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 rapid growth in energy demand, partly due to building data centers for AI, is having far-reaching effects on the economy.
The cash-and-stock deal, announced Friday, is among the energy industry’s largest and indicates that natural gas will likely play a larger role than many expected a few years ago in meeting the nation’s electricity needs. That could undermine efforts to address climate change unless companies quickly figure out how to capture and store emissions from gas-fired power plants.
The combination would broaden 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. Energy demand is also increasing due to the construction of new factories in the United States and the increased use of electric vehicles and heat pumps.
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 expects Calpine’s natural gas resources 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 rapidly, and add more renewable energy to its portfolio.
“We believe natural gas and geothermal energy, along with nuclear, will be critically important to the nation,” Joseph Dominguez, Constellation’s chief executive, 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 believe that natural gas and clean energy, combined together, will be very attractive to customers,” Dominguez said.
Constellation’s stock price jumped more than 20% in early trading Friday, an unusually large jump for an acquiring company. Its shares had already more than doubled over the past year as expectations for U.S. energy demand growth 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 24 hours a day without releasing planet-warming emissions, have been among the first beneficiaries of the AI investment boom. 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 actually footing the bill.
But there are only a few decommissioned nuclear plants that can be restarted. Some companies are also betting on new, smaller reactors, but they are not expected to start producing significant amounts of energy 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 of the major greenhouse gases that are warming the planet.
“It will be difficult for utilities to provide the power these data centers need without gas,” said Andrew Gillick, an energy strategist at analytics firm Enverus.
Data center energy demand is expected to increase by an average of 15% per year by the end of the decade, Goldman Sachs estimated last year.
Andrew Novotny, Calpine’s chief executive, said the merged company will be able to invest in new energy production. “Together, we will be better positioned to accelerate investments in everything from zero-emission nuclear to battery storage that will power our economy in a way that puts people and our environment first,” he said in a Note.
A diverse group of power plants could allow the new company to be more effective in how it manages its resources, depending on how electricity needs change. Adding more natural gas to its portfolio, however, would expose Constellation to greater risks related to fluctuating commodity prices, Enverus said.
The deal with Constellation is the culmination of a major turnaround for Calpine, which had come under pressure in recent years as California and other states sought to transition away from fossil fuels. A group of investors, including Energy Capital Partners, took Calpine private several years ago in a deal worth $5.6 billion, excluding debt.
The companies said they expect the transaction to close within a year, subject to regulatory approval. Constellation will address any potential concerns raised by antitrust officials about its market power by selling assets, Dominguez said.
John Penn contributed to the reporting.