Why are valuations for independent power companies falling at the same time demand for electricity is skyrocketing? What discount rates are being used to value assets?
Power contracts to supply behind-the-meter power to data centers can take as long as 15 months to negotiate because of complicated technical issues. The market is not placing much value currently on distributed generation platforms and utility-scale developers with large pipelines of projects under development. A change in profile of buyers interested in buying positions in platform companies is causing financial sponsors to extend hold periods and explore secondary sales and continuation vehicles.
Five investment bankers and fund managers talked about current conditions in the M&A market for power projects and powered data center sites at our 35th energy finance conference in mid-June near San Francisco. The five are Shawn Cumberland, managing partner of EnCap Energy Transition, Komu Kumar, head of North American low carbon power for Nomura Greentech, Ari Pribadi, global co-head of investment banking at Marathon Capital, Britta von Oesen, co-head of the energy transformation investment banking group at Canaccord Genuity, and Himanshu Saxena, CEO of Lotus Infrastructure Partners. The moderator is Becky Diffen with Norton Rose Fulbright in Austin.
MS. DIFFEN: The first half of 2025 was slow for M&A. Everyone was waiting to see what would happen with what became the One Big Beautiful Bill Act. Once the bill was out of the way, the market kicked into higher gear. M&A lawyers normally try to take time off at the start of the new year because the deals accelerate the farther you get into the year. The first quarter this year was all hands on deck.
How do you see the rest of 2026 unfolding, and what areas within M&A are the busiest?
MR. KUMAR: The first half of 2026 was extremely busy. The busy period started in the last quarter of 2025.
As you said, the first three quarters of 2025 were relatively slow. We kept busy doing work around capital recycling. Assets that were already in service were de-risked from a policy perspective and still traded. That has meant there was a lot of dry powder looking for assets once the dam broke.
Fast forward to 2026. The platform-level activities started to emerge, with strategics looking at exit options and with various platforms looking to raise capital at the holding company level. Capital recycling has remained active at the same time.
MS. VON OESEN: It has been a crazy busy first half of the year, a lot of project financings, a lot of capital recycling, a lot of platforms that are coming to market, but not a lot of platform closings yet. We expect to see the same pattern in the second half.
MR. PRIBADI: I agree with what has been said. We are busy this year with sales of individual energy projects and platforms and also with sales of data centers projects.
We are seeing buyers trying to procure more electricity from the utilities. Think about the good old days where the utilities were signing bus-bar 20-year power purchase agreements. Those are coming back.
MR. SAXENA: We have never not been busy, so I don’t think this year is any different than the ones before. I think our industry, especially on the renewables side, has always been working against statutory deadlines. If it is not December 31, it is July 4. We are used to cliffs in our industry. This year is no different.
We have been spending a lot of time this year working closely with customers. Our business model is focused on what we call "build to suit." Anything we do on the greenfield side is there to serve a customer. We have been working with pretty much every hyperscaler in the last six to 12 months. Most of the deals we have signed are not public.
We signed a multi-billion dollar contract with one of the hyperscalers for the output from a gas-fired power plant. We are seeing a significant change from hyperscalers moving from just renewables to all sources of power. They are desperate for electrons, and we are serving them with whatever product they need. I have been joking with them about whether their next shift will be to go back to buying power from coal.
MR. CUMBERLAND: There is a continuity in what we do. It is high activity. We spend a lot of our time assessing how things are changing and what new opportunities can be expected. Where is it that we can play?
Because capital is a game of relatives, we are trying to figure out places that we can get good returns. We are constantly growing our existing portfolio companies. We are also searching for new portfolio companies to put in our latest fund.
MS. DIFFEN: Are you looking for data center companies?
MR. CUMBERLAND: We look for powered-land developers for data centers. We don’t invest directly into data centers.
MS. DIFFEN: Ari Pribadi, you mentioned data center M&A work as well. Talk about what that looks like. Is it full company investment? Is it individual projects being exchanged?
MR. PRIBADI: Both. Data centers require large amounts of capital. The typical project cost is at least $20 million per megawatt. This very capital intensive. Projects that respond to the power needs of the big four hyperscalers have turned out to be really profitable. I call the big four the MAMAs for Microsoft, Amazon, Meta and Alphabet. The MAMAs are really intensifying their capital expenditures.
