Electric power companies are under pressure from customers, regulators, and ratings agencies to enhance the safety, reliability, and resiliency of the US electric grid while expanding output to serve rising demand. And all this must be addressed while keeping customer electricity bills affordable. Driven in part by the urgent need to modernize aging infrastructure, integrate renewable energy sources, and enhance grid resilience, the US power sector is expected to require sustained capital investments over the next two to three decades. Investments could total as much as US$1.4 trillion from 2025 to 2030—and possibly with similar expenditures until about 2050.3 Successfully financing this expansion will likely require a paradigm shift in funding strategies, bringing new entrants into the power industry, combining traditional and innovative mechanisms, making certain regulatory reforms, and furthering public-private collaboration.
After decades of relatively stable electricity demand, the United States is now experiencing a surge in power consumption due to electrification, artificial intelligence–driven data center expansion, and a resurgence in industrial reshoring of manufacturing. By 2030, power demand is expected to increase 10% to 17% from 2024 levels.4
To meet the expected increase in demand, the electric power sector is experiencing an unprecedented growth in capital investment. In 2024, the power sector’s capital investment reached an all-time high of approximately US$179 billion, following a period of sustained growth with a compound annual growth rate (CAGR) of over 8.5% over the past five years, from 2019 to 2024 (figure 1).8 This upward trend in capital investment is projected to continue, with capital expenditure (capex) spending by the largest utilities expected to reach at least US$194 billion in 2025.9
Looking ahead, industry-wide investments could total up to US$1.4 trillion from 2025 to 2030—equivalent to the industry’s spending over the previous 12 years combined, with similar levels of investment needed in the following decade and beyond.10
Much of the investment is directed toward generation assets, including building new natural gas and nuclear plants, as well as renewable energy sources; updating aging transmission and distribution systems; and implementing new technologies, such as smart meter deployment, smart grid systems, cybersecurity measures, and battery storage.11
Electric utilities have long contended with challenges such as aging infrastructure, insufficient transmission capacity, and lengthy permitting and grid interconnection timelines. Some of these trends are intensifying, and new trends are emerging, often further boosting the complexity and costs of grid modernization and expansion.
US investor-owned electric companies have traditionally funded capital programs by filing rate cases with state regulatory commissions to recover the costs of investments through customer rate increases, and by issuing debt and equity.21 However, these avenues are facing growing limitations.
Utility-requested rate increases rose to record highs between 2020 and 2024 (figure 3), largely due to rising costs for grid maintenance, upgrades, and decarbonization. Fossil fuel price spikes, combined with these costs, increased retail electricity prices nearly 23% across all customer segments from 2019 to 2024, while residential prices climbed nearly 26%.22 These increases, combined with economy-wide inflation, also slowed the process for rate case approvals to recover capital investment costs, especially in the dynamic market in which incremental demand is likely to continue growing.23
Authorized increases on return on equity have lagged interest rate increases (figure 4), which can weaken the industry’s financial performance, putting downward pressure on credit quality.24
High interest rates and regulatory lag are also adding to financial challenges for utilities and raising the cost of debt financing. Combined with rising capex, this has caused some utilities to become overextended, making them more susceptible to credit rating downgrades.25 During three of the last five years (2020 to 2024), more utilities have had their credit ratings downgraded than upgraded (figure 5).26 Given the challenges around both raising debt and cash through rate cases, some utilities are planning to issue more equity to maintain a balanced mix of debt and equity.27 In 2025, utility holding companies are projected to source up to 14% of their annual capital investment from equity to fund their capital investment plans.28
As traditional funding avenues may fall short, the industry is exploring alternative sources of funding. These include private capital markets, and investment from the technology sector and other corporates, as well as some government funds and incentives. In addition to seeking new funds, the industry could pursue several paths to further reduce costs and boost customer affordability, including revising the utility regulatory model as well as achieving operational efficiencies through non-wire alternatives and digital technologies.
Electric power companies and independent power producers are increasingly seeking private capital, such as private equity and infrastructure funds, to finance projects. Private capital involvement in the sector isn’t new, but it has surged in recent years, with annual average investment increasing by 113% since 2016 compared with the previous eight-year period (figure 6).29
The current administration’s focus on streamlining permitting could help modernize and secure the power grid, potentially attracting more capital into the sector. Private equity and infrastructure funds increasingly seek to invest in assets at the intersection of energy and technology, such as AI data centers and critical supply chain assets.30 These investors can deploy needed capital rapidly and multiply the impact of government investment in the transition.
Private investors are not only increasing the amount of capital they are deploying in the sector, but also adopting multiple financing strategies for expected power sector growth. Some electric companies are exploring new equity deals with private capital, while some renewable energy developers are involving private funds earlier in the project cycle. This can help the project offer lower rates to offtakers while also providing stable returns to investors.
