Utilities stocks are poised to capitalize on a clean energy future, according to Goldman Sachs. Utilities have underperformed the market this year, with the Utilities Select Sector SPDR Fund down 5% so far in 2023, while the S&P 500 has gained 11.5%. XLU YTD mountain Utilities Select Sector SPDR Fund However, with the rapid adoption of renewable energy over the past decade, utilities are entering a new phase as decarbonization enablers, according to Goldman Sachs analyst Carly Davenport. These companies are now in a unique position to facilitate the transition to renewable energy as the U.S. grid transforms, she added. “Looking ahead, we see an attractive investment opportunity set, threatened by the Inflation Reduction Act, which incentivizes utilities to switch from fossil fuels to renewable energy, with the potential to transform utilities’ earnings growth and shareholder basis, driving the potential for higher multiple premiums over time,” she wrote in a note Wednesday. Davenport said the shift to clean energy would require “substantial” capital investment, which would help deliver attractive earnings and rate-base growth. She noted that industry capital spending from 2023 to 2027 is estimated to be around $93 billion, 27% higher than capital spending in the previous five years. Goldman began covering several stocks in the utilities sector, looking at how those stocks were exposed to clean technology, nuclear power generation, maintaining grid reliability and natural gas. In addition, affordability and regulatory considerations were considered. Goldman Sachs Buy ratings include American Electric Power, NextEra Energy, Sempra and Southern Company. American Electric Power and NextEra Energy both fit several of Goldman’s themes. The former should benefit from its exposure to renewable energy, nuclear power and maintaining the reliability of the U.S. grid, Davenport said. “With around 60% of AEP’s 5-year capital plan allocated to transmission and regulated renewables, we see an attractive rate base and earnings growth, in addition to actions to optimize the business and improve regulatory lag, This drives our positive view on the stock,” she wrote. NextEra Energy faces renewables, nuclear and favorable affordability/regulatory outcomes, Davenport said. “Strong renewable growth profile, FPL’s (Florida Power & Light) constructive regulatory and enforcement outlook, and attractive relative valuation after underperformance drive our positive view on NEE,” she wrote . Shares of both stocks are down about 11% year to date. Shares of American Electric Power traded nearly 16% above Goldman Sachs’ price target as of Wednesday’s close. It also has a 3.9% dividend yield. Shares of NextEra Energy are trading more than 21% above Goldman Sachs’ price target, and they offer a 2.5% dividend yield. Meanwhile, Sempra is also an attractive growth opportunity, Davenport said. She noted that it has a significant pipeline of liquefied natural gas projects in its Sempra infrastructure business and Texas utility Oncor, continuing to benefit from strong consumer growth. Shares of Sempra have fallen about 4% so far this year, with a 20% upside to Sachs’ price target. Plus, it has a 3.2% dividend yield. Finally, Davenport said Southern Company’s valuation will be revalued once units 3 and 4 come online at its Vogtle nuclear power plant. “Furthermore, we are constructive on the company’s regulated utility exposure and believe incremental upside opportunities lie outside our base case for investing in the energy transition, as SOs have expressed interest in renewables, but so far There are limited funds allocated to them,” she wrote. Shares of Southern are down about 2% in 2023 and are 14% above Goldman’s price target. It also pays a 4% dividend yield. — CNBC’s Michael Bloom contributed reporting.