Constellation Energy, the nation’s largest nuclear power plant operator, has agreed to buy another power producer, Calpine, for $16.4 billion. The deal reflects the key role natural gas is likely to play in meeting rapidly growing US electricity demand.
The cash-and-stock deal, announced Friday, is among the largest in the energy sector. That would expand Constellation’s portfolio as companies such as Microsoft, Google and Amazon scramble to power data centers used to run artificial intelligence and other services.
Calpine, which is based in Houston and privately held, operates a large fleet of natural gas-fired power plants in several states, as well as the Geysers geothermal power complex in California.
Constellation, which is based in Baltimore, said in a statement that it expected Calpine’s natural gas assets to help ensure the reliability of the electric grid. The combination would also expand the company’s presence in Texas, where energy demand is growing rapidly, and add more renewable energy to its portfolio.
“By combining Constellation’s unrivaled expertise in zero-emission nuclear power with Calpine’s industry-leading, best-in-class, low-carbon natural gas and geothermal generation fleet, we will be able to offer the most comprehensive range of wide range of energy products and services available in the industry,” said Joseph Dominguez, Constellation’s chief executive officer.
Constellation would 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 run around the clock without releasing planet-warming emissions, have been among the early beneficiaries of growing investment in artificial intelligence. Constellation agreed last year to spend $1.6 billion to restart a nuclear reactor at Three Mile Island near Harrisburg, Pa. – a project for which Microsoft is effectively footing the bill.
But there are only so many nuclear power plants that can be restarted. Some companies are also betting on new, smaller reactors, but they aren’t expected to start producing significant amounts of power for at least a few years if all goes well.
As a result of these challenges, many energy and technology companies are increasingly looking to natural gas, even though its use releases carbon dioxide and methane, the two main greenhouse gases that are warming the planet.
“It’s going to be difficult for utilities to provide the power these data centers need without gas,” said Andrew Gillick, an energy strategist for analytics firm Enverus.
Energy demand from data centers is expected to grow an average of 15 percent annually through the end of the decade, Goldman Sachs estimated last year.
A diverse set of power plants could allow the combined company to better manage its resources, depending on how electricity needs change. However, adding more natural gas to its portfolio would expose Constellation to more risk related to commodity price fluctuations, Enverus said.
Constellation’s share price rose more than 12 percent in premarket trading. Its shares have more than doubled over the past year as expectations for increased US electricity demand have risen.
The deal with Constellation is the culmination of a major turnaround for Calpine, which has been under pressure in recent years as California and other states sought to move 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, excluding debt.
The companies said they expected the transaction to close within a year, subject to regulatory approvals.
Ivan Penn contributed to the reporting.
