EU electrification plan reinforces the long-term growth thesis for European power demand
AI summary card
EU electrification plan reinforces the long-term growth thesis for European power demand
Goldman Sachs believes that the EU's goal of raising electricity's share of final energy consumption to 46% by 2040 will drive investment in data centers, heat pumps, EVs, energy storage, and power grids, and support a supercycle in European utility earnings.
- The EU's target is to raise electricity's share of final energy consumption to 46% by 2040, versus about 23% currently, with a key performance indicator of 32% by 2030.
- Goldman Sachs believes this plan is consistent with its high-adoption electrification and data center scenario, and expects European power demand to grow 4%-5% annually starting in 2029.
- Electrification is expected to require about €2.2-3.5 trillion of investment over the next decade, significantly above the pace of the past decade.
- The research estimates average annual electricity bill increases of about 2%-4% over the next decade, below market concerns and helpful in reducing the risk of regulatory intervention.
- It is particularly positive on transition electrification companies, renewable developers, renewable equipment manufacturers, and energy security infrastructure providers.
Report interpretation
Overview
This report centers on the EU's accelerated energy demand electrification strategy released on July 17. The EU aims for electricity to account for 46% of final energy consumption by 2040, significantly above the current level of about 23%. Goldman Sachs believes this policy direction supports its bullish view on long-term European power demand growth and could accelerate capital spending in areas such as data centers, heat pumps, electric vehicles, energy storage, and power grids.
Core views
The core view is that Europe is entering a generational earnings supercycle driven by electrification and artificial intelligence. A widening power infrastructure gap, replacement of aging grids, expansion of energy storage, data center construction, and electrification of end-use energy consumption will together enhance returns on investment and growth visibility for renewable energy, flexible generation, and grid-related assets. Goldman Sachs expects the main electrification compound-growth companies to achieve average earnings growth in the high single digits to low double digits in the 2030s, with market consensus potentially revised upward around 2030-2031 and driving valuation multiple expansion.
Analysis framework
The report uses a combination of policy target benchmarking, demand scenario modeling, capital expenditure requirement estimates, end-user electricity affordability analysis, and company cluster mapping. The analysis focuses on the gap between the EU's new targets and the current state, the elasticity of European power demand growth starting from 2029, the scale of electrification investment over the next decade, incremental electricity demand from data centers and AI, and the benefit pathways across different parts of the power value chain.
Methodology notes
Growth, financial returns, valuation multiples, and composite percentile
Goldman Sachs' factor profile assesses stocks' growth, financial returns, valuation multiples, and composite characteristics by comparing them with its covered stock universe and industry peers; growth is typically based on forward sales, EBITDA, and EPS growth, financial returns are based on ROE, ROCE, and CROCI, and valuation multiples are based on metrics such as P/E, P/B, P/D, and EV/EBITDA, EV/FCF.
Acquisition probability tiers
Goldman Sachs uses an M&A framework across its global coverage to assess the likelihood that a company becomes an acquisition target, where Rank 1 indicates a high probability of 30%-50%, Rank 2 indicates a medium probability of 15%-30%, and Rank 3 indicates a low probability of 0%-15%; companies ranked 1 or 2 may include an M&A component in their target prices.
Linkage among policy targets, demand growth, investment needs, and electricity affordability
The report combines the EU's electrification targets, data center construction, adoption rates of heat pumps and EVs, and grid and energy storage investment needs to assess European power demand growth, sector capex scale, user electricity bill pressure, and utility earnings elasticity.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- European utilities and power companiesDirect beneficiaries of power demand growth, electrification capex, and grid upgrades.
- Strengths
- Greater visibility on demand growth, earnings growth may continue into the 2030s, and there is room for sector valuation multiple expansion.
- Weaknesses
- Large capex scale, with returns dependent on regulatory mechanisms, financing costs, and project execution capability.
- Comparison
- Compared with the traditional utility logic driven by interest rates and commodity prices, the electrification theme strengthens the structural growth characteristics.
- Risks
- Regulatory intervention, deterioration in electricity affordability, rising cost of capital, and delays in policy execution.
- Transition electrification companies: Naturgy, Enel, Engie, PPCThe report believes these companies will see significant acceleration in electrification capex over the next 3-5 years, changing portfolio composition.
- Strengths
- Portfolio transformation, capex growth, and policy support may bring higher compounded earnings growth.
- Weaknesses
- The transition period requires continued investment, and short-term free cash flow and balance sheets may come under pressure.
- Comparison
- Compared with static utility assets, these companies have a stronger portfolio reallocation and growth narrative.
- Risks
- Project returns below expectations, regulatory recovery mechanisms weaker than expected, and deterioration in financing conditions.
