The Utilities Sector Capital Backbone Has a Blind Spot — No Flex in the Term Sheet

Goldman Sachs Global Institute's AI Grid Flex piece is a strong market signal to shift the capital financing model for the utilities sector - and save ratepayers and hyperscalers money and headache.

Summary

The capital model for U.S. utility infrastructure has shifted decisively. Where private equity once chased 20%+ returns by flipping whole companies, today’s dominant funding source is long-term insurance capital deployed through infrastructure funds and private credit. These investors want low-risk, contracted cash flows over decades — the kind transmission lines, substations, and utility-scale renewables can deliver.

That model is patient and powerful — but it’s built for hard assets, not for distributed energy resources (DERs) or flexibility solutions that reduce the need for new build. DER providers sell services and avoided costs, not 30-year annuities. Contracts are shorter, performance-based, and carry verification and credit risks insurers don’t like.

The opportunity — underscored by Goldman Sachs Global Institute — is to design flexibility deals so their cash flows look and feel like regulated assets: long-term, creditworthy, performance-guaranteed, and enforceable. In an era of explosive data-center load growth and electrification, embedding flexibility in the same term sheets as wires and steel is the only way to avoid overbuild and protect ratepayers.

That means:

• Structuring availability-style Flex PPAs and minimum-take minus flex credits so hyperscalers can invest in that grid-friendly and cost-saving behavior.

• Using operating envelopes and portfolio insurance wraps to manage performance risk under flex contracts with large counterparties (or aggregators of large amounts of flex capacity).

• Standardizing measurement and verification so “negawatts” are treated like megawatts in a ratings model.

• Demonstrating value through planning models that price flexibility directly into avoided capacity and infrastructure deferral.

A bankable flex contract for a hyperscale data center, for example, would mirror a PPA: 10–15 years, fixed capacity payments, liquidated damages for non-performance, and integration with existing tariffs.

If the money coming in from a flex deal is just as steady and certain as from a transmission line, insurers will fund it the same way. Credit quality and predictable revenue remain non-negotiable. With the right structure, the same patient capital that builds the grid’s hardware will also invest in using that hardware more intelligently.

Until then, DER and flex companies remain boxed out of the vehicles hyperscalers and other major flexibility provides might be able to give them to succeed, and ratepayers pay more than they should.