The Shifting Finance of Electricity Generation

Abstract: Over the 2005-2020 period, domestic publicly listed corporations reduced their ownership of U.S. electric power from 71% to 54% of total generation. Private equity, institutional investors, and foreign publicly listed corporations increased their ownership from 6% to 24%, and as of 2020 owned the majority of wind and solar generating capacity, and almost one-third of natural gas generating capacity. New entrants have increased their share largely through the creation of new plants, as opposed to acquisitions of existing plants. We find only limited support for the leakage hypothesis that new entrants acquire older fossil-fuel power plants from incumbent domestic listed corporations and keep operating these plants. Market deregulation is the main economic factor explaining the heterogeneity in ownership structure and differences in the rates of creation and destruction of new assets at different locations. Deregulated wholesale markets and retail markets attract more capital from new entrants to create new plants as well as stimulate incumbent owners to retire existing assets more quickly. The changing ownership structure has implications for electricity markets as private equity operates power plants more efficiently at lower heat rates and sells electricity for a $1.92 higher average price per MWh. Within markets of a given regulatory structure, time, and technology, private equity owners sell electricity under contracts with shorter duration, shorter increment pricing, and more peak-term periods, especially when selling electricity generated from fossil fuels.

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