As for M&A-related capital raises, a lot of projects are being sold at the ready-to-build stage. We call them powered-land deals, but we also work on turnkey projects that require financing. We also accommodate offtake transactions between data centers and tenants. That is busy as well.
MR. SAXENA: We have not seen much trading in operating data centers. That M&A market has not developed yet. The amount of money we are talking about for data centers is in the hundreds of billions of dollars. There is a big question around who ultimately will end up owning these assets in the long term. Blackstone did a public offering of a yieldco that it created to house data centers.
We don’t invest in the digital part of the business. We love the power side of the business. That insulates us from a lot of risk that comes from overbuilding the digital infrastructure, which is a serious risk. The digital guys will tell you they are putting $10, $20, $100 billion into this business without knowing who the ultimate owners of the asset class will be. That is a risk.
MS. DIFFEN: We get calls from developers that want to do joint venture or joint development agreements that combine the power side with the data center. We start talking to them and they have no idea what they want to do. Britta, do you see the same thing?
MS. VON OESEN: I get calls daily from people who say, "We have a brilliant idea. Have you heard of data centers?" And I think to myself, "Oh, God. There went 30 minutes of my life that I will never get back." There are plenty of power-site developers that don’t understand power, what goes into building a renewables project, the timelines, the local constraints and all of that.
Finding the right team that understands both the digital side of the data center and the power side is the key.
There is widespread concern that the data center moratoriums will have a spillover effect on renewables in a lot of these communities.
MR. KUMAR: Ultimately this comes down to appetite of the investors providing capital to do both. We are seeing more of that intersection on a real-time basis where folks who are good at building behind-the-meter power generation want to figure out how to go upstream in the data center space. To do that, you need capital at magnitudes that are well above what you traditionally see when building renewable generation.
Thus, from a developer perspective, we are seeing two things. The first is who has capital to play in both spaces. The second is who has the ability to deliver. It is an ongoing puzzle.
MR. SAXENA: It took us 15 months to negotiate our first contract on a gas-fired power plant with a hyperscaler, 15 months. The negotiation was with people with whom we have signed renewables contracts in the past. There is a huge difference between a virtual power purchase agreement on which a data center will not really rely for its physical electricity and a power contract for a gas-fired power plant requiring physical delivery.
Folks that have not negotiated a contract with a hyperscaler under which the hyperscaler is demanding performance assurances will be shocked at how much risk comes with those contracts. Those are very hard deals to negotiate. Our first one took 15 months. The hyperscalers want a 99.9% availability guarantee from gas-fired power plants.
How do you guarantee 99.9% availability from a power plant? We are talking numbers that a standalone power plant simply cannot provide. There are real questions about the viability of building behind-the-meter power plants and meeting the availability requirements.
There are many lessons still to be learned about this coexistence between a power plant and a data center. Many land speculators that have come into this space think it is easy, but it is not.
There is a lot of demand, but people are still figuring out the details. These are hard deals.
MR. CUMBERLAND: We are seeing the same thing. This stuff is going to get broken along the way. The hyperscalers are hiring people who understand the power industry. The Alphabet acquisition of Intersect Power was a good thing to have happen so that we are sitting across from people who understand electricity. If that trend continues, it will be good for both sides.
MR. PRIBADI: People who think they will just sign a PPA with a data center and then sell the power plant are missing your point. It is not just a power purchase agreement. It is an energy services agreement. You need to understand power electronics. You need to be able to deliver a solution that is not merely renewable power plant output.
Many companies are able to do that, but they are not necessarily power project developers. The people who succeed have power project development capabilities, powered-land capabilities to get permits, as well as the ability to understand power electronics. Without the power electronics component, there will not be a data center, even though you might have a beautiful new gas turbine next door.
MR. SAXENA: For the first six months of the negotiation, we said let’s not talk about the contract terms: let’s talk about the physics of how the system is going to be set up among the power plant, the data center and the grid. It was six months of just engineers working through how the power circuits would work. We spent six months working through the physical architecture before we got into any kind of contractual negotiations on the power side. It was very technical.
Somebody called me the other day and said, "I bought 1,000 acres of land next to your power plant." I asked, "What are you going to do with it?" He said, "Give me power, and I will build a data center." I think this is typical of what is happening with land speculators.
