Constellation Energy, the nation’s largest operator of nuclear plants, has agreed to buy another power producer, Calpine, for $16.4 billion, a deal that shows how quickly demand for energy is growing, in part as a result of data centers that are built for artificial intelligence. has far-reaching effects on the economy.
The cash and stock deal, announced on Friday, ranks among the largest in the energy sector and shows that natural gas is likely to play a bigger role than many expected a few years ago in meeting the country’s electricity needs . That could undermine efforts to tackle climate change unless companies quickly figure out how to capture and store emissions from gas-fired power plants.
The tie-up would expand Constellation’s portfolio as companies such as Microsoft, Google and Amazon seek to secure power for data centers used to run artificial intelligence and other services. Electricity demand is also increasing due to the construction of new factories in the United States and greater use of electric vehicles and heat pumps. The growth is reshaping a traditionally sleepy industry unaccustomed to turbo growth.
“A lot of people who didn’t care about electricity a year ago are now trying to figure out how to participate in an inevitable increase in demand,” said Daniel Yergin, S&P Global vice president, who won a Pulitzer Prize for his book “The Prize: The Epic Quest For Oil, Money and Power”.
Calpine, which is based in Houston and is privately held, operates a large fleet of natural gas power plants in several states, as well as the Geysers geothermal energy complex in California.
Constellation, which is based in Baltimore, said in a statement that it expects 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 electricity demand is growing rapidly, and add more renewable energy to its portfolio.
“We believe natural gas and geothermal, along with nuclear, will be extremely important to the nation,” Constellation CEO Joseph Dominguez said on a call with investors and analysts Friday morning.
He added that it is important to ensure that energy resources are not only sustainable, but also reliable. “We think natural gas and clean energy combined together will be very attractive to customers,” said Mr. Dominguez.
Constellation’s share price jumped more than 20% early Friday and ended the day up 25%, an unusually large jump for an acquiring company. Its shares had already more than doubled in the past year as expectations of rising US electricity demand rose.
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 run around the clock without emitting planet-warming emissions, were among the first beneficiaries of the AI ​​investment boom. Constellation last year agreed 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 a few nuclear plants that have been ignited and can be restarted. Some companies are also betting on new, smaller reactors, but those aren’t expected to start producing significant amounts of power for at least several 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, two leading planet-warming greenhouse gases.
“It’s going to be difficult for utilities to provide the power these data centers need without gas,” said Andrew Gillick, energy strategist for analyst firm Enverus.
Data center energy demand is poised to grow 15 percent annually on average through the end of the decade, Goldman Sachs estimated last year.
Andrew Novotny, Calpine’s chief executive, said the combined company would be able to invest in new power generation. “Together, we will be better placed to accelerate investment in everything from zero-emissions nuclear to battery storage that will power our economy in a way that puts people and our environment first,” he said in a statement.
A diverse group of power plants could allow the new company to be more efficient in how it manages its resources as electricity needs change. However, adding more natural gas to its portfolio would expose Constellation to greater risk associated with fluctuations in commodity prices, Enverus said.
The Constellation deal is the culmination of a major turnaround for Calpine, which has come under pressure in recent years as California and other states have 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, net of debt.
The companies said they expect the transaction to close within a year, subject to regulatory approvals. Constellation will address any concerns raised by antitrust officials about its market power by selling assets, Mr. Dominguez.
Ivan Penn contributed to the report.
