Constellation Energy, the nation's largest nuclear power plant operator, has agreed to buy another power company, Calpine, for $16.4 billion. The agreement reflects the important role natural gas will play in meeting America's rapidly growing electricity needs.
The cash and stock deal announced Friday is one of the largest in the power sector. This expands Constellation's portfolio as companies such as Microsoft, Google and Amazon scramble to secure energy for data centers used to run artificial intelligence and other services.
Calpine is a privately held Houston-based company that operates large natural gas power plants in several states as well as the Geysers geothermal energy complex in California.
Baltimore-based Constellation said in a statement that it expects Calpine's natural gas assets to help ensure grid reliability.
“By combining Constellation’s unparalleled expertise in zero-emission nuclear energy with Calpine’s industry-leading, best-in-class, low-carbon natural gas and geothermal power generation assets, we have the widest range of energy products available in the world. “We are leading the industry,'' said Constellation Chief Executive Officer Joseph Dominguez.
Constellation will pay $4.5 billion in cash and assume approximately $12.7 billion of Calpine's debt as part of the deal.
Nuclear power plants, which can operate 24 hours a day without emitting planet-warming emissions, have been early beneficiaries of soaring investment in artificial intelligence. Last year, Constellation agreed to spend $1.6 billion to restart the reactor at Three Mile Island near Harrisburg, Pennsylvania. This project is effectively being paid for by Microsoft.
However, only a limited number of idle nuclear power plants can be restarted. Some companies are betting on new small nuclear reactors, but even if all goes well, they are expected to take at least several years to begin producing meaningful amounts of electricity.
As a result of these challenges, many energy and technology companies are increasingly turning to natural gas, even though its use emits carbon dioxide and methane, the main greenhouse gases that warm the planet. I started paying attention.
“It's going to be difficult for utilities to provide the power these data centers need without gas,” said Andrew Gillick, energy strategist at analytics firm Enverus.
Goldman Sachs estimated last year that electricity demand from data centers is expected to grow by an average of 15% a year through the end of 2010.
A diverse group of power plants could allow the combined company to better manage its resources as electricity demand changes. However, adding more natural gas to the portfolio exposes Constellation to additional risks related to commodity price fluctuations, Enbels said.
Constellation's stock has more than doubled in the past year as expectations for growth in U.S. electricity demand have grown. Shares closed more than 4% lower on Wednesday after Bloomberg reported the company was close to a deal with Calpine.
The deal with Constellation is the culmination of a major turnaround for Calpine, which has come under pressure in recent years as California and other states look to transition away from fossil fuels. A group of investors, including Energy Capital Partners, took Calpine private several years ago in a deal valued at $5.6 billion, not including debt.
Ivan Penn Contributed to the report.
