Electrification and data center demand continue to support the utilities supercycle

Overview

This Goldman Sachs European utilities daily report summarizes industry developments including support for RWE's onshore wind project in Australia, the initiative for EU electrification targets, EDPR's US solar transaction, Nordex's order in Turkey, LNG supply disruptions in Italy, offshore wind in Ireland, Orsted asset sales, and Fortum's hydrogen test center. The report also cites prior research, emphasizing that European utilities are benefiting from data centers, electrification, generation asset retirements, and grid modernization, and remain in a medium- to long-term cycle of earnings and investment expansion.

Core views

The core view is that an inflection point in power demand is emerging, with data centers and broad electrification driving investment in generation, flexible power, backup gas capacity, batteries, and grids; after strong sector performance in 2025, pullbacks may occur, but Goldman Sachs tends to view them as buying opportunities; for 2026, it is more positive on generators and vertically integrated utilities, especially RWE, Solaria, Enel, SSE, and Engie, because their organic growth is underestimated and they are relatively insulated from falling power price risk.

Analysis framework

The report uses an industry daily format, combining company project news, policy initiatives, supply chain orders, energy security events, and prior thematic research to assess whether electrification and data center power demand continue to strengthen the demand and earnings case for European utilities. The disclosures also describe Goldman Sachs' GS Factor Profile, M&A Rank, and Quantum frameworks used for stock comparison and research support.

Methodology notes

• Investment factor frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  This framework uses metrics such as forward sales, EBITDA, EPS, ROE, ROCE, CROCI, and valuation multiples to compare individual stocks with the market and industry peers, and generates a composite percentile to provide investment context for stocks.

• M&A probability frameworkM&A Rank

  A 1 to 3 score measuring potential acquisition likelihood

  Goldman Sachs uses qualitative and quantitative factors across its global coverage to assess the likelihood that a company becomes an acquisition target, where 1 indicates high probability, 2 medium probability, and 3 low probability; companies rated 1 or 2 may have an M&A component included in their target price.

• Research databaseQuantum

  Goldman Sachs proprietary financial database

  Quantum provides financial statement history, forecasts, and ratios, and can be used for deep single-company analysis as well as cross-company, cross-industry, and cross-market comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• RWE

  A key news-related name and also one of Goldman Sachs' preferred generators for 2026.

  Strengths

  Its 1.1GW onshore wind project in Australia received support under the CIS scheme, and the company can benefit from improving renewable returns, higher flexible generation profits, and expanding electrification investment.

  Weaknesses

  The project may still face uncertainty around approvals, grid connection, construction costs, and execution timelines.

  Comparison

  Compared with integrated utilities, RWE has more direct exposure to changes in generation-side and renewable project returns; the report lists it alongside Solaria as a preferred generator.

  Risks

  Falling power prices, changes in policy mechanisms, rising project costs, grid connection delays, or weaker-than-expected power demand realization.

• EDPR

  A company related to a US solar project transaction.

  Strengths

  The 100MW solar build-transfer agreement demonstrates its capability in US solar project development and asset rotation.

  Weaknesses

  The report does not provide transaction price, margin, or buyer details, so the specific earnings contribution cannot be assessed.

  Comparison

  Compared with RWE's Australia wind support, the EDPR news is more focused on project commercialization and asset rotation.

  Risks

  Changes in US policy, construction costs, grid interconnection queues, project closing, and uncertainty around tax incentives.

• Nordex

  A beneficiary in the wind equipment supply chain and order cycle.

  Strengths

  It secured a 110MW turbine order in Turkey and launched a blade manufacturing facility there, with annual capacity of up to 1,200 rotor blades at full production.

  Weaknesses

  Equipment manufacturers are typically more sensitive to order timing, supply chain costs, and capacity utilization.

  Comparison

  Compared with generators, Nordex benefits more directly from the wind installation cycle, but its earnings elasticity is also more affected by manufacturing costs.

  Risks

  Raw material and logistics costs, project delays, price competition, and fluctuations in Turkish market demand.

• Enel, SSE, Engie

  Goldman Sachs' preferred vertically integrated utilities.

  Strengths

  The report believes these companies' organic growth is underestimated and that they are relatively insulated from falling power prices; they benefit from electrification, network investment, and regulated or contracted earnings.

  Weaknesses

  Integrated utilities are still affected by regulated returns, capital expenditure efficiency, and political and policy cycles.

