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Private equity bets big on utilities

Why private equity is betting big on utilities

As US utilities navigate rising power demand and the need for fresh capital to modernise the grid, private equity firms have taken notice and swooped in to make acquisitions and invest in the sector.

Once considered a sleepy industry, utilities have become popular with Wall Street as investors seek to profit from rising energy demand, especially from technology companies in desperate need of electricity for AI data centres.

Power demand had been flat for nearly two decades but US electricity prices have increased faster than the rate of inflation since 2022, according to the US Energy Information Administration. It expects prices to continue increasing through 2026, with the average US electricity price rising 13 per cent from 2022 to 2025.

“[Utilities are] a growth business these days. Everybody wants power,” said Gregory Brown, a professor specialising in private equity and other alternative assets at the University of North Carolina’s Kenan-Flagler Business School.

Blackstone Infrastructure in May made a deal to acquire local utility TXNM Energy for $11.5bn. Last week, the FT reported that BlackRock-owned Global Infrastructure Partners was nearing a $38bn deal to take over utility group AES, which would be the largest infrastructure takeover of all time. But that is not the first deal GIP has made in the sector. The group last year moved to acquire Allete, the parent of utility Minnesota Power, with Canada Pension Plan Investment Board, for $6.2bn.

Although the deal faced community pushback over concerns about higher electricity prices, the Minnesota Public Utilities Commission approved it unanimously on Friday. As Blackstone awaits approval from regulators in Texas and New Mexico, where TXNM Energy operates, the Allete deal may be a bellwether for further acquisitions in the sector.

Infrastructure has been a target of private equity firms for years and data centre growth has only strengthened demand for energy-related infrastructure. Utilities are also attractive to investors because they are considered a stable investment that tend to operate as regulated monopolies.

“The [utility] business model allows long-term predictable cash flows,” said Gautam Jain, a senior research scholar at the Center on Global Energy Policy at Columbia University. Utilities are allowed to keep a percentage of what they invest in, typically 8 per cent to 10 per cent, as earnings, he added.

AI has driven much of the excitement around utilities with some investors expecting a larger rate of return. Rodney Rebello, portfolio manager and vice-president at Reaves Asset Management, said over the next few years some utilities are well positioned to have growth accelerate to high single digits and in some cases double digits.

“There is this notion that [utilities] could be seen as AI beneficiaries,” he said. “The demand for power is . . . causing a sector that already had a lot of favourable attributes to have growth that is in some cases comparable to the broader market as a whole.”

According to data from PitchBook, private equity exit activity — when a firm realises a return on its investment — in US utilities jumped to $14.6bn this year, up from only $430mn and $3.16bn in 2024 and 2023, respectively.

But not everyone is enthusiastic about private equity’s recent activity.

Households and businesses take on the capital costs that utilities spend on infrastructure upgrades, as well as higher electricity prices. Some worry private equity could further drive up power bills.

“Private equity has developed a reputation of being opportunistic investors,” said Alissa Schafer, climate and energy director at the Private Equity Stakeholder Project, a group that is critical of the buyout industry. “Access to electricity is something that people need every day . . . It is concerning if the primary motivation for the company running it is to get as much money as possible.”

The Allete deal in Minnesota faced opposition from the state attorney-general, environmentalists, consumer advocates and industrial electricity buyers. Opponents of the deal cited the 19 per cent premium BlackRock paid for the Minnesota Power parent and warned Allete could take on extra debt that will cause its cost of capital to rise. This would result in higher rates for households and businesses.

“This approval comes over the clear objections of consumer advocates and utility customers,” said Karlee Weinmann, research and communications manager at Energy and Policy Institute, a watchdog organisation that advocates for clean energy and opposed the Allete deal. 

“Regulators have now made a big bet that BlackRock’s ownership of Allete will yield much different results than private equity typically delivers. Evidence on the record suggests otherwise.”

Regulated utilities need approval to raise prices for its ratepayers, which some analysts and investors expect to act as a mediator between company and consumer interests. Regardless of who owns the utility, rising energy demand will cause US households and businesses to face higher electricity costs in the future.

Jain said: “The prices are going to go up no matter who the investors are.”

Three US-based scientists honoured for showing how strange submicroscopic effects can be harnessed in electronic devices

John Clarke, Michel H Devoret and John M Martinis have won the Nobel Prize in physics for the discovery of quantum mechanical effects that lay the ground for a potential new generation of powerful computers, sensors and encryption technology.

The three researchers will share SKr11mn ($1.17mn) for showing how strange quantum phenomena could be exploited in real-world electronic devices, the Nobel Assembly said on Tuesday as it announced the second of its three annual science awards.

