Goldman Sachs: Power Enters AI-Driven Super-Cycle as EDPR Secures Large Deal with Meta

Overview

This Goldman Sachs Utilities Daily report conveys the firm's strong conviction that the global power sector is entering a 'super-cycle.' By synthesizing high-frequency data across multiple dimensions—including EDPR's large-scale PPA with Meta, explosive growth in German storage, and surging electricity demand from European data centers—the report argues that AI and electrification are reshaping power supply-demand dynamics. Beyond updating short-term industry trends, the report reaffirms an optimistic medium-to-long-term stance on power generators and vertically integrated utilities, viewing current market adjustments as a strategic entry opportunity.

Core views

Power Super-Cycle and AI Demand Inflection: The core thesis posits that the utility sector is undergoing a structural growth cycle driven by data center construction, comprehensive electrification, and modernization of aging grids. Goldman Sachs' latest calculations show European data centers have increased their grid connection requests from 170GW to 280GW, representing a ~65% growth over the past 9 months. This volume equals 90% of the current electricity demand across the 28 EU member states. Even at a conservative 20% conversion rate, this implies an additional annual power demand increase of about 2% starting from 2028, fundamentally reversing the downward trend in European electricity consumption seen over the past 15 years. EDPR Secures Long-Term Meta PPA and Strong Storage Growth Confirm Cyclical Health: As micro-evidence of the super-cycle, EDPR signed a long-term PPA with US tech giant Meta to power its 250MW Cypress Knee solar project in Arkansas, planned for completion in 2028. This underscores the rigid demand for clean power by tech giants. Simultaneously, Germany added over 2GWh of fixed-energy storage capacity in Q1 2026, a 67% YoY increase, bringing cumulative capacity to 28GWh. This reflects accelerating adoption of energy storage alongside renewables to mitigate grid volatility. Global Renewable Energy Policy and Investment Dynamics Show Divergence: On the supply side, progress varies by region. Australia selected nearly 1.9GW of solar/wind and 0.5GW of storage projects through Rounds 5 and 6 of its Capacity Investment Scheme (CIS), with total investments of approx. €3.1 billion expected to come online by 2030. Conversely, the US suspended approval for approx. 165 onshore wind projects on private lands, affecting ~30GW of capacity, citing national security, creating short-term headwinds for wind development. Furthermore, Europe remains heavily reliant on the Chinese supply chain (importing 98% of PV modules and 88% of lithium batteries in 2024). With rising silver prices and the cancellation of China's export tax rebates, module prices have rebounded from $0.09/W at the end of last year to $0.114/W. Investment Strategy and Name Preferences: Based on the above logic, the report anticipates the biggest surprises in 2026 will come from power generation businesses. Data center rollouts and the electrification inflection point will boost FlexGen profits and trigger incremental investment in backup gas plants and batteries. For the 2025-2030 period, the recommended 'Electrification Compounding Growth' basket is expected to achieve a 9%-11% CAGR in EPS. Specific preferences for 2026 include generators like RWE and Solaria, as well as vertically integrated utilities such as Enel, SSE, and Engie, whose organic growth is viewed as underestimated and who are better positioned to withstand price fluctuations.

Analysis framework

The report employs a three-layer analytical framework: 'Macro Narrative + Meso Validation + Micro Catalyst.' First, it establishes a macro hypothesis of a structural inflection point in AI-driven power demand by revising estimates of European data center grid connection requests (from 170GW to 280GW). Second, it cross-validates the true cyclical health of the renewables and storage sectors using high-frequency industry data, such as Germany's storage installation growth rates and the EDPR-Meta PPA signing. Finally, it filters for sub-sectors and individual stocks with risk resilience and growth certainty by combining policy bidding results (e.g., Australia CIS, US wind stall) and supply chain cost changes (PV price hikes). This methodology emphasizes tracking the substantive transformation from 'concepts' to 'orders/installations'.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Anticipate upstream power demand inflection points by tracking grid connection application volumes from downstream applications (data centers)

  Rather than looking solely at historical electricity consumption, the report quantifies future potential demand increases by monitoring the leading indicator of 'grid connection application capacity submitted by under-construction/planned data centers.' This approach captures non-linear growth driven by emerging variables like AI more effectively than traditional demand forecasting.

• Valuation MethodologyPE/PEG valuation

  Assess growth premium for electrification beneficiaries based on EPS Compound Annual Growth Rate (CAGR)

  When recommending the 'Electrification Compounding Growth' portfolio, the report anchors valuation support to the 2025-2030 EPS CAGR (9%-11%). This indicates that when valuing such utility stocks, the focus is no longer solely on current dividends or static PE ratios but treats them as growth stocks, using future earnings growth to absorb current valuation multiples.

