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Is the AI Revolution Fueling a Dangerous Monopoly Over US Energy?
03/13/2025
Industry dealmakers anticipate 2025 as a landmark year for mergers and acquisitions (M&A) in the US power sector. This is due to a surging appetite for energy assets and unprecedented electricity demand from artificial intelligence (AI) data centers. Power generation and infrastructure companies have become prime targets for energy firms, private equity investors, and institutional funds eager to capitalize on soaring electricity consumption forecasts.
The sector has already experienced an extraordinary wave of dealmaking in early 2025, with 27 power deals totaling $36.4 billion in January and February alone—an all-time high for these months over the past two decades, excluding one exceptional year, according to LSEG data. The most notable transaction so far has been Constellation Energy’s $16.4 billion acquisition of Calpine, signaling a significant shift in industry consolidation.
This deal frenzy contrasts starkly with broader market trends, as overall M&A activity recorded its weakest start since the 2008 financial crisis. Market volatility and uncertainty surrounding the government economic policies have dampened activity in other sectors. However, the power industry remains an exception, buoyed by a White House-driven push for infrastructure expansion.
US Government Pushes Energy Expansion as a National Priority
The United States has underscored the urgency of power sector expansion, declaring an "energy emergency" to accelerate project development. Government has framed the initiative as a matter of national and economic security, fueling further investor confidence in energy infrastructure deals.
"The opportunities in this space are substantial and extend across the entire power sector," said Kathleen Lawler, Managing Director at investment firm KKR.
Reflecting this momentum, KKR and Canadian pension fund PSP Investments announced in January that they had acquired a 20% stake in American Electric Power's (AEP) transmission network for $2.8 billion. The deal underscores the heightened institutional interest in power transmission assets, essential for handling growing energy loads.
Strong Market Conditions Enable Large-Scale Transactions
Rising electricity prices and strong earnings growth have propelled power company valuations, enabling firms to execute larger stock-based transactions while minimizing shareholder dilution. Despite recent market fluctuations, independent power producers such as Vistra, Constellation, and NRG Energy have seen their stock prices climb between 82% and 220% since the start of 2024.
The success of Constellation Energy’s Calpine acquisition has further emboldened potential buyers. Constellation’s shares surged 25% on the day of the announcement, defying the typical trend of acquirers seeing stock declines when issuing shares to fund a purchase. This positive market response signals strong investor confidence in M&A-driven growth strategies.
Private Equity and Institutional Investors Fuel Power Sector Buyouts
Private equity firms, pension funds, and infrastructure investors have amassed substantial capital for energy investments. According to Preqin, at the end of 2024, the total unallocated capital for infrastructure investments—known as "dry powder"—stood at $334 billion.
These funds are being deployed in various ways, including:
- Investing in innovative energy technology firms
- Acquiring businesses that service existing power infrastructure
- Taking publicly traded power companies private
David Foley, Global Head of Blackstone Energy Transition Partners, emphasized the broad investment opportunities at CERAWeek, stating, “The booming power market has created a strong demand for investments in equipment manufacturing and other essential energy infrastructure.”
This year, TPG’s $2.2 billion acquisition of Altus Power, one of the largest owners of commercial-scale solar plants in the US, was a major private equity-led deal.
For many energy firms, going private offers strategic advantages. Smaller utilities, for instance, may struggle to compete with tech giants developing their own power infrastructure. By transitioning to private ownership under an institutional investor, these firms can access capital to better compete with larger industry peers.
Additionally, long-term investors often provide higher valuations than public markets, particularly for renewable energy companies. Since the election, renewable energy stocks have faced downward pressure due to his administration prioritizing fossil fuels over green energy.
“The market is likely to see more utility take-privates over the next few years,” said Greg Hort, Managing Director at Lazard. “There is a significant amount of infrastructure capital focused on this asset class.”
Asset Sales and Infrastructure Expansion Drive Deal Flow
Utility companies also fuel M&A activity by divesting assets to raise capital for massive grid expansions. As power demand skyrockets, utilities sell non-core business units or minority stakes to finance new transmission and generation capacity.
Recent high-profile asset sales include:
- American Electric Power's (AEP) transmission stake sale to KKR and PSP for $2.8 billion
- Eversource Energy’s $2.4 billion divestment of its Aquarion Water unit
- National Grid’s February agreement to sell its US renewables business to Brookfield Asset Management
Private equity firms are taking advantage of the hot market to exit investments profitably. Smaller power generation portfolios—previously overlooked due to their scale—are now drawing buyer interest. Recent deals have mainly focused on natural gas plants built in the past decade, among the most efficient power assets in the US.
Blackstone’s energy transition arm acquired Potomac Energy Center from Ares Management in January, underscoring the heightened demand for modern natural gas assets.
“Many private equity firms that acquired power assets three to five years ago are now looking for liquidity events,” noted Hill Vaden, Executive Director of Energy Capital Insights at S&P Global.
Challenges and Market Uncertainties
Despite the strong M&A outlook, several headwinds could impact deal activity. While government policies are expected to ease permitting requirements for energy projects, supply chain constraints remain a significant challenge.
Key obstacles include:
- Long lead times for critical components—The wait time for gas turbines is now approaching the end of the decade.
- Tariffs on essential materials – Government’s trade policies are increasing steel, aluminum, and copper costs, all vital to power infrastructure.
- Uncertainty over renewable energy tax credits – The possible rollback of Inflation Reduction Act incentives creates investment risk for clean energy projects.
- Workforce constraints – President’s proposed immigration reforms, including mass deportations, could exacerbate labor shortages in the energy sector.
“I’ve even told members of the president's team that we’re going to run out of electricians as we build out data centers,” said BlackRock CEO Larry Fink at CERAWeek, highlighting concerns over labor availability.
Article Tags
AI
data centers
energy sector
M&A
mergers and acquisitions
power
power infrastructure
private equity
data centers
energy sector
M&A
mergers and acquisitions
power
power infrastructure
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