“It is wonderful to be able to celebrate the way that century-old quantum mechanics continually offers new surprises,” said Olle Eriksson, chair of the Nobel committee for physics. “It is also enormously useful, as quantum mechanics is the foundation of all digital technology.”

All three researchers are affiliated with US institutions. Clarke is at University of California, Berkeley, Devoret at Yale University and University of California, Santa Barbara, and Martinis at University of California, Santa Barbara.

“My feelings are that I am completely stunned, of course,” said Clarke, speaking by voice call to the audience at the award announcement at the Royal Swedish Academy of Sciences in Stockholm. “It had never occurred to me in any way that this might be the basis of a Nobel Prize.”

Quantum technologies exploit how the behaviour of matter at the scale of atoms and their constituent particles can differ sharply from that of everyday objects.  

Quantum effects underpin modern electronics, in components such as the transistors in microchips in computers and mobile phones.

The prize-winners showed how the “bizarre properties of the quantum world can be made concrete in a system big enough to be held in the hand”, the awards committee said.

The honour recognises groundbreaking experiments carried out by the three researchers in 1984 and 1985, including an investigation of a quantum mechanical effect called tunnelling.

Tunnelling on the submicroscopic scale of the quantum world allows particles to move through physical barriers. The analogy in human experience would be if a tennis ball thrown against a wall went straight through it.

The scientists showed tunnelling and other quantum effects could take place in a circuit made from superconductors, which can conduct electric current with no electrical resistance.

This provides a basis for efforts to develop new quantum technologies. These include sensors to locate objects underground and computers to perform calculations beyond state-of-the-art existing machines.

“This year’s physics prize is about putting quantum mechanics, which we know from the subatomic world . . . on to an electrical circuit on a chip,” said Göran Johansson, an awards committee member, as he brandished a disc embedded with electronics in illustration. “It’s really a discovery that opened up our understanding for how quantum physics can appear also on this scale.”

The 124-year-old Nobel awards were set up according to the will of Alfred Nobel, a Swedish scientist and businessman who invented dynamite. The physics prize winner is chosen by a special committee at the Royal Swedish Academy of Sciences.

On Monday, Mary E Brunkow, Fred Ramsdell and Shimon Sakaguchi won the Nobel in Physiology or Medicine for discoveries about the regulation of the human immune system. The chemistry award is due to be announced on Wednesday.

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TSA updates have helped it rival Clear’s membership-based verification service; Clear aims to further cut waits with new technology

Both Clear and the Transportation Security Administration are upgrading technology and adding new services, seeking to move travelers through airport security more quickly.

Clear has introduced new biometric scanning that saves users of the service a step in getting through security screening.

TSA’s Touchless ID expedites verification, averaging six to eight seconds compared with 18 to 20 seconds for other travelers.

Kelly Lomax and his co-workers decided to try a race while passing through a security checkpoint at Hartsfield-Jackson Atlanta International Airport earlier this year.

One tried the regular Transportation Security Administration line. Another tried the TSA PreCheck Touchless ID option. Lomax went with Clear YOU -2.33%decrease; red down pointing triangle, an identity-verification service that has become ubiquitous in airports over the past decade and a half.

Lomax, a longtime Clear member who also has TSA PreCheck, was surprised to be the last one through. “When your expectation is, I’m paying a premium to move faster through the line, the expectation and reality kind of clash,” said the 47-year-old logistics executive.

For years, Clear has been the fast lane through airport security—an extra layer of insurance for making your flight. TSA has often been a crapshoot, risking pileups as travelers pulled laptops from carry-ons and novice vacationers struggled to untie their sneakers.

Recently, though, TSA has taken steps to move those snaking lines more quickly. Travelers no longer have to slip off their shoes, and the agency has expanded its own facial recognition technology. Some travelers say the improvements give Clear tougher competition.

Clear aims to get faster too, recently introducing a new biometric scanning system that saves travelers a step. It opens directly to the spot with the baggage belt, rather than requiring an additional stop where a TSA officer checks IDs.

Kyle McLaughlin, Clear’s executive vice president of aviation, said customers will keep paying for the premium service. “There has long been a demand for predictability and frictionless experiences in travel,” he said.

The Clear view

Speed and convenience are core to Clear’s appeal. The New York-based company gets most of its revenue—which totaled $770.5 million last year—from subscriptions to its consumer-aviation subscription service, Clear Plus, according to corporate filings.

Clear Plus membership costs $209 annually for an individual and $125 for each additional family member. The company reported there were 7.6 million active Clear Plus members in June, up from about 7.1 million the year before.

The company doesn’t break out how many memberships come from credit-card issuers that offer the service as a perk for cardholders, like American Express Platinum.

