The 2025 Energy Economy: A New Era of Growth, Disruption, and Uncertainty

The U.S. economy in 2025 is on a moderate growth trajectory—propelled by a strong labor market, rising household wealth, and consumer spending that continues to outpace income growth.

But recent indicators suggest emerging challenges. Notably, consumer spending experienced a 0.2% decline in January—the first drop in nearly two years—raising concerns about the sustainability of consumer-driven growth.

At West Monroe’s recent Utility Leadership Roundtable, we convened more than a dozen senior utility executives to discuss the evolving economic landscape, share perspectives, and analyze what it means for the industry.

The Big Picture: A U.S. Economy in Transition

For the past several years, the U.S. economy has outpaced its global peers in GDP growth. Since the end of 2019, the U.S. economy has grown 12%—far exceeding the gains in Europe, Japan, and Canada.

The primary drivers of recent U.S. economic growth:

• A resilient labor market: Unemployment remains near a 50-year low, keeping workers confident and wages strong.
• Rising household wealth: A $13.2 trillion jump in stock market and real estate wealth has bolstered consumer sentiment and confidence.
• Consumers keep spending: Even as savings rates decline, consumer demand continues to fuel economic growth and expansion.

Yet warning signs are emerging. Inflation, while showing signs of easing, remains a concern. The annual inflation rate decreased to 2.8% in February from 3.0% in January, indicating some relief but still above the Federal Reserve's target. Additionally, consumer sentiment has declined sharply, influenced by trade policy uncertainties, anticipated cuts in government services, and inflation expectations.

For the energy sector, these economic dynamics set the stage for higher electricity demand, rising capital costs, and regulatory uncertainty that will shape energy and infrastructure decisions.

Electricity Demand is Soaring—But Can Supply Keep Up?

For nearly two decades, U.S. electricity demand was stagnant. That has changed—fast.

• AI, data centers, crypto mining, and growth in manufacturing are fueling an unprecedented surge in electricity consumption.
• Electrification across industries—from vehicles to industrial expansion—is further accelerating demand.
• From 2024 to 2026, electricity demand is projected to grow by 2% annually, a major shift from the near-zero growth seen from 2008 to 2023.

But while demand is rising, the infrastructure to support it remains constrained. Financial uncertainty, facility permitting backlogs, regulatory hurdles, and local opposition to new projects are slowing the deployment of generation capacity as well as transmission and distribution infrastructure.

Where Growth Will Be Concentrated: Electricity demand isn’t rising evenly across the U.S.—certain regions are seeing rapid expansion. For example:

• Northern Virginia remains the data center capital of the world, but Atlanta and Dallas are emerging as high-growth data center hubs.
• North Dakota and Texas are experiencing surging demand tied to industrial expansion and energy-intensive computing.

With reserve capacity margins shrinking and interconnection delays stretching up to six years, utilities and grid operators face a race against time to expand infrastructure and secure reliable energy supplies.

Economic Policy & Inflation: What’s Next?

The biggest wild card for 2025 is how new economic policies—especially tariffs—will shape inflation, energy prices, and capital investment.

1. Interest Rates & Capital Costs

• The Federal Reserve is expected to cut rates just once or twice in 2025, keeping borrowing costs higher for longer to combat inflation.
• Capital-intensive energy projects—grid modernization, transmission upgrades, and power generation—will continue to face higher financing costs and supply constraints.

2. Trade Policy & Tariffs

• The new administration’s tariff strategy remains uncertain, and but any large-scale tariffs could increase inflation, disrupt global supply chains, and dampen financial market appetite for investment.
• Tariffs on steel, aluminum, and critical energy components could raise costs for utilities and developers, slowing down new infrastructure projects. And proposed Canadian retaliatory tariffs on electricity exports to the US could cause significant economic and financial disruption.

3. The Inflation Reduction Act (IRA) & Clean Energy Investment

• While some clean energy incentives remain in place, the administration is making targeted cuts to EV tax credits and renewable energy funding.
• However, direct payments for clean energy production are heavily concentrated in Republican-led states, making a full-scale rollback of the IRA unlikely.

The Broader Energy Economy: What to Watch

The U.S. energy economy is evolving rapidly, with five key trends shaping the next 12-24 months:

• A shifting energy mix: The push for a diverse energy portfolio (nuclear, renewables, natural gas, and hydrogen) will continue, but policy shifts and continued uncertainty will influence the relative attractiveness of investment opportunities.
• The AI effect: AI is both a demand driver and an efficiency enabler. New AI models could lower computing costs but ultimately increase power consumption due to Jevon’s Paradox.
• Permitting & regulatory uncertainty: While National Environmental Policy Act (NEPA) reforms may streamline approvals, state-level restrictions and legal challenges might still slow progress.
• Trade policy risks: If large-scale tariffs are enacted, energy costs will rise, affecting industrial competitiveness, utility planning, and consumer prices.
• Consumer spending & credit concerns: While consumer wealth remains strong, credit card balances are rising, savings rates are low, and economic uncertainty is beginning to affect sentiment across all income levels. If this trend continues, it could signal a broader slowdown in economic activity, including in industrial and energy sector investments.

Looking Ahead: The Path Forward

The energy and utilities industries are at an inflection point. Surging demand, shifting policies, and economic uncertainty create a complex and highly dynamic environment.

For utilities, adaptability and regulatory support are key. The ability to navigate regulatory uncertainty, access to capital markets for new investments, and infrastructure deployment at scale will determine who thrives in this new era.

One thing is certain: the energy economy is changing. The question is—how will you adapt?