Adding Exposure to our Favorite Theme

By Presidio Wealth Partners on March 19, 2025

Improving the U.S. Power Grid

In 2023, 4.178 million gigawatt hours of electricity were generated in the United States. Of this, 60% consisted of power generated from fossil fuels: coal, natural gas, petroleum, and other gases. Approximately 19% came from nuclear energy, and 21% came from renewable energy sources.[1] In recent years, the usage of coal for electricity generation has been declining, with natural gas and renewable energy filling the gap. As the globe becomes more dependent on electrical production to power our homes, cars, phones, and technology, new sources of power generation are of utmost importance.

Over the last 20 years, electricity consumption in the U.S. has been flat. After two decades of non-existent growth, electricity consumption grew 2% in 2024 and is expected to grow 2% in both 2025 and 2026 as a result of demand from new semiconductor and manufacturing facilities, as well as data centers. An increase in electricity demand is going to result in a greater need for electricity production, as well as new sources of production.

Chart 1: Coal Accounted for 50% of Electricity Generation in 2007, Which is Now Down to ~16%[2]

Chart 2: Electricity Consumption Has Been Flat for Two Decades[3]

According to the EIA, solar power will supply most of the increase in power generation in the coming years. The expectation is for the electric power sector to add 26 gigawatts of new solar capacity in 2025 and 22 gigawatts in 2026, increasing solar generation by 34% in 2025 and 17% in 2026. Additionally, we know that the U.S. power grid is in great need of an upgrade. Over 70% of the U.S. grid is over 25 years old, and many power infrastructure companies such as Eaton (ETN), Quanta Services (PWR), and GE Vernova (GEV) maintain billions of dollars worth of projects that will start in the coming years. ETN’s backlog is worth $1.6 billion, up 25% y/y, with data centers and power generation/renewable projects equating to 40% of its backlog. Additionally, only 15% of the backlog has begun production. The hyperscalers are building data centers and warehouses at record rates to compete with one another in the race to monetize artificial intelligence, and the power generation and infrastructure companies are greatly benefiting from these developments.

Given this backdrop, we started a new position in NextEra Energy (NEE) last week. NEE generates and sells electricity through renewable energy from wind and solar, as well as provides battery storage solutions. NEE is the largest electric utility in the state of Florida, and one of the largest in the U.S. The company is also the world’s largest generator of renewable energy from wind and solar. But, the stock has recently been under pressure due to the possible repeal of the Inflation Reduction Act (IRA). The IRA contains clean energy tax credits, which if repealed, could harm the demand for clean energy. That said, the company is funded for four years of development in the case that anything is reversed.

Earlier this year, NEE announced a partnership with GEV to build ‘gigawatts’ of natural gas generation plants. The goal is to work together to speed the development of gas turbine projects around key locations on the U.S. energy grid that would benefit from new generation. Solar and wind power generators remain faster and cheaper solutions than new natural gas sites, but NEE entering the natural gas generation industry diversifies its energy toolbox. Looking ahead, the company gained 12 gigawatts of backlog in 2024 with a total backlog of 25 gigawatts of power generation. In the case of tariffs, it is not dependent on foreign supplies; NEE’s battery storage components are fully sourced from the U.S., the industry has not bought solar panels from China in over ten years, and 90% of wind turbine materials are made in the U.S. NEE stands to benefit from increasing power demand in the U.S. and the recent shift to focusing on renewable energy and new forms of power generation.

Companies Improving and Expanding the U.S. Grid

NEE is not the only company focused on providing renewable energy solutions to an aging U.S. grid. As mentioned, ETN and PWR are in the middle of the data center buildout and grid enhancement projects in the U.S. ETN expects its business to grow 6-9% organically through 2030 with a goal to outperform its end market over the next few years. Its management team has stated that the world will add the equivalent of “10 United States” of grid power in the next 25 years, with ETN to reap the benefits through its product offerings. Electrical Americas is its fastest-growing segment with a 2025 guidance of 10.5-12.5% organic growth. Looking at PWR, its backlog hit record levels last quarter at $34.5 billing, rising 40% y/y. Electrical power infrastructure solutions revenue rose 38% y/y due to utility grid modernization and grid security initiatives. Both ETN’s and PWR’s businesses will continue to expand through increasing demand for data centers, electrical infrastructure, and electrification themes.

[1] Source: EIA. As of February 2024.

[2] Source: Statista. As of March 2024.

[3] Source: EIA. As of January 2025.