  Comparison

  Compared with pure generators, they are more diversified across generation, networks, and retail, and earnings quality may be more stable.

  Risks

  Cuts to regulated returns, capex overruns, rising interest rates, and weaker-than-expected demand growth.

• Orsted

  A potential seller of renewable energy assets mentioned in other news.

  Strengths

  It is reportedly considering selling its US onshore renewables business, with portfolio valuation potentially exceeding $1bn, which could unlock asset monetization if completed.

  Weaknesses

  A potential sale may also reflect strategic pressure or the need to adjust capital allocation in its US onshore renewables business.

  Comparison

  In contrast to RWE receiving policy support, the Orsted news is more about portfolio optimization and de-risking.

  Risks

  Sale valuation below expectations, execution uncertainty, and changes in US renewable policy and financing conditions.

• Fortum

  A company associated with hydrogen and Nordic energy innovation.

  Strengths

  It opened the Kalla Test Center in Finland to support the development of Nordic hydrogen projects.

  Weaknesses

  Hydrogen projects are still at an early stage, and commercialization, cost curves, and demand rollout remain to be validated.

  Comparison

  Compared with wind and solar projects, hydrogen is more of a medium- to long-term technology and industrialization option.

  Risks

  Uncertainty around technology pathways, subsidy policy, end-market demand, and capital payback periods.

Key data

• RWE Australia onshore wind project1.1GWThe report title says the project received support under Australia's CIS scheme.
• EDPR US solar transaction100MWThe report says EDPR signed a solar build-transfer agreement in the United States.
• Nordex Turkey order110MW, 16 N175/6.X turbinesThe contract includes a 10-year Premium Service Agreement.
• Nordex Turkey blade factoryUp to 1,200 rotor blades per year at full capacity, around 1,200 employeesThe new blade manufacturing facility has started production.
• European data center connection requests280GWGoldman Sachs estimates this is up about 65% from 170GW nine months ago, equivalent to about 90% of current EU28 power demand of around 320GW.
• Data center pipeline conversion assumption20% converts over the next 10 yearsGoldman Sachs believes that even under conservative assumptions, this could still drive about 2% annual power demand growth starting in 2028.
• Electrification investment€1.5 trillion over the past decade; expected to rise 60%-100% over the next decadeGoldman Sachs believes the regulated and contracted nature of these investments will support higher-quality earnings growth.
• EPS CAGR of buy-rated electrification compound-growth names+9% on average; could reach +11% under less conservative power demand assumptionsCorresponds to Goldman Sachs' conservative 2025-2030 estimates.
• Sector-wide EPS CAGR+6%Corresponds to Goldman Sachs' estimate for the overall European utilities sector in 2025-2030.

Impact & implications

From an investment perspective, project approvals, corporate policy initiatives, and supply chain orders strengthen visibility on the renewable energy and electrification investment chain; expansion in the data center pipeline provides a new source of long-term power demand growth in Europe; generators, flexible generation, batteries, backup gas units, and vertically integrated utilities may be key beneficiaries. However, the sector has already performed well in the short term, so valuation and power price downside risks need to be assessed separately from the long-term demand inflection point.

Risks

• The utilities sector performed strongly in 2025, and the report also notes that the sector may be vulnerable to pullbacks.
• The 280GW of data center connection requests does not equal actual electricity demand; final conversion rates, grid connection speed, land, fiber, and water constraints could all limit realization.
• Falling power prices may still affect generator earnings, although Goldman Sachs believes some preferred names are relatively insulated.
• Renewable energy projects may be affected by approvals, grid connection, construction costs, supply chains, and financing conditions.
• Changes in the pace or details of EU electrification targets, Australia's CIS scheme, and US renewable energy policy will affect investment returns.
• Disruptions to Italian LNG deliveries due to the Strait of Hormuz crisis and force majeure show that energy security and supply chain events can still disturb markets.

What to watch

• SSE full-year results on May 28.
• Follow-up approvals, financing, grid connection, and construction milestones for RWE's 1.1GW onshore wind project in Australia.
• Whether the EU responds to corporate calls and proposes clearer electrification targets.
• Closing, returns, and subsequent project pipeline for EDPR's 100MW US solar build-transfer agreement.
• Delivery of Nordex's 110MW Turkey order and the ramp-up of capacity at its new blade factory.
• The pace at which European data center connection requests convert from 280GW into actual power demand, especially the demand inflection point after 2028.
• Whether profits from backup gas units, batteries, and FlexGen improve as Goldman Sachs expects.