Constellation Energy (CEG), America’s largest nuclear power plant operator has agreed to buy Texas-headquartered geothermal and natural gas producer Calpine in a $26.6 billion which includes both cash and stock components.
The deal highlights the role that natural gas is likely to play in meeting fast-rising US electricity demand.
The announcement caused CEG share price to surge by almost 14% in pre-market hours on Friday.
The transaction, which is expected to close in the second half of 2025, could add $2 billion to Constellation’s free cash flow annually, and together the companies would have nearly 60 gigawatts (GW) of capacity from zero- and low-emission sources, including nuclear, natural gas and geothermal, Constellation said.
Joseph Dominguez, chief executive of Constellation, said,
By combining Constellation’s unmatched 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 array of energy products and services available in the industry.
Deal to help Constellation cater to cos like Microsoft, Google, for data centers
The deal is among the largest power sector deals in the nation in what would widen Constellation’s portfolio as companies like Microsoft, Google and Amazon are scrambling to secure energy for data centers used to run artificial intelligence and other services.
Last year, Constellation committed $1.6 billion to restart the Three Mile Island nuclear reactor in Pennsylvania, with Microsoft funding the project.
However, the opportunities for restarting old plants are limited, and new small reactors won’t significantly contribute to power generation for years.
As a result, energy companies are increasingly turning to natural gas, despite its emissions of carbon dioxide and methane, key contributors to climate change.
“It’s going to be hard for the utilities to provide the power that these data centers need without gas,” said Andrew Gillick, an energy strategist for the analytics firm Enverus, as reported by The New York Times.
Data center power needs are projected to grow 15% annually through 2030, according to Goldman Sachs.
What investors of CEG must know
Nuclear energy stocks have enjoyed a high in 2024 owing to Big Tech’s scramble to find electricity to power its artificial intelligence ambitions.
Constellation Energy’s share price has more than doubled in the last one year, while increasing by over 440% in the last 5 years.
Based on Constellation’s latest earnings release for the quarter ending September 30, the company reported a quarterly revenue of $6.55 billion and a net profit of $1.2 billion.
In comparison, last year the company earned a revenue of $6.11 billion and had a net profit of $731 million.
Analysts said the deal’s addition of $2 billion of free cash flow annually will create strategic capital for Constellation, and scale to reinvest in the business.
However, some analysts also believe Calpine’s acquisition could expose Constellation to commodity fluctuations.
“CEG is highly regarded by investors for its heavy tilt toward stable, lower-risk nuclear power generation, which accounts for nearly 90% of its output,” Enverus Intelligence Research analyst Scott Wilmot said in a statement late Thursday, adding,
The Calpine portfolio, which is predominantly gas, carries significantly higher commodity risk. While the acquisition price appears fair, the shift in CEG’s risk profile could lead to a higher risk premium being priced in, potentially putting downward pressure on its stock.
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