(Reuters) – Dealmakers expect 2025 to be a bumper year for mergers and acquisitions in the U.S. power industry, with a voracious appetite for assets as the sector gears up to meet massive demand growth from data centers for artificial intelligence.
Record power demand and dizzying projections for electricity consumption for AI have made power generation and infrastructure assets, and companies which own them, attractive to energy companies, private equity and other institutional investors.
The biggest growth in the sector in generations has already fueled a deal bonanza in the first months of the year, according to a dozen industry and financial sources who spoke to Reuters. The sources included several attendees at the annual CERAWeek energy conference in Houston.
In January and February, there were 27 U.S. power deals worth a combined $36.4 billion, headlined by Constellation Energy’s $16.4 billion acquisition of Calpine. This surpasses, both by value and volume, the first two months of every year barring one during the last 20 years, according to data from LSEG.
Busy power sector deal-making is in contrast to the overall market for M&A, which recorded its weakest start since the global financial crisis, amid market volatility and uncertainty over the Trump administration’s policies and what they mean for the economy.
U.S. President Donald Trump has declared an energy emergency to facilitate the build out in the power sector, calling it “an immediate and pressing priority for the protection of the United States’ national and economic security.”
Opportunities are significant and stretch across the power sector, said Kathleen Lawler, managing director at investment firm KKR.
“I don’t think we have ever been busier,” said Lawler.
KKR and Canadian pension fund PSP Investments agreed in January to buy a 20% stake in some of American Electric Power’s transmission network for $2.8 billion.
DEMAND
Strong price increases have boosted power companies’ shares, meaning they can do bigger transactions or give up less of the company to clinch a stock-fueled deal. Even with stock market falls in recent days, independent power producers Vistra, Constellation and NRG Energy are trading between 82% and 220% higher than the start of 2024.
Potential acquirers may be emboldened too by the reaction of Constellation investors to the Calpine deal. Constellation’s share price rallied 25% on the day of the announcement – when typically buyers trade lower when announcing a large deal funded by the issuance of shares to the seller. That is because the share issuance dilutes existing shareholder positions.
Private equity firms, pension and infrastructure funds have in recent years raised huge sums for energy investments. The total capital raised but still waiting to be deployed, known as dry powder, into infrastructure investments at the end of 2024 was $334 billion, according to data provider Preqin.
Ways this cash could be invested include buying stakes in companies pioneering developing technology, and acquiring businesses that service existing energy infrastructure.
David Foley, global head of Blackstone Energy Transition Partners, told a panel discussion at CERAWeek the booming power market has created “opportunities for investment in equipment manufacturing, the picks-and-shovels types of companies.”
It could also be used to take listed power companies private. The year has already seen Altus Power, one of the largest owners of U.S. commercial-scale solar plants, agree a $2.2 billion sale to TPG’s climate investment arm.
Reasons to go private differ, depending on the type of power company. Smaller utilities may struggle to compete for contracts with technology companies building and operating data centers, so being owned by a large investment firm could help challenge larger peers.
Long-term institutional investors could offer higher valuations than public markets, especially for renewable power companies. These firms have seen their share prices slump since the election of Trump, who has called for fossil fuels to be prioritized at the expense of green energy.
“The market could see more (utility) take-privates over the next few years as there is significant infrastructure capital that has been formed in recent years that is highly focused on this asset class,” said Greg Hort, managing director at Lazard.
Another source of deal flow will be utilities continuing to offload business units, or stakes in them, to help fund huge expansion of power infrastructure to support heightened demand, the people said.
On top of the AEP deal with KKR and PSP, Eversource Energy said January 27 it had agreed to divest its Aquarion Water unit for $2.4 billion, and National Grid announced on February 24 it would offload its U.S. renewables business to Brookfield Asset Management.
The deal fervor is also allowing buyout firms who own power assets to exit profitably. This includes small portfolios of power generation, or individual power plants, which in recent years saw limited buyer attention due to their size.
Particularly sought-after are natural gas plants constructed in the last decade, which are more efficient and were built when U.S. power demand was in its 20-year plateau. Relative scarcity was part of the rationale behind the purchase in January by Blackstone’s energy transition arm of Potomac Energy Center from Ares Management.
“Many private equity firms, which took ownership of their assets three to five years ago, will be seeking liquidity events,” said Hill Vaden, executive director of energy capital insights at S&P Global.
OVERCOMING HURDLES
The momentum behind power dealmaking will endure despite market ructions, as the uncertainty only makes existing assets more prized, the sources said.
While Trump’s economic agenda is expected to make it easier for energy projects to secure necessary permits, key components are still hard to source, with the wait for turbines for a natural gas power plant stretching out towards the end of the decade.
The president’s tariffs on materials critical to the power sector will likely push up costs. This includes steel and aluminum, and potentially copper, whose conductivity makes it essential in a host of products.
Uncertainty around whether tax credits for renewable projects, including those introduced in the Inflation Reduction Act, will be scrapped is also casting a shadow on new clean energy generation.
Reverberations from immigration reform, which threatens to deport millions of non-citizens, will also weigh on constructing new projects.
“I’ve even told members of the Trump team that we’re going to run out of electricians as we build out data centers,” BlackRock CEO Larry Fink said at the CERAWeek conference, when asked about the impact of deportations on the U.S. economy.
Reporting by David French in Houston, Isla Binnie in New York and Mrinalika Roy in Bengaluru; Additional Reporting by Marianna Parraga in Houston; Editing by Simon Webb and Marguerita Choy
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