AI-Powered Surge to Drive Record M&A Activity in US Power Sector in 2025

Massive Demand from AI Data Centers Fuels Deals

The US power sector is poised for a transformative year in 2025, with industry experts anticipating a record-breaking wave of mergers and acquisitions (M&A) fueled by the skyrocketing electricity demands of artificial intelligence (AI) data centers. This unprecedented growth in power consumption, driven by AI technologies, has turned power generation assets, infrastructure, and the companies that own them into prime targets for energy firms, private equity groups, and institutional investors seeking to capitalize on what is being hailed as the most significant expansion in the sector in decades. Already, the first two months of 2025 have witnessed a flurry of high-value deals totaling $36.4 billion across 27 transactions, outpacing nearly every similar period over the past 20 years, according to LSEG data. Leading the charge is Constellation Energy’s monumental $16.4 billion acquisition of Calpine, a deal that underscores the scale and ambition of this AI-driven power sector M&A boom. Unlike the broader M&A market, which has stumbled into its weakest start since the global financial crisis amid economic uncertainty and policy shifts under the Trump administration, the power industry is thriving, buoyed by a unique confluence of technological demand and strategic investment opportunities.

The insatiable energy needs of AI data centers are at the heart of this surge, with projections indicating that these facilities could account for up to 11.7% of total US electricity consumption by 2030, a dramatic rise from current levels, as reported by McKinsey. This exponential growth in AI-related power demand has spurred energy companies to seek out mergers and acquisitions in the US power sector to secure the capacity needed to meet these needs. Power companies like Vistra, Constellation, and NRG Energy have seen their stock prices soar between 82% and 220% since the start of 2024, despite recent market dips, empowering them to pursue larger transactions or maintain stronger negotiating positions in stock-funded deals. A striking example is the market’s reaction to the Constellation-Calpine deal, where Constellation’s shares surged 25% on announcement day, defying the typical post-deal dip seen in large acquisitions due to shareholder dilution. This bullish response signals strong investor confidence in the strategic value of AI-driven power sector investments, further accelerating deal momentum. Meanwhile, private equity firms, pension funds, and infrastructure investors are sitting on a record $334 billion in unallocated capital, or “dry powder,” as of late 2024, according to Preqin, ready to deploy into everything from cutting-edge energy tech startups to established power generation portfolios.

This AI-powered M&A frenzy is reshaping the US power sector in multiple ways, creating opportunities across the value chain. Private equity leaders like Blackstone’s David Foley have highlighted the potential for investment in “picks-and-shovels” businesses, such as equipment manufacturers supporting the booming power market, while others eye the privatization of listed power companies. Altus Power, a major player in commercial-scale solar, agreed to a $2.2 billion sale to TPG’s climate investment arm in early 2025, illustrating how smaller utilities might leverage private ownership to compete with tech giants building data centers. For renewable energy firms, whose stock prices have slumped since the Trump election due to his fossil fuel-friendly policies, long-term institutional investors could offer valuations exceeding public market levels, driving a wave of take-private deals. Utilities are also offloading non-core units to fund massive infrastructure expansions, as seen in Eversource Energy’s $2.4 billion divestiture of its Aquarion Water unit and National Grid’s sale of its US renewables business to Brookfield Asset Management for an undisclosed sum. Even smaller assets, like decade-old natural gas plants, are finding eager buyers, with Blackstone’s energy transition arm snapping up the Potomac Energy Center from Ares Management in January 2025, capitalizing on their efficiency and scarcity in a market where demand once stagnated.

Despite the robust outlook for mergers and acquisitions in the US power sector fueled by AI, challenges loom on the horizon that could test this momentum. President Trump’s declaration of an energy emergency aims to streamline permitting for new energy projects, but supply chain bottlenecks persist, with turbine delivery timelines stretching toward the decade’s end. Proposed tariffs on critical materials like steel, aluminum, and copper threaten to inflate costs, while uncertainty over renewable energy tax credits from the Inflation Reduction Act adds another layer of complexity for clean energy investments. Labor shortages, exacerbated by potential immigration reforms, could further hinder new construction, with BlackRock CEO Larry Fink warning at CERAWeek of a looming electrician shortfall as data center buildouts accelerate. Yet, these hurdles are unlikely to derail the sector’s M&A surge entirely, as they paradoxically enhance the value of existing assets in a market where new capacity is hard to come by. Industry voices, including KKR’s Kathleen Lawler, who noted being “busier than ever” after securing a $2.8 billion stake in American Electric Power’s transmission network alongside PSP Investments, affirm that the deal pipeline remains robust.

The broader implications of this AI-driven power sector M&A boom extend beyond immediate transactions, signaling a structural shift in how the US meets its energy needs. With data centers projected to consume over 600 terawatt-hours annually by 2030, per McKinsey, and AI computational power doubling every 100 days according to the RAND Corporation, the pressure on the nation’s aging grid is immense. Strategic deals are not just about capacity but also about resilience and innovation, as companies position themselves to service a tech-driven economy. Investment firms are eyeing opportunities in everything from next-generation power tech to the unglamorous but essential businesses maintaining existing infrastructure, while utilities pivot to fund grid upgrades through asset sales. The fervor is also enabling private equity firms holding power assets from three to five years ago to exit at substantial profits, as Hill Vaden of S&P Global noted, pointing to a cycle of reinvestment that could sustain this activity into the future. As the US power sector navigates these dynamics, the interplay of AI demand, investor appetite, and policy shifts will continue to drive one of the most active M&A landscapes in recent memory, setting the stage for a landmark year in 2025.