The electricity economy

With energy demand set to rise rapidly on the back of emerging market development, data center sector expansion and the electrification of transport, future competitiveness will likely depend on the availability of cheap, secure and reliable electricity. Investors are getting ahead of the trend.

Demand for electricity is growing steadily – at around 3.4 percent according to the IEA¹. Yet all signs suggest that demand is about to spike, driven by three core drivers.

The first is rising demand from the emerging markets as per capita consumption increases. As these markets catch up to developed nation levels, energy demand will continue to grow. The second is the seemingly inexhaustible appetite for data centers, driven in large part by the adoption (or expected adoption) of AI. The IEA expects data center energy demand could rise to 1,000 terawatt-hours by the end of next year. The third is the electrification of transport, with the global electric car stock growing rapidly into 2030.

Many believe that energy will become increasingly central to global economies and business competitiveness. Let’s assume that, in the near future, much of the developed world’s current production and goods distribution will be automated by robotics and AI. Whereas in the past, production was often priced based on human labor, in the future the most fundamental way to price products may be energy, measured in joules. Those with relative advantages in electricity cost, security and reliability, therefore, are expected to have a competitive advantage.

Where’s the power going to come from?

Assuming the energy transition continues to progress, we expect to see fossil fuels slowly reduce as a proportion of global energy mixes. Renewable generation capacity has boomed over the past seven years (solar and wind became cost comparative to fossil fuels around 2018). The problem is that renewables are generally an intermittent source of energy and battery and storage capabilities have not kept pace. A cleaner, more reliable baseload is needed.

Perhaps not surprisingly, nuclear has emerged as a key component of future energy systems. In fact, at the COP28 summit in Dubai in 2023, more than 20 jurisdictions agreed to triple their nuclear energy capacity by 2050.² The challenge is that traditional nuclear builds can require significant upfront capital investment and ongoing operating costs to maintain. New developments can take more than a decade.

More recently, however, a new form of nuclear reactor – a Small Modular Reactor or SMR – has emerged, offering governments and – increasingly – corporates a new option to achieve energy security.

How does an SMR stack up to traditional builds? This chart explains.

Investors see opportunity

Countries and corporates have started to realize the importance of electricity security and are increasingly investing in nuclear power M&A deals. Many of the largest deals in 2023 and 2024 were done in the energy sector. In 2024 alone, the volume of M&A deals in the nuclear subsector more than doubled, from just 9 deals in 2023 to 19 in 2024. Cumulative values have also been on the rise.

Since 2020, the majority of the deals closed – 30 of the 51 – were conducted in the US. Other leading deal markets included China, the UK and Europe. According to the IEA, total investment in nuclear power was estimated to be around US$300 billion, with the largest investments flowing from Europe and Asia-Pacific, followed by North America.

Interestingly, nearly half (25 of the 51) of the deals on record were led by institutional investors, PE funds or Venture Capital. This suggests that asset managers increasingly view nuclear as a long-term growth opportunity and as a sector where valuations are set to rise. It also indicates that some institutional investors are starting to focus on the sector, building experience and (likely) operational capabilities that will help them shape future deals.

Perhaps not surprisingly, strategic investors led the vast majority of the remaining deals. Many of the acquirers were industrial conglomerates, manufacturers and, increasingly, technology companies. Going forward, we expect this trend to pick up pace as tech companies seek to lock into sustainable, secure and stable sources of energy to power their data centers and AI models. We can see the increase in chatter regarding 'Nuclear Energy' rising from 26.7K in 2023 to 174.9K in 2024, reflecting growing awareness and interest in this energy source as a viable solution.

Looking forward

The transition to a joule-based economy is upon us. Governments and businesses recognize that the future belongs to those who can tap into cheap, secure and reliable electricity. Demand is only set to grow. Given the newness of this asset class – particularly SMRs – investors will likely want to start building their experience, relationships and capabilities in the subsector. KPMG professionals within the energy sector understand the evolving nuclear landscape and can help your organization develop your experience and strategy in this exciting area. Contact your local KPMG office to learn more.