Hydroelectric Power

# Executive Summary * The hydroelectric power industry is at a pivotal moment, facing unprecedented electricity demand from the rapid growth of AI and data centers, creating a primary tailwind for asset valuation and new development. * This opportunity is directly challenged by increasing hydrological volatility due to climate change, which threatens generation consistency and introduces significant operational risk. * A complex and evolving regulatory landscape remains a key determinant of profitability, with tariff cases and policy shifts creating both significant headwinds and tailwinds for operators. * In response, leading companies are differentiating through aggressive adoption of technology—including AI for asset management and battery storage for grid stability—to enhance efficiency and mitigate risks. * The competitive landscape is defined by distinct models: globally diversified supermajors pursuing M&A, integrated national champions leveraging scale, and regulated regional utilities capitalizing on localized load growth. * Capital is being deployed towards infrastructure modernization, renewable and storage expansion, and shareholder returns, with a clear focus on capturing growth from electrification and digitalization. ## Key Trends & Outlook The primary catalyst reshaping the hydroelectric power industry is the surging demand for reliable, low-carbon energy, driven by the exponential growth of digitalization and artificial intelligence. Global electricity consumption from data centers alone is forecast to quintuple from approximately 2% today to 10% of total demand by 2030, creating an urgent need for new, dependable generation capacity equivalent to the entire current U.S. grid. This trend fundamentally increases the value of dispatchable hydroelectric assets, which can provide the 24/7 power required by hyperscalers, leading to opportunities for long-term, premium-priced contracts. TransAlta is actively transforming thermal sites into "high-value energy campuses, targeting data centers", while IDACORP forecasts an "8.3% annual retail sales growth rate over the next five years" driven by data centers and semiconductor manufacturers. However, this demand-driven opportunity is directly constrained by the industry's primary operational risk: climate-induced hydrological volatility, which makes water supply and generation output increasingly unpredictable. Eletrobrás notes that the "Brazilian energy landscape is characterized by inherent volatility, driven by hydrological conditions" and "shrinking reservoir levels". This creates a fundamental tension between a powerful demand tailwind and a significant supply-side risk. Navigating the regulatory landscape is critical, as policy decisions create immediate and material financial outcomes. Favorable multi-year rate cases and tariff adjustments are providing clear revenue uplift for some operators, while regulatory remeasurements or delays in cost recovery can severely impact earnings. Avista, for instance, received approval for a multi-year rate case settlement, increasing annual base electric revenues by $19.5 million (6.3%) effective September 1, 2025, and an additional $14.7 million (4.5%) effective September 1, 2026. Conversely, Eletrobrás's Q2 2025 net loss was "primarily due to the regulatory remeasurement of transmission contracts". Permitting for new projects and upgrades remains a significant bottleneck, influencing the pace at which companies can respond to new demand. The most significant opportunity lies in leveraging the existing hydro asset base and investing in pumped hydro storage to provide firming capacity and ancillary services to the grid, capturing value from the integration of intermittent renewables and the need for grid stability. The primary risk is regional water dependency; a prolonged drought in a core operating region can severely impair generation and financial results for even the most efficient operators, a risk that is escalating with climate change. ## Competitive Landscape The hydroelectric power market contains a mix of large national players, global renewable operators, and focused regional utilities, with consolidation emerging as a key trend as larger players seek to expand their renewable portfolios. A 2025 market analysis by Wood Mackenzie indicates that the global hydropower market is seeing increased consolidation, with larger diversified energy companies acquiring smaller, specialized hydro operators to expand their renewable portfolios. Some companies, like Eletrobrás, compete through dominant scale and infrastructure within a single nation. Eletrobrás maintains a "dominant market position" in Brazil's electricity generation and transmission sectors due to its "unparalleled scale and extensive national infrastructure". Its core strategy involves leveraging this legacy position, with a post-privatization focus on operational efficiency, cost reduction, and modernization of its vast asset base, including 90,000 assets monitored with AI and IoT. In contrast, global players like Brookfield Renewable compete through geographic and technological diversification and an aggressive M&A strategy. Brookfield Renewable owns and operates a diversified portfolio of hydroelectric, wind, utility-scale solar, distributed generation, and storage assets across multiple continents. Its growth is explicitly driven by large-scale M&A, such as the privatization of Neoen and the agreement to acquire National Grid Renewables. This global scale and diversified portfolio allow it to offer "24/7 clean power solutions" and mitigate exposure to any single weather pattern or regulatory regime. Regional utilities such as IDACORP focus on securing regulated returns by investing to meet load growth in a specific service area. IDACORP's principal subsidiary, Idaho Power, operates as a regulated electric utility with vertically integrated operations, serving residential, commercial, industrial, and agricultural customers. Its capital expenditure plan is explicitly driven by the need to serve significant customer and load growth within its territory, with a forecasted "8.3% annual retail sales growth rate over the next five years". The key competitive battlegrounds are securing contracts with new sources of high-growth demand (such as data centers), managing climate-related operational risks, and effectively navigating regulatory processes to ensure investment recovery. Cemig is a "market leader in energy trading in Brazil", further highlighting the competitive dynamics within specific segments and geographies. ## Financial Performance Revenue trends are highly divergent across the industry, reflecting company-specific factors rather than a uniform tide. The key drivers are success in new project development and the outcomes of regional regulatory and market dynamics. Central Puerto reported a +31% YoY revenue growth in Q1 2025, exemplifying the impact of new capacity additions and strategic expansion. Conversely, Enel Chile saw a -7.3% YoY decrease in H1 2025 revenue, illustrating the potential impact of market conditions and legislative changes. Investors must look past headline net income figures, as non-cash regulatory charges can cause significant volatility that does not reflect core operational profitability. Eletrobrás reported a net loss of -$1.3 billion in Q2 2025, which was "primarily due to the regulatory remeasurement of transmission contracts". However, the company also reported a +40% YoY increase in adjusted net income for the same period, demonstrating strong underlying operational performance despite the headline loss. This divergence highlights the importance of adjusted metrics. TransAlta's hydro segment reported an Adjusted EBITDA of $126 million in Q2 2025, a 52% increase from $83 million in Q2 2024, showcasing strong operational profitability in its hydroelectric assets. The industry's strategic priority is heavy capital investment to meet future demand and modernize infrastructure. Companies are allocating massive amounts of capital to capture the growth from electrification and to modernize their grids, a direct response to the material trends of surging AI-driven demand and the need for technological upgrades. IDACORP has a $5.6 billion capital program through 2029, explicitly driven by customer and load growth and the need to build critical generation and transmission infrastructure. Brookfield Renewable committed or deployed $4.6 billion in Q1 2025, highlighting the scale of investment from global players in their development pipeline. The industry's financial position is generally strong and stable, particularly among larger, investment-grade players, enabling them to fund extensive capital programs. Cemig's exceptionally strong balance sheet, with a net debt over adjusted EBITDA leverage of 1.59x in Q2 2025 and an AAA credit rating from Fitch Ratings, serves as a benchmark for financial strength in the sector. Companies are prudently accessing capital markets and using proceeds from asset sales to maintain financial flexibility while investing for growth.