Constellation Energy to Purchase Power Producer Calpine

Constellation Energy, the nation’s largest nuclear power plant operator, has agreed to buy another electricity producer, Calpine, for $16.4 billion, a deal that shows how fast-rising demand for power, partly a result of the data centers being built for artificial intelligence, is having far-reaching effects on the economy.

The cash-and-stock deal, announced Friday, ranks among the power sector’s biggest, and indicates that natural gas is likely to play a larger role than many expected a few years ago in meeting the nation’s electricity needs. This could undermine efforts to combat climate change unless companies figure out how quickly to capture and store emissions coming from gas power plants. The building of new factories and the use of electric vehicles, heat pumps and other technologies are also driving up electricity demand. The growth is reshaping a traditionally sleepy industry that has not been accustomed to turbocharged growth.

“Lots of people who were not paying any attention to electricity a year ago are now trying to figure out how to participate in meeting what seems to be inevitable growth in demand,” said Daniel Yergin, the vice chairman of S&P Global, 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 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 expected Calpine’s natural gas assets to help ensure the reliability of the electric grid. The combination also would broaden the company’s presence in Texas, where power demand is growing quickly, and add more renewable energy to its portfolio.

“We believe that natural gas and geothermal, along with nuclear, will be critically important for the nation,” Joseph Dominguez, chief executive of Constellation, said on a call with investors and analysts on Friday morning.

He added that it was important to ensure that energy resources were not only sustainable, but reliable as well. “We believe that natural gas and clean energy, blended together, will be very attractive to customers,” Mr. Dominguez said.

Constellation’s stock price soared more than 20 percent in early trading on Friday and closed the day up 25 percent, an unusually large jump for an acquiring company. Its shares had already more than doubled over the past year as expectations for U.S. power demand growth rose.

Constellation would pay $4.5 billion in cash and assume roughly $12.7 billion of Calpine’s debt as part of the deal.

Nuclear power plants, which can operate around the clock without releasing planet-warming emissions, have been among the early beneficiaries of booming investment in artificial intelligence. Constellation agreed to spend $1.6billion last year to restart a nuclear plant at Three Mile Island, near Harrisburg, Pa. – a project that Microsoft is effectively paying for. However, there are only a handful of mothballed reactors that can be restarted. Some companies are also betting on new, smaller reactors, but those are not expected to begin producing meaningful amounts of power for at least several years if all goes well.

As a result of those challenges, many energy and tech companies are increasingly looking to natural gas, even though its use releases carbon dioxide and methane, two leading greenhouse gases that are warming the planet.

“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.

Power demand from data centers is poised to increase 15 percent a year on average through the end of the decade, Goldman Sachs estimated last year.

Andrew Novotny, chief executive of Calpine, 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 battery storage to zero-emission nuclear that will power our economies in a way which puts people and the environment first,” said Andrew Novotny, chief executive of Calpine, in a press release. Enverus said that adding more natural gas to Constellation’s portfolio would expose Constellation more to risk due to fluctuating commodity price fluctuations. Energy Capital Partners, a group of investors, took Calpine Private several years ago, in a deal worth $5.6 billion. This did not include debt. Mr. Dominguez stated that Constellation would sell assets to address any concerns raised by antitrust officials regarding its market power.

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