MS. DIFFEN: Half the people we see come from commercial real estate, and they think it should look like a real estate transaction not realizing that power deals are different. It is slowing deals down. All anybody in this industry wants to do is move super fast.
You have talked about the impact of data centers. I would think they would increase the value of renewable energy projects because of the increased demand for electricity, but it sounds they are adding complication and affecting timing.
Do you think data centers have increased valuations across the power sector? And what discount rates are people using to value power projects?
MR. KUMAR: The data center story has boosted overall valuation levels. The One Big Beautiful Bill Act was a headwind for valuation. Data centers have pushed the market to be long power, which has increased pressure on PPA prices. This has also helped the merchant markets. The net effect is a favorable valuation outcome, but we are not at the valuation levels where we were in 2020 to 2023. I don’t think we will ever return to those levels.
The question about discount rates is a hard one to answer. The rate varies depending on how you think about contracted versus merchant risk, the vintage of the fleet and other factors, but at a high level, for a newly built solar project, you are probably looking at an 11% to 12% levered after-tax rate over a 40-year useful life.
Again, the appropriate rate varies. For example, for a project that is largely contracted with a small residual life remaining after the power contract ends, maybe 7% to 8% is more appropriate, with the midpoint being 7.5% levered after-tax during the contracted period.
MS. DIFFEN: Britta, same answer?
MS. VON OESEN: Yes. There is so much that goes into selection of the appropriate discount rate, but I think those discount rates are spot on. Data centers are the crutch that is propping up valuations for some of the early and mid-stage development projects. Anything that is already operating is selling quickly.
There is so much more policy risk and uncertainty today. It is causing the mid- and early-stage assets to trade more slowly than they were. Trading volume in such assets is certainly down from 2021, and it is even down from the last two years as the uncertainty weighs on the market.
MR. PRIBADI: Valuations are improving for a few reasons. Number one, power prices keep trending up. We are also seeing more load being built adjacent to the generating facilities. This is reducing electricity basis risk for new power plants being built next to data centers. We also see lots of new investors coming into the US. When the MAMAs announced $750 billion new capital expenditures for this year alone, with most of it in the US, it sent a very strong price signal.
We have been getting calls from international investors who have never been in the US and who now want to come here or who have small footprints in the US and want to expand their operations. More inbound investment means more potential buyers for these assets.
MR. SAXENA: The discount rate is 9.782%. [Pause] I am kidding!
MR. PRIBADI: Depends on the pro-forma assumptions.
MR. SAXENA: I think the missing piece of this is your longest contract on the renewables side is, pick a number, 15 years or 20 years. If you have a 40-year asset, then there is a substantial amount of value after the 20-year period. We investors have to take a view on what that value is going to be when the first contract expires.
You can put in one price curve that gives you a 10% return. Another price curve gives you a 20% return. The discount rate goes hand in hand with the forecast of what happens after the power contract ends. There is no one right number.
When we look at forecasts from somebody like an ICF or Leidos, they have Texas prices starting in 2040 at $80 or $90 a megawatt hour. This is happening across all markets. Your PPA price might be $30, and then the PPA expires. Suddenly, you think you will be able to sell the power for $90. That is where the risk sits.
Everyone in the renewables market who is either buying or building is having to take a view. These may look like contracted assets, but they come with a lot of merchant risk post-PPA period. Your long-term view of where electricity prices will be has a huge effect on valuations. Experience has shown whatever we think we know today is wrong.
The other point to make about valuations is there is a disconnect between IPP share prices and the growing demand for power. The stock price for Vistra, for example, was $220 a share. We sold a big portfolio of gas-fired power plants to Vistra. We think they are a very capable team. Now the Vistra share price is down to $140 to $150 a share. Why? IPP share prices are trading close to 52-week lows, despite the growing demand for power.
There is a significant difference between values being assigned to old metal versus new metal. The new metal does not face the same risks from rapid gyrations in policy that old metal faces. This has a significant impact on both the private and the public market valuations of existing assets.
MR. CUMBERLAND: I have this view that capital is both lemming-like and disorderly, and I am going to talk about a new epoch that I think we are in.
The first epoch was a 30-year “Pavlovian” conditioning period from 1990 to the nadir in the 30-year Treasury bond in April 2020. That 30-year period was a relatively smooth period with a gradual sawtooth-down pattern in discount rates. Every four years, you could count on a 100 basis points of reduction in rates. Rates came down over the period by 750 basis points.