- Renewable energy developers: RWE, EDPR, Solaria, OrstedBenefiting from higher power demand, renewable capacity expansion, and potential improvement in returns.
- Strengths
- Policy targets drive demand for new projects and improve long-term organic growth opportunities.
- Weaknesses
- Long project development cycles, with returns affected by supply chains, permitting, and power pricing mechanisms.
- Comparison
- More directly exposed than traditional generation assets to the energy transition and demand for green electricity.
- Risks
- Project delays, equipment cost volatility, falling power prices, and changes in subsidy or auction rules.
- Renewable energy equipment manufacturers: Vestas, NordexThe report believes they may benefit from order growth and margin improvement.
- Strengths
- Renewable build-out brings order elasticity, while scale effects and improved pricing may support margins.
- Weaknesses
- Manufacturing businesses are sensitive to supply chains, raw material costs, and execution quality.
- Comparison
- Compared with generation operators, equipment manufacturers have higher operating leverage to the new capacity cycle.
- Risks
- Order conversion below expectations, cost inflation, intensified competition, and project cancellations.
- Energy security infrastructure providers: EON, Siemens Energy, SnamBenefiting from investment in power grids, flexible generation, energy security, and system resilience.
- Strengths
- Infrastructure gaps and energy security needs increase investment certainty.
- Weaknesses
- Some businesses are constrained by regulated returns, public budgets, and project delivery.
- Comparison
- Compared with pure renewable developers, these assets are more oriented toward system infrastructure and energy security investment themes.
- Risks
- Cuts to regulated returns, delays in project approvals, cost overruns, and changes in policy priorities.
Key data
- Final energy electrification rateCurrently about 23%; 2030 KPI is 32%; 2040 guidance target is 46%From the EU electrification plan targets in the report table.
- European power demand growth forecastAnnual growth of 4%-5% starting in 2029Goldman Sachs believes the EU targets are consistent with its high-adoption electrification and data center scenario.
- Electrification investment needs over the next decadeAbout €2.2-3.5 trillionThe report says this would accelerate significantly versus the past decade.
- Expected increase in electricity billsAverage of about 2%-4% per year over the next decadeGoldman Sachs believes this increase is below market expectations and helps ease concerns about regulatory intervention.
- Energy storage capacity targetFrom about 55GW (2026) to 200GW by 2030 and 500GW by 2040From the EU electrification plan target table.
- Heat pump installation paceAbout 2.4 million units/year in 2025, targeting about 4 million units/year by 2030Reflects accelerated electrification of end-use heating.
- Number of pure EVs on EU roadsCurrently about 8 million, target about 120 millionThe report views higher EV adoption as one source of power demand growth.
- Installed heat pumpsCurrently about 28-30 million units, target about 100 million unitsFrom the targets in the report table.
- Age of European grid assetsAbout 40 yearsThe report believes grid aging will drive investment demand across the value chain.
- Number of stocks covered by Goldman Sachs global ratings3,104 stocks as of July 1, 2026From the disclosure section.
Impact & implications
If the EU electrification plan is implemented, the European power value chain could partially decouple from its cyclical and rate-sensitive characteristics and shift toward a stronger structural growth story. Higher investment demand for grids, energy storage, renewable energy, flexible generation, and energy security will support earnings upgrades and valuation expansion for related companies; meanwhile, if electricity bill increases remain within the report's estimated 2%-4% annual average range, the social affordability and regulatory stability of policy execution will be higher.
Risks
- EU electrification target execution is slower than expected, leading to lower-than-expected power demand growth and investment pace versus Goldman Sachs' scenario.
- Electricity bill increases exceed the 2%-4% annual average range, triggering affordability-related regulatory intervention.
- Rising capital costs may depress valuations and returns for utility and renewable energy projects.
- Power grids, energy storage, heat pumps, EVs, and data center construction face permitting, supply chain, and construction bottlenecks.
- Changes in commodity prices, interest rates, and policy subsidies may still affect sector earnings and valuations.
- The disclosure section notes that Goldman Sachs and its affiliates may have investment banking or trading relationships with covered companies, and investors should be aware of potential conflicts of interest.
What to watch
- The EU electrification plan's specific legislation, funding arrangements, and member-state implementation pathways.
- Whether the 2030 electrification rate KPI of 32%, the 200GW energy storage target, and the pace of heat pump installations progress on schedule.
- The progress of European data center construction and the actual pull on power loads from AI electricity demand.
- Grid investment permitting, regulated return mechanisms, and capex recovery arrangements.
- Whether household and corporate electricity bills remain within an affordable range.
- Orders, capex, project returns, and earnings guidance of related companies such as Naturgy, Enel, Engie, PPC, RWE, EDPR, Solaria, Orsted, Vestas, Nordex, EON, Siemens Energy, and Snam.