Constellation Energy, the country's largest nuclear plant operator, agreed to buy another electricity producer, Calpine, for $16.4 billion. The deal reflects the key role that natural gas will likely play in meeting growing U.S. electricity demand.
The cash and stock deal, announced Friday, is among the largest in the energy sector. It would expand Constellation's portfolio as companies like Microsoft, Google and amazon struggle to secure power for data centers used to run artificial intelligence and other services.
Houston-based and privately held Calpine operates a large fleet of 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 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 rapidlyand add more renewable energy to your portfolio.
“By combining Constellation’s unparalleled expertise in zero-emission nuclear energy with Calpine’s industry-leading, 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 industry,” said Joseph Dominguez, CEO of Constellation.
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 24 hours a day without releasing planet-warming emissions, have been among the first beneficiaries of growing investment in artificial intelligence. Constellation agreed last year to spend $1.6 billion to restart a nuclear reactor on Three Mile Island, near Harrisburg, Pennsylvania, a project for which Microsoft is effectively footing the bill.
But there are a limited number of inactive nuclear plants that can be reactivated. Some companies are also betting on new, smaller reactors, but they are not expected to begin producing significant amounts of energy for at least several years if all goes well.
As a result of those challenges, many energy and technology companies are increasingly turning to natural gas, even though its use releases carbon dioxide and methane, two of the 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, energy strategist at analytics firm Enverus.
Data center energy demand is poised to rise 15 percent annually on average through the end of the 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 risks related to fluctuating commodity prices, Enverus said.
Constellation's share price soared more than 12 percent in premarket trading. Its shares have more than doubled over the past year as expectations for U.S. energy demand growth have risen.
The deal with Constellation is the culmination of a big shift for Calpine, which had been under pressure in recent years as California and other states attempted to move away from fossil fuels. A group of investors, including Energy Capital Partners, privatized Calpine several years ago in an agreement valued at 5.6 billion dollarsnot including debt.
The companies said they expected the transaction to close within a year, subject to regulatory approvals.
John Penn contributed reports.
