Constellation Energy To Buy Calpine In Blockbuster US$16.4 Billion US Power Deal

By Laila Kearney and Seher Dareen

US nuclear power provider Constellation Energy (CEG.O), on Friday agreed to buy privately held natural gas and geothermal company Calpine Corp for US$16.4 billion, one of the biggest acquisitions in US power industry history.

The cash-and-stock deal comes at a time of rising electricity demand, driven by the proliferation of energy-guzzling AI data centers and the electrification of transportation and buildings, which are expected to hit a record this year. Including debt, the transaction valued Calpine at US$26.6 billion.

“Demand for our products is expected to grow by levels we haven’t seen in a lifetime,” Constellation CEO Joe Dominguez said on a call with investors following the announcement.

The agreement will turn Constellation, the biggest US nuclear plant operator, into the largest US independent power provider, sharply growing its mix of natural gas-fired electricity generation.

“Natural gas is going to see a significant resurgence because it is necessary to power the grid,” Dominguez separately told Reuters in an interview.

“That doesn’t mean that just any natural gas is needed,” he said, adding that Calpine’s low carbon-intensity gas fleet and advancements in carbon capture technology were part of what made it an attractive purchase.

Shares of Constellation rose 25 per cent to close above US$305, their largest ever daily percentage gain.

The transaction, which is expected to close this year, could add US$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.

Wind power provided 20 per cent of the electricity consumed in Europe last year, but the capacity built during the year was less than half of what is needed to meet the European

“Overall, the transaction creates the largest coast-to-coast power generator,” S&P’s Aneesh Prabhu said.

Bigger Footprint

With the acquisition, Constellation’s employee base will grow by nearly 20 per cent to 16,500.

“The combination makes CEG bigger in Texas (up to 25% of capacity from 15%), and reduces exposure to PJM (down to 45% from 65%). The supply-demand situation in those regions appears very favorable,” said portfolio manager at Gabelli Funds Tim Winter.

The arrangement also increases exposure to California to 10 per cent from a negligible amount. California and Texas are the two most populous and energy-consuming US states.

Shares of Constellation have jumped by more than 100 per cent over the past year as Big Tech, many with climate-related pledges requiring low-carbon power purchases, boosted demand for nuclear power, which produces virtually no global warming emissions.

In September, Constellation announced an unprecedented power purchase agreement to resume operations at its Three Mile Island nuclear plant to supply electricity to Microsoft, opens new tab data centers.

Last month, the company said it would receive a record US$1 billion in nuclear power supply and energy-efficiency contracts with the US government.

With a limited amount of nuclear power available, natural gas has become a more attractive option for data center demand.

Reuters was the first to report in May last year that the three investment firms that took Calpine private in 2017 – Canada Pension Plan Investment Board, Energy Capital Partners and Access Industries – were considering a sale of Calpine.

• Reporting by Seher Dareen in Bengaluru, additional reporting by Mrinalika Roy; Editing by Shilpi Majumdar, Shounak Dasgupta, Daniel Wallis, Nick Zieminski and David Gregorio