Goldman Sachs has launched formal coverage of two major U.S. independent power producers, arguing that an increasingly tight supply-demand balance in the PJM regional market and surging electricity demand from data centers will underpin higher power prices and drive earnings growth through the remainder of the decade.
In its initial views, Goldman assigned Talen Energy a Buy rating and set a $499 price target. Constellation Energy received a Neutral rating with a $305 target. The bank framed the calls around structural forces playing out in PJM - the grid that serves roughly 67 million customers across 13 states and that hosts about 35% of U.S. data center capacity.
Goldman argued the PJM market is experiencing a persistent supply-demand mismatch. On the demand side, the firm expects load to expand materially, driven in part by data-center growth, as well as manufacturing reshoring and broader electrification trends. On the supply side, thermal generation retirements and slower additions of new capacity - attributed by Goldman to grid connection constraints - have eroded available capacity.
The bank quantified its outlook by projecting approximately 3% annual PJM demand growth through 2035 and noting that more than 40 gigawatts of thermal generation have retired since 2010. Citing those dynamics, Goldman modeled reserve margins falling from about 23% in 2026 to roughly 7% by 2030.
Those tighter fundamentals have already translated into market signals: recent PJM capacity auctions have cleared at record highs, reaching regulatory cap levels north of $325 per megawatt-day. Goldman expects both elevated capacity prices and firm power markets to persist, which would tend to favor owners of existing baseload and dispatchable generation such as nuclear and natural-gas-fired assets.
Within that framework, Goldman identified Talen Energy as its preferred way to access the thematic upside. The bank cited Talen's 17-year power purchase agreement with Amazon Web Services, the company's near-exclusive exposure to PJM, and what Goldman views as an attractive valuation relative to expected growth. Goldman estimated a potential total return of about 29% for Talen, versus roughly 17% for Constellation.
Goldman also signaled that regulatory issues remain a source of uncertainty. The firm noted ongoing regulatory ambiguity around PJM's proposed Reliability Backstop Procurement mechanism as well as questions about how data centers will structure power contracting. Nonetheless, Goldman indicated that it expects increased regulatory clarity in the coming months, which could lead to additional power purchase agreements and upward earnings revisions across the sector.
Among large independent power producers, Goldman said it continues to favor Talen as well as Vistra and NRG Energy. The bank characterized Constellation's premium valuation as already reflecting the scarcity value of its nuclear fleet, prospective data-center contracts and expected benefits from its acquisition of Calpine.
Context and implications
Goldman is explicit that its conclusions rest on the interaction of rising electricity demand - notably from data centers - and a constrained supply pipeline that has resulted from retirements and connection bottlenecks. If the bank's assumptions hold, owners of existing generation capacity and firms with secured long-term contracts stand to benefit from higher market prices.