In the last six years that I call a “who moved my cheese” period, we have had more than a 350-basis point increase. The 30-year Treasury rate moved from 1.2% to close to 5%. The last time we saw that magnitude and speed of sustained rate jump was in the late 1970s and early 1980s. Most of us have not lived in an environment like this.
Base rates are only a part of the story. There are countervailing forces like growth in electricity demand that offset the rate increase.
I am in the private capital business where institutional capital backs fund managers like us to go do investing. Over the past few decades, there has been explosive growth in assets under management in infrastructure funds going from about $5 billion to $1.8 trillion. That growth has accelerated in both speed and mass. Megafunds started emerging during backend of the downward rate slope.
Now people are starting to say, "Hey, wait a minute. We are not seeing any exits." We are having a problem with exits all of a sudden when you could have reliably counted in the past on return compression along the way. We are seeing lots of extensions, secondary sales, continuation vehicles and other things emerge as a response.
MR. PRIBADI: On the exit point, we also see a loss of the typical buyers of exits for these companies.
The exit buyers used to be of three types. There were investors focused on internal rates of returns. There were some book-earnings-driven investors focused on whether the purchase will be accretive to earnings. And then there were cash-yield investors.
The last two were usually the people that can pay a lot, especially for projects that throw off operating cash flow, because those types of projects are accretive to book earnings and cash yield. Those types of projects or platform companies are taken private.
The buyer profile has changed in a big way because there used to be an outlier bid from people that have very different metrics for valuing projects. Those outlier bids were more unique to those buyers' profiles as opposed to the market sentiment. Now investors are acting almost universally more IRR-driven or NPV-driven as opposed to book-earnings or cash-yield driven.
MS. DIFFEN: Britta, we sold a lot of platforms in 2021 together. Do you think we will see another platform boom soon or does the trouble with exits suggest fewer such sales?
MS. VON OESEN: We are in for a very wide spectrum of results over the next year or two. The platform companies that have gigawatts of operating assets and really strong management teams are trading. We are going to see a lot of such trades this year.
The mid-market, questionably capitalized developers are having trouble. There are a lot of such developers, especially on the distributed generation side. We are seeing a ton of stranded DG platforms that cannot find the next buyer. Look for consolidation of such groups, but I also think we are going to see some dissolved teams. I think people will come in, pick up the assets they like, pick up the employees that are accretive, and then get rid of the entity. The market looks like a barbell. A bunch of platforms will do very well, and a bunch will be stranded.
MR. CUMBERLAND: I agree. One of the questions for this panel is whether it is a buyer's or seller's market. It is both.
MR. KUMAR: Agree.
MR. PRIBADI: It depends on what is being sold.
MR. KUMAR: What we are seeing is strategics are more willing to transact because of shifts in priorities for the US market or capital allocation shifts as they think about their businesses. There is more momentum to trade among strategics, but that is less true of financial sponsors. Part of it is driven by their entry points.
Bigger quality platforms are finding buyers and running competitive processes. The ones in the middle are struggling. Who knows what happens with the distributed generation sector? There was a wave of DG. Now there are too many DG platforms.
Financial sponsors, to your point, are exploring continuation vehicles as a way to kick the can down the road until market conditions improve.
MS. DIFFEN: How should a small or mid-sized developer that needs capital approach the market for the equity it needs? People are really struggling to find growth equity.
MR. KUMAR: It is a challenging time to raise equity unless you are a well-known, established developer with a really good sponsor behind you. We are seeing a lot more structure and downside protection for investors to get them to put in capital.
Part of that is driven by what happened during the period 2020 to 2023, where folks were leaning in on valuations and things have not played out as projected. They are going to committees and their committees want downside protection. These capital raises are going to get done by offering investors preferred equity rather than common equity like you might have seen during the period 2020 through 2023.
MS. VON OESEN: There is also a squeeze happening of the groups that put some type of structured product in place in 2023 or 2024 and where things have not played out exactly as anticipated.
MR. SAXENA: None of this is new. If you go back in time five or six years ago, the same thing was happening for developers that were developing gas-fired power plants. Gas-fired plants were not sexy. The developers raising capital for them borrowed senior debt. A lot of gas-fired power plants were built with a preferred equity piece in the capital stack. Then there was a common equity slice.
