Constellation Energy, the nation's largest operator of nuclear power plants, has agreed to acquire another power producer, Calpine, for $16.4 billion. The deal reflects the key role natural gas is likely to play in meeting rapidly rising U.S. electricity demand.
The cash-and-stock deal, announced Friday, is among the largest in the energy sector. It would broaden Constellation's portfolio as companies like Microsoft, Google and Amazon scramble to secure energy for data centers used for artificial intelligence and other services.
Calpine, based in Houston and privately owned, operates a large fleet of natural gas power plants in several states, as well as the Geysers geothermal energy complex in California.
Constellation, based in Baltimore, said in a statement that it expected Calpine's natural gas assets would 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 unparalleled expertise in zero-emission nuclear energy with Calpine's industry-leading, best-in-class, low-carbon natural gas and geothermal generation fleets, we will be able to offer the broadest range of energy products and services available in the sector. the industry,” said Joseph Dominguez, CEO of Constellation.
Constellation would pay $4.5 billion in cash and assume about $12.7 billion of Calpine's debt as part of the deal.
Nuclear power plants, which can operate 24 hours a day without releasing global-warming emissions, were among the early beneficiaries of booming investments in artificial intelligence. Constellation agreed last year to spend $1.6 billion to restart a nuclear reactor at Three Mile Island near Harrisburg, Pennsylvania — a project for which Microsoft is essentially footing the bill.
But there are only a limited number of shut down nuclear power plants that can be restarted. Some companies are also investing in new, smaller reactors, but it is expected that, if all goes well, they will only produce meaningful amounts of energy in a number of years.
As a result of these challenges, many energy and technology companies are increasingly turning to natural gas, even though its use releases carbon dioxide and methane, two major greenhouse gases that warm the planet.
“It's going to be difficult for the utilities to provide the power these data centers need without gas,” said Andrew Gillick, energy strategist at analytics firm Enverus.
Power demand from data centers is expected to increase by an average of 15 percent per year through the end of this decade, Goldman Sachs estimated last year.
A diverse group 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 associated with fluctuating commodity prices, Enverus said.
Constellation's stock price rose more than 12 percent in premarket trading. Shares have more than doubled in the past year as expectations for growth in U.S. energy demand have risen.
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 sought 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, excluding debt.
The companies said they expected the transaction to close within a year, subject to regulatory approval.
Ivan Penn reporting contributed.
