The Shifting Finance of Electricity Generation

Despite the incentives of incumbent domestic listed corporations (DLCs) in the electricity generation industry, private equity, institutional investors, and foreign corporations have played an outsized role in financing the energy transition. These new entrants are twice as likely to create power plants as incumbents. They owned 58% of wind, 47% of solar, and 34% of natural gas electricity production as of 2020. The ownership changes are concentrated in deregulated wholesale markets which attract more capital from new entrants to create renewable and natural gas plants, acquire existing plants, and accelerate the decommissioning of coal plants. Sales of fossil fuel plants from DLCs to foreign corporations result in some leakage, but private equity has similar decommissioning rates to incumbents. The new ownership types create more efficient power plants with a lower heat rate and improve the efficiency of acquired plants. Our results also highlight an important tradeoff in bringing new financing sources to the electricity sector. When selling electricity, private equity and foreign corporations use contracts with shorter duration, shorter increment pricing, and more peak-period sales, and obtain a $2.59 higher average price per MWh.