The same approach is now being applied to renewables platforms. Renewables are fashionable, but not as fashionable as they used to be. Gas is obviously pretty fashionable now.
You can raise as much capital as you want for a gas platform if you have a good developer, but it is harder now for renewables.
MR. CUMBERLAND: It is a game of relatives. Sometimes we will see a platform with talent. Maybe there are opportunities for a new investor to displace the wrong type of capital. We look at it from both lenses. Should we put in preferred equity as thing one, or can we take this team and go do something with it because it has found a good niche in the market?
MR. PRIBADI: We take a different approach. I think there are platforms that can take projects to notice-to-proceed with construction or the financial investment decision and get there with their own capital, and if they have good projects with good contracts, plenty of capital is available.
But then what about the people that lack the capital to get to NTP and FID? In those situations, they need to talk to Himanshu and Shawn to get some sort of structure. Another approach is to try to raise development debt to move projects to NTP and FID, at which point it should be possible to raise additional capital.
MR. SAXENA: One thing that has impressed me recently is the range of financing solutions for different parts of a project. For example, Frank Getman is sitting here somewhere. He would be happy to finance refundable interconnection deposits. That is the kind of stuff that did not exist four years ago. We have already seen banks financing equipment deposits. For a platform company that wants to keep bootstrapping and not move into the world of preferred equity, puts and similar stuff, there is an alternative, but it can only happen for good projects.
If you have good projects with good PPAs, you can cobble together capital. It is harder than it used to be in the past, but there are more tools now than existed four or five years ago.
MR. PRIBADI: That’s my point. Emphasis on good project.
MS. DIFFEN: So there is capital, but it is not crazy money like it was five years ago.
We are running short on time. Are there any questions from the audience?
MR. WILLIAMS: Mark Williams with PNC Bank. How deep is the market to acquire a good platform with projects that are close to NTP or at NTP? It sounds like the market is not deep for DG-related platforms. If you had to generalize and throw out an unlevered discount rate for a decent operating platform, what would that be?
MR. SAXENA: There is no way to assign a discount rate to a platform. I don't think such a thing exists. When we value a platform, we do it as the sum of the parts. We might have one discount rate for the operating and contracted assets. We might have a different discount rate for a pipeline of projects that can be done in this tax credit cycle. We might have a different discount rate for development projects that are post-2030. However, I am not sure anyone is putting a value today on those.
Then there is the people part of this. The market has shifted from where it was five years ago when there was value in the team and the platform. Over time, that has gone from being positive value to negative value. We have seen this cycle before. The platform value can change. The value of the people and the future pipeline has gone from being positive to negative.
This is due to the number of platforms that are chasing the same kind of capital at the same time. If I look at our deal list right now, there are probably a dozen platforms that are looking for capital. They range from small to very large. When there is this much product in the market chasing the same capital, the value of the platforms turns negative. That is what we see today.
MR. KUMAR: I 100% agree with that. Where we see a lot of depth is for platforms with significant operating assets. A platform that is largely a development pipeline is likely to be split up with buyers picking up different pieces of the development pipeline. The buyers are likely to be the strategic investors.
To get momentum, you need a sizable number of operating projects. That is the difference between the market three years ago and today. Three years ago, people were making bets on development pipelines and development teams. Today they are not.
MR. CUMBERLAND: The discount rates used to value companies are higher today than two years ago because of the greater volatility. I can't give you our numbers because we are in the market actively trying to buy stuff, but I will say directionally we are doing something today that we did not do in the past, and that is focusing more on projects that are late-stage or NTP-ready. If there are any bargains, it is with projects at that stage.
MR. PRIBADI: There are ways to differentiate your platform so that you are not just another renewable energy company. An example is where a platform is focused on a particular market and is the dominant player. That could be interesting.
People are incorporating data center development into their renewable development as a way to differentiate. We see from the public market, those companies that were previously just another solar company see their multiples in the public market increase when they infuse a specialty.
MR. SAXENA: Remember when the dot-com boom started. If you had a website, your value went up. So rename all your platform companies to say dot AI, and see the valuation increase! I am kidding of course.
MR. PRIBADI: No, no. The market is paying close attention to projections and stress testing forecasts.