Constellation Energy (CEG +0.29%) has come a long way over the past three years. Exelon spun the company off in early 2022, allowing Constellation to focus on generating merchant power while Exelon concentrates on operating regulated electric utilities. Constellation has since signed two major nuclear power deals and agreed to buy Calpine to create an even larger-scale power producer.
Here's a look at where the energy company will likely be in three years.
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Stomping on the gas
Constellation Energy is one of the country's largest clean power producers. It operates more than 32.4 gigawatts (GW) of power generation capacity, enough to meet the electricity needs of more than 20 million homes and businesses. About 90% of the power it produces comes from carbon-free sources. It owns the nation's largest nuclear power fleet as well as a portfolio of hydro, wind, and solar energy assets.
The company's portfolio is about to get much larger and more diversified. Last January, Constellation Energy agreed to buy fellow power producer Calpine for $26.6 billion. Calpine is the largest generator of electricity from natural gas and geothermal resources. The combined company will have nearly 60 GW of capacity when the deal closes early this year.
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Key Data Points
The transaction will put Constellation Energy in an even stronger position to capitalize on the country's growing power demand. Catalysts such as AI data centers, increased electrification, and the onshoring of manufacturing will drive accelerating power demand in the coming years. Forecasters anticipate that electricity demand will grow 58% by 2045, six times faster than it rose over the past two decades.
That's creating meaningful demand for more clean power, including natural gas. Constellation Energy will soon become the leader in gas power production, putting it in a strong position to capitalize on surging electricity demand. The company will likely approve several new gas power projects over the next three years to support rising demand.
Capitalizing on the nuclear energy resurgence
Constellation Energy has already begun capitalizing on the coming surge in power demand from AI data centers by securing new nuclear power purchase agreements (PPAs) with technology companies. In 2024, Constellation Energy announced plans to restart the dormant Three Mile Island Unit 1 nuclear reactor, which it shut down in 2019 due to economic reasons. The power company signed a lucrative 20-year PPA with Microsoft for 100% of the plant's 835 megawatts of capacity. As a result, the company plans to restart the unit, which should be back online by 2028.
The company followed that up by signing a 20-year PPA with Meta Platforms for its Clinton Clean Energy Center. Meta will purchase 100% of the plant's 1.1 GW of capacity starting in the middle of 2027. Constellation Energy nearly shut that plant down in 2017 due to economic reasons. However, the government provided a 10