to primary energy growth remained greater.

We plan to review the WEO report in depth after having had time to read it thoroughly. What we know from the summary of conclusions is that the IEA works to debase the idea that CPS is a “business as usual” projection. That scenario predicts that oil demand will rise from 100 million barrels per day in 2024 to 113 million barrels per day in 2050. While a 13% increase in oil consumption over the next 25 years may seem unimpressive, it contrasts with the IEA’s previous forecast of a peak in oil use by 2030 and much lower consumption by 2050.

We are also learning that the IEA is paying greater attention to policies that improve a country’s energy security and increase its affordability for citizens. As energy security is another name for reliability, the IEA is acknowledging that these two energy qualities rate higher than clean energy, not that it is ignored. Indeed, we need energy sources that unquestionably satisfy the first two qualities because alternatives can retard economic progress. However, we also want the cleanest energy option available.

The IEA is also emphasizing The Age of Electricity. This is a theme they have tried to promote for a while, but it has now become a backdoor way to underscore the need for more renewable energy. Renewable energy has a greater share of electricity generation than primary energy, providing the IEA with an opportunity to emphasize the importance of renewable energy.

Reading an article about renewable energy and how successfully Western nations are deploying it, we found a commentary on how clean energy stock prices had risen by 30% this year. That sounds like a very successful investment and business strategy. Investors following that strategy should be loading up on these stocks. The clean energy stock performance referred to the Nasdaq Clean Edge Green Energy Index (CLES).

“The Nasdaq Clean Edge Green Energy Index is a modified market capitalization weighted index designed to track the performance of companies that are primarily manufacturers, developers, distributors, and/or installers of clean energy technologies, as defined by Clean Edge.” The price action of the largest companies in the index has a more significant impact on a market capitalization-weighted index. By modifying that construction, the index will enable smaller companies to boost their contribution to the overall index performance.

The following chart illustrates the performance of the CLES index for 2025. What we see is that the index declined from the start of 2024 to late April. We believe that performance was directly related to the Trump administration’s rhetoric and actions against renewable energy projects and policy. In late May, the legislation known as One Big Beautiful Bill (OBBB) was introduced to Congress. It was eventually passed and signed by President Trump on July 4^th. However, the items that formed the OBBB began to be disclosed as the bill was being formulated in the weeks leading up to the May filing. When renewable energy investors learned that many of the bill’s negative aspects would likely be less onerous, they began buying renewable energy stocks.

Clean energy stocks are doing well since late April.

While the comment about CELS’ performance in 2025 is accurate, a longer perspective delivers a very different message. The index began trading on November 17, 2006, at 250. As the chart of CLES’ history shows, the index rose until the start of 2008. It struggled during most of 2008, until the Great Financial Crisis exploded, which caused the index to drop by 63%, along with the rest of the stock market.

For years, the index had remained relatively unchanged. As climate change became a central focus of society at the end of the 2010s, the index began to rise, only to be disrupted by the fallout from the global economic shutdown due to the pandemic in early 2020. Once the world’s economy restarted, green energy was championed by the United Nations, various governments, and the IEA. CLES soared, rising to a peak of 1,152 on February 8, 2021, the height of the climate change alarmism campaign.

If you had bought the index when it began trading and held it until the peak, you would have made 460%, but that would have required holding it for over 15 years. However, if you were astute enough to buy CLES in 2020, after it fell below its initial trading price, you made a return of over 520%. And that profit was made in months, not years.

The history of clean energy stocks shows a lack of returns until recently.

The problem with focusing on the performance of an index is determining how much is attributable to the hype surrounding the future fortunes of the stocks that comprise the index, especially the larger market capitalization ones, versus the overall sentiment of the stock market. For example, if you were tracking CLES during its spectacular rise before 2020, you might have been unfortunate to have bought the index at its peak, only to lose 47% to date. It was worse if you sold out at the index’s bottom earlier this year. That trade would have cost you 71% of your capital.

How has your clean energy investment done over 2005-2025? If you bought CLES when it was issued and held it to now, you made 246%. Of course, that is over 19 years. The more important calculation is how CLES performed against the Standard & Poor’s 500 Index over this span. The S&P 500 rose 625%, or 2.5 times the CLES return.

As the landscape for green energy is shifting, these stocks are likely to be more pedestrian in their trading. The loss of government subsidies is revealing flaws in the business models of green energy companies. Renewable energy equipment suppliers are reporting financial distress, cutting employment, postponing new plants, and some even filing for bankruptcy. Much of the financial success of green energy companies was reported during the era of ultra-low interest rates, which enabled companies with highly leveraged balance sheets to survive and boost their returns on equity. Although interest rates are being reduced, it is unlikely that we will return to the era of zero interest rates. Therefore, these stocks will be forced to allocate a greater portion of their revenues to debt servicing, thereby reducing the profits available to shareholders.

The IEA’s changed outlook for the future of oil, natural gas, and coal will draw increased investor attention to their stocks. While fossil fuel energy stocks have been underperformers for a while, their fortunes may be on the cusp of improving. The IEA’s WEO 2025 will draw greater attention to that improving future. But the IEA cannot stop beating the drum for renewable energy. Will renewable energy stocks continue to rise, or will profitability challenges discourage investors?