The EU electrification plan reinforces the logic of European power demand growth and a utilities earnings supercycle

Overview

This report discusses the EU strategy released on July 17 to accelerate the electrification of energy demand. The EU plans to increase the share of electricity in final energy consumption from about 23% currently to 46% by 2040, with 32% to be reached by 2030. Goldman Sachs believes this plan is consistent with its previously proposed electrification and hyperscale datacenter adoption scenario, and will reinforce the investment case for European power demand growth, a utilities earnings supercycle, and valuation expansion.

Core views

The core view is that European electrification and the expansion of AI datacenters will jointly drive a cross-generational earnings supercycle. A widening gap in power infrastructure will support higher returns for renewable and flexible generation assets, while also driving investment across the power value chain including grids. Goldman Sachs expects electrification-related investment demand of €2.2-3.5 trillion over the next decade, with major electrification compound-growth companies likely to achieve average earnings growth in the high single digits to low double digits into the 2030s. As the investment cycle unfolds, market earnings expectations for 2030-2031 could be revised materially higher, further supporting valuation multiple expansion.

Analysis framework

Using the EU electrification targets as the policy anchor, the report derives implications for power demand, investment demand, and corporate earnings by combining indicators such as the share of electricity in final energy use, storage capacity, heat pump installations, electric vehicle fleet size, and heat pump installed base. The analysis also focuses on electricity affordability, arguing that average annual electricity bill increases of about 2%-4% over the next decade are below market concerns, thereby reducing the risk of regulatory intervention. In its investment mapping, the report groups companies into three categories based on beneficiary path: transitioning electrification companies, renewable energy developers and equipment manufacturers, and energy security infrastructure providers.

Methodology notes

• equity_factor_analysisGS Factor Profile

  Goldman Sachs factor profile

  This framework compares the attributes of individual stocks against the covered stock universe and industry peers across growth, financial returns, valuation multiples, and composite percentiles. Growth uses forward sales, EBITDA, and EPS growth; financial returns use ROE, ROCE, and CROCI; and valuation multiples use metrics such as P/E, P/B, P/D, EV/EBITDA, and EV/FCF.

• m_and_a_analysisM&A Rank

  M&A likelihood score

  Goldman Sachs uses M&A ratings from 1 to 3 to assess the probability that a covered company could become an acquisition target, where 1 represents high probability, 2 medium probability, and 3 low probability; for companies rated 1 or 2, the target price includes an M&A component.

• financial_databaseQuantum

  Goldman Sachs proprietary financial database

  Quantum is Goldman Sachs' proprietary database for accessing detailed financial statement history, forecasts, and ratios, and can be used for in-depth single-company analysis as well as cross-industry and cross-market company comparisons.

Asset mapping & comparison

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

• Naturgy, Enel, Engie, Public Power Corp.

  Transitioning electrification companies

  Strengths

  These companies' electrification capex is expected to accelerate significantly over the next 3-5 years, driving portfolio transformation.

  Weaknesses

  The investment cycle is relatively long and sensitive to policy execution, capex efficiency, and financing conditions.

  Comparison

  Compared with mature low-growth utilities, this group has more direct exposure to accelerating electrification investment and compound earnings growth.

  Risks

  Regulated returns below expectations, project delays, rising financing costs, or power demand growth falling short of expectations.

• RWE, EDPR, Solaria, Orsted

  Renewable energy developers

  Strengths

  They are expected to benefit from rising returns and increasing organic growth opportunities.

  Weaknesses

  Project development returns are affected by power prices, supply chains, interest rates, and permitting progress.

  Comparison

  Compared with equipment manufacturers, developers benefit more directly from additional renewable capacity installations and improved project returns.

  Risks

  Weaker policy support, rising construction costs, lower power prices, or delays in project approvals.

• Vestas, Nordex

  Renewable energy equipment manufacturers

  Strengths

  The report believes orders and margins could improve as renewable energy deployment accelerates.

  Weaknesses

  Manufacturers' margins are usually more affected by fluctuations in raw materials, supply chains, and the competitive landscape.

  Comparison

  Compared with renewable energy developers, equipment manufacturers are more sensitive to the cycle of new orders.

  Risks

  Order recovery below expectations, price competition, cost inflation, or execution risk.

• E.ON, Siemens Energy, Snam

  Energy security infrastructure providers

  Strengths

  They are expected to benefit from rising investment demand in power grids, energy security, and the power value chain.

  Weaknesses

  Parts of their businesses are affected by regulated returns, project delivery, and policy priorities.

  Comparison

  Compared with pure renewable energy names, this group is more geared toward infrastructure and system security links.

  Risks

  Adjustments to regulated returns, capex overruns, project delays, or changes in the pace of energy security investment.

Key data

• Final energy electrification rateAbout 23% currently; 2030 target 32%; 2040 target 46%The core target of the EU electrification plan, implying that the share of electricity in final demand nearly doubles by 2040.
• European power demand growth4%-5% annual growth starting from 2029Goldman Sachs' view based on the EU targets and its electrification and hyperscale datacenter adoption scenario.
• Electrification investment demand over the next decade€2.2-3.5 trillionCovers investment across the power value chain, including grids, renewables, and flexible generation.
• Electricity bill increase2%-4% per year on average over the next decadeThe report argues that electrification and AI datacenter deployment costs are more affordable than the market expects.
• Energy storage capacity targetApproximately 55GW (2026) increasing to 200GW by 2030 and 500GW by 2040The energy storage expansion path listed in the EU plan.
• Heat pump installation rate2.4 million units per year in 2025 increasing to about 4 million units per year by 2030Higher heat pump adoption is an important source of electrification demand.
• EU battery electric vehicles on the roadApproximately 8 million increasing to about 120 millionExpansion of the EV fleet will increase final electricity demand.
• Heat pump installed baseApproximately 28-30 million units increasing to about 100 millionReflects the potential for electrification of building heating.

Impact & implications

In investment terms, the EU electrification targets provide a clearer long-term demand anchor for European utilities and power infrastructure. If power demand, AI datacenter loads, and grid investment accelerate in parallel, earnings expectations for related companies could continue to be revised upward, and the sector's correlation with the cost of capital and commodity prices may also decline. The report is particularly positive on companies exposed to accelerating electrification capex, renewable energy development, or energy security infrastructure.

Risks

• EU electrification target execution progresses more slowly than expected.
• Deployment of power grids, storage, heat pumps, and electric vehicles is constrained by permitting, supply chains, or financing.
• Rising electricity bills create affordability pressure and lead to greater regulatory intervention.
• Higher cost of capital weakens returns on utility and renewable energy projects.
• Growth in AI datacenter power demand falls short of Goldman Sachs' hyperscale adoption scenario.
• Recovery in renewable energy development or equipment orders is weaker than expected.

What to watch

• Policy implementation of the EU's 32% electrification KPI for 2030 and member-state execution pathways.
• European datacenter grid-connection demand and the pace of AI load growth.
• Changes in European grid investment, permitting reform, and regulated return mechanisms.
• Progress toward the 2030 target of 200GW of storage capacity.
• Whether annual heat pump installations can increase from 2.4 million units in 2025 to about 4 million units by 2030.
• The pace at which the battery electric vehicle fleet expands toward the target of about 120 million vehicles.
• Whether 2030-2031 earnings expectations for utilities and renewable energy companies are revised upward.