• Event Betting and Behavioral FinanceExpectation Gap / Expectation Management

  Convert market misperceptions regarding AI power demand into investment opportunities

  The report highlights that the market may have previously underestimated the actual power pull of data centers (seeing only partial conversion). By raising connection request estimates to 280GW, it reveals a significant potential expectation gap. It also warns that strong performance in 2025 may already incorporate some AI expectations, necessitating caution regarding pullbacks, reflecting a game-theory analysis of market expectation pacing.

Asset mapping & comparison

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

• EDPR

  Directly benefits from securing a 250MW long-term PPA with Meta, locking in future cash flows

  Strengths

  Successfully secured long-term orders from tech giants, validating its project development and customer acquisition capabilities

  Comparison

  First among renewable developers to finalize a large-scale tech client PPA

  Risks

  Project construction delays (completion estimated in 2028)

• RWE

  Explicitly recommended as the preferred power generator for 2026

  Strengths

  Beneficiary of improved FlexGen profits and incremental power demand from data centers

  Comparison

  Possesses both traditional generation and renewable balancing capabilities compared to pure renewable developers

  Risks

  Price fluctuation risk

• Solaria Energia y Medio Ambiente

  Explicitly recommended as the preferred power generator for 2026

  Strengths

  Pure-play solar generator directly benefiting from growing PV PPA demand

  Comparison

  Specializes in the solar sector, offering higher elasticity

  Risks

  Rising PV module prices may erode project margins

• Enel

  Recommended vertically integrated utility company; organic growth appears undervalued

  Strengths

  Diversified business insulated from single-commodity price downturns; covers generation, grid, and retail

  Comparison

  Stronger anti-cyclical characteristics compared to pure generators

  Risks

  Risk from regulatory policy changes

• SSE

  Recommended vertically integrated utility company

  Strengths

  Leader in the UK market, benefiting from local grid upgrades and renewable transition

  Comparison

  Regionally focused, providing complementarity to continental European names

  Risks

  Uncertainty in UK energy policy

• Engie

  Recommended vertically integrated utility company, participating in offshore wind via Ocean Winds JV

  Strengths

  Comprehensive energy service provider with both generation and service businesses; French floating wind projects are already generating power

  Comparison

  Balanced business structure with floating wind offering additional growth drivers

  Risks

  Compliance and management complexity from multi-country operations

• META.US

  As a power demand side, secures green power supply through PPA

  Strengths

  Ensures stable long-term green power supply for AI computing infrastructure, aligning with ESG goals

  Comparison

  Typical representative among tech giants actively investing in physical energy assets

  Risks

  Project delays could lead to power supply gaps

Key data

• European Data Center Grid Connection Applications280 GWUp approx. 65% compared to 9 months ago, equivalent to 90% of current electricity demand in the 28 EU countries
• EDPR-Meta PPA Project Capacity250 MWLocated in Arkansas, USA, expected completion in 2028
• Germany Q1 New Storage Capacity>2 GWhUp approx. 67% YoY, cumulative capacity reaches 28 GWh
• Australia CIS Winning Bid Size2.4 GWIncludes 1.9GW wind/solar + 0.5GW storage, investment approx. €3.1 billion
• US Suspended Wind Project Scale~30 GWInvolves 165 projects,搁置 (suspended) due to national security reasons
• PV Module Prices11.4 ¢/WUp from $0.09/W at year-end last year, driven by silver prices and cancellation of China's export tax rebates
• Electrification Compounding Growers EPS CAGR+9% ~ +11%Conservative/Optimistic estimates for 2025-2030, significantly higher than the overall industry level of +6%

Impact & implications

For the industry, data centers have become a new engine for power demand, forcing grid operators and generators to accelerate capacity expansion and flexibility upgrades. For investors, the pricing logic for utility stocks is shifting from 'defensive income' to 'growth premium,' rewarding companies with quality generation assets and vertical integration capabilities with re-rating. However, one should note that stalled US wind approvals and rising Chinese supply chain costs may temporarily compress IRRs for certain projects, requiring close monitoring of policy and cost marginal changes.

Risks

• US national security reviews causing wind project approval stalls, impacting project development timelines
• Rising prices of PV modules and key raw materials (e.g., silver), compressing project profit margins
• Europe's heavy reliance on the Chinese PV and battery supply chains may trigger trade or supply risks
• High volume of data center grid connection applications carries uncertainty regarding actual conversion rates
• The power sector has experienced significant gains recently; if AI demand realization falls short, valuations may face correction

What to watch

• May 6: Q1 Earnings for EDP, EPDR, Endesa, Orsted, Veolia, Vestas
• May 7: Q1 Earnings for Acciona Energia, Enel, Engie, Terna
• May 19: Goldman Sachs London Utilities & Clean Energy Conference (Theme: Power Super-Cycle)
• Progress of German DolWin4 offshore cable laying (expected to start late May/early June)
• Whether the Irish government will establish a National Renewable Energy Project Coordination Centre