As the cost has climbed over the years, there are signs that some Clear customers are reassessing the service. Annual usage rates fell 5% over the 12 months ended June 30, Clear has said, while the number of passengers screened by TSA rose 1.4%. The share of members who stick with Clear rather than canceling has declined for the past two years.

The company says its overall member base is healthy and that declining usage rates reflect its growing customer base, which includes more leisure travelers who might not fly as often.

If Rob Bigbee sees a Clear line at the airport, the 57-year-old project manager from Norman, Okla., uses it. “Usually it is faster, so that makes it worthwhile,” he said.

Clear is also looking beyond airport security, recently introducing concierge services that, for $99 or $179 per use, offer assistance from the airport curb to security or the gate. The company elsewhere has expanded into identity verification for healthcare, real-estate and job services.

A faster TSA

TSA in July brought an end to decades of fumbling with shoelaces and pit stops at benches when it announced new procedures that allow passengers to keep their shoes on while passing through airport security. Travelers rejoiced—and TSA lines picked up some speed.

At some airports, TSA has separately introduced a “family lane” for security screening, intended to help parents with children while speeding up traditional screening lines.

TSA has also updated its PreCheck line. Airlines have worked with the agency to develop a biometric process that expedites verification. Touchless ID allows eligible travelers to get past the security officer in an average of six to eight seconds, compared with 18 to 20 seconds for other travelers, TSA said.

Clear offers TSA PreCheck enrollment as an add-on to its service, and most of Clear’s members have both, said Clear’s McLaughlin.

This means many people have the choice between using TSA PreCheck; Clear, available in 60 airports nationwide; or the Touchless ID lines, available at 17 airports.

On a Wednesday afternoon in early August, Mike Phipps stood behind 10 others in the Clear lane at an Austin, Texas, airport. He waited, not moving much for five minutes, when another traveler left the Clear lane and headed for TSA PreCheck, sailing through.

“I was still in line and canceled my Clear membership,” the 35-year-old sales manager said. The TSA Touchless PreCheck line, he says, is much faster.

An eGated community

Peter Neffenger, a former TSA administrator who has since consulted for Clear, said the service’s utility in the airport had seemed murky a few years ago as TSA improved its technology. TSA under the Biden administration had also conducted more secondary ID checks of Clear passengers, slowing it down.

Clear said that random ID checks, important for security, have returned to standard levels, improving the experience. And in recent months, TSA has touted public-private partnerships, including with Clear.

The company installed new biometric “eGates” in Atlanta; Seattle; Washington, D.C.; and New York. The eGate opens directly to the spot where travelers load their bags and proceed through the body scanner. TSA maintains operational control of the gates.

The eGates solve a longstanding headache for Clear users. Previously, Clear representatives have had to escort travelers to a TSA officer, who grants access to the screening area. Clear says eGates take less than five seconds to use, on average.

Lomax, the logistics executive traveling through Atlanta, gets one membership in Clear through his credit card, and his family pays for another. When the latter came up for renewal over the summer, Lomax’s wife wondered—since TSA no longer required shoe removal, did it still make sense?

The eGates persuaded Lomax to stick with Clear. “It feels like everything that set Clear apart prior to this eGate was getting chipped away at,” he said.

The servers manage digital services from restaurant recommendations to travel hacks, and will be installed in a 1,300-tonne underwater data cabin – equivalent to the weight of 1,000 passenger cars – after the first phase of construction was completed in Lingshui county this year.

“We put the entire data cabin in the deep sea because seawater can help cool down the temperature,” Pu Ding, project manager at Shenzhen HiCloud Data Centre Technology, told the Chinese media outlet Financial News.

“Compared to land-based data centres, data centres under the sea can reduce energy consumption needed for cooling, helping to lower operational costs.”

Each cabin, located 35 metres (114.8 feet) underwater, contains 24 server racks capable of hosting 400 to 500 servers, according to Financial News.

Under Hainan’s fourteenth five-year plan, the province proposed building a subsea data centre featuring 100 data cabins. The project is central to an integrated industrial estate focused on developing new technologies for the blue economy.

Amid intensifying technological competition with the United States, China launched a pilot programme in 2024 allowing full foreign ownership of data centres and value-added telecoms services in Hainan and three other hubs: Beijing, Shanghai and Shenzhen.

“This policy update is a response to mounting global demand for data centre services fuelled by advances in generative AI and cloud computing,” said Giulia Interesse, an editor at China Briefing issued by consulting firm Dezan Shira and Associates.

“By opening its borders to full foreign ownership, China is aiming to attract multinational tech giants eager to tap into its market potential,” she added.

By contrast, Microsoft began working on Project Natick, an underwater data centre, in 2014. But in 2024, the American tech giant confirmed that it was no longer active after the company sank the data centre, comprising 855 servers, off the coast of Scotland in 2018, where it had been trialled for two years.