The Shifting Finance of Electricity Generation

Abstract: We study the role of private equity (PE) in financing large-scale new asset creation. In the U.S. electricity industry, we document a shift from incumbent investor-owned utilities toward PE. PE expands by creating new wind, solar, and natural gas plants rather than prolonging the operation of acquired legacy assets. The shifting ownership is concentrated in deregulated markets, demonstrating the dual importance of competition and new financing for asset creation. PE also creates more efficient plants and improves the efficiency of acquired plants. Our findings highlight PE's role in physical capital formation beyond its well-documented role in restructuring existing assets.