Gas Power Boom: Lessons from the Last Bust Cycle

As gas power M&A valuations double, we examine the lessons from the last boom-and-bust cycle and the risks in today's investment rush.

The North American power sector is witnessing a frenzied resurgence in natural gas generation, with merger and acquisition valuations doubling since 2024 as investors chase grid demand and the AI-driven power boom. This aggressive capacity investment echoes the previous cycle that culminated in a painful bust, leaving developers and financiers grappling with stranded assets. The current rush forces regulators to walk a tightrope between ensuring grid reliability and preventing a duplicate of the overbuilding that triggered the last downturn. For utilities, private equity, and infrastructure funds, the stakes involve billions in capital deployment, all while navigating the volatile interplay of climate policy, commodity prices, and technological disruption.

Today’s breakneck investment pace starkly contrasts with a prudent, demand forecasting approach. While previous cycles were partly driven by coal retirements, the current one is fueled by speculative data center load projections, creating a riskier foundation. The market is currently rewarding financial engineering and asset accumulation over demonstrable, long-term economic viability. This divergence highlights a critical disconnect: Wall Street is delivering short-term valuation spikes based on narrative, while Main Street ultimately bears the cost of poorly timed or sited generation that may become uneconomical long before its lifespan ends.

For energy executives and portfolio managers, this cycle demands extreme discipline. The immediate implication is the need for robust stress-testing against a range of demand, policy, and technology scenarios, including slower AI adoption or breakthroughs in grid-scale storage. The forward-looking insight is clear: the plants being financed today will face their economic test not against coal, but against increasingly cost-competitive renewables-plus-storage packages. Strategic decision-makers must prioritize flexibility investing in assets that can provide peaking power and ancillary services rather than baseload, ensuring they remain viable in the decarbonized grid of the imminent future.