Some of the types of deals that seem to be gaining traction at the intersection of electric power and private capital are:
The United States currently has more than 3,000 data centers located in all 50 states and the District of Columbia, but they are heavily concentrated in Northern Virginia, Texas, and Northern California.38 Many states offer data center incentives, which are present in the seven states where data centers’ share of total electricity consumed is expected to be highest in 2030 (figure 7).39
The expansion of data centers necessitates substantial investments in grid infrastructure and generation capacity, and estimates indicate that US utilities may need around US$36 billion to US$60 billion by the end of the decade.40
To help ensure reliable baseload power, some utilities may be considering multiple sources of electricity, including extending the life of existing coal assets and proposing new gas-fired capacity, while simultaneously exploring cleaner alternatives in the regions of increased demand. The largest companies in the technology sector have consistently been among the top corporate buyers of clean energy, whether through power purchase agreements with renewable project owners, green tariffs with utilities, or by other means.41 And, according to Deloitte’s analysis of data tracked by S&P Global Market Intelligence, solar and wind capacity contracted to US data centers has grown to nearly 42 GW through the third quarter of 2024, representing close to half of all renewables contracted to corporations in the United States.42 Additionally, nuclear energy’s ability to provide clean baseload power makes it an attractive option for many data centers. Utilities and technology companies are exploring different ways of integrating nuclear energy sources, including small modular reactors, in their portfolio.43 Technology companies are playing a role in financing new energy technologies, whether through direct investments in clean energy technologies or through engagement in innovative partnerships and regulatory initiatives.
Additionally, some electric companies are working with technology companies to help finance construction of advanced energy technologies by signing power purchase agreements, which can help lower project risks. For example, Google has agreed to purchase energy under a deal that will support the first commercial deployment of Kairos Power’s advanced nuclear reactor by 2030 and a fleet totaling 500 megawatts (MW) of capacity by 2035.45
While the industry works to address funding the expected growth, it could potentially improve the equation by reducing the amount of cash required through strategies such as working with regulators to further align regulatory incentives and pursuing operational efficiencies.
One way to potentially achieve customer affordability is to provide utilities with incentives to contain costs through the regulatory model. Today, investor-owned utilities in most states operate under the “cost-of-service” regulatory (COSR) model,49 which can allow utilities to earn a guaranteed rate of return on investments that the state utility regulatory commission deems prudent and necessary, and to pass those costs on to customers through rate increases. This incentive implies that utilities could tend to overinvest in capital-intensive projects, such as generation, transmission, and distribution infrastructure, and underinvest in less capital-intensive alternatives, such as energy efficiency, demand-side management, and distributed generation.50 Research has shown this to be true even when these non-wire alternatives can meet customer needs at a lower cost than larger infrastructure investments.51
Regulators have explored rewarding utilities based on performance instead, with performance-based regulation (PBR), where they coordinate with utilities and legislators; they can also develop performance incentive mechanisms to incentivize utilities financially with quantifiable and measurable goals.52 While PBR can move the COSR model bias toward large capital expenditures and away from lower-cost alternatives, the shift from COSR to PBR may not be simple. It can be challenging for utilities to move to a new regulatory system, and potentially expensive until they’ve had time to earn incentives for meeting new performance goals.53 Changes to the current process could be designed to focus on:
In an era of rising capex, many electric companies are increasingly focusing on operational efficiencies to help manage costs, reduce funding needs, and maintain customer affordability. This often involves maximizing the output of existing assets and resources while minimizing waste. Some ways for electric utilities to achieve operating efficiencies include using non-wire alternatives and leveraging digital technologies.
Non-wire alternatives leverage a range of strategies, technologies, and programs to optimize the existing grid.54 They can deploy grid-enhancing technologies and advanced conductors to add capacity and flexibility to the existing transmission system, without the need for rebuilding transmission lines. Additionally, utilities can also leverage demand response, energy efficiency programs, and distributed energy resources such as rooftop solar, home energy storage, and smart thermostats. These alternatives can help manage the load more cost-effectively than investing in new generation or transmission infrastructure.
The adoption of digital technologies is also transforming how utilities operate and maintain the grid. Smart grid technologies, advanced data analytics, and cloud computing are all playing a role in improving operational efficiency. By leveraging these tools, utilities can optimize the reliability and resilience of the grid, predict and prevent outages, enhance customer service, and potentially unlock new revenue streams.
Increasingly, electric companies are turning to advanced AI applications, including generative AI, to help achieve greater efficiencies (figure 8).55 Some US-based electric utilities have implemented advanced AI models across a diverse range of mission-critical operations, such as:
In an environment of deepening complexity and challenges, electric companies are helping to forge the path to a more reliable, resilient, and affordable electric grid to accommodate rapid demand growth. Significant amounts of capital may be required—and the industry is turning to new funding sources while also seeking ways to contain costs. Reforming regulatory paradigms, deploying low-cost distributed and renewable energy sources, and pursuing operational efficiencies can help reduce costs. New funding avenues include collaboration with corporate partners and also with the private equity and infrastructure funds that are stepping into the market. This collaboration and innovation could help the industry deploy needed capital, pioneer innovative financing mechanisms, and engineer creative collaborations to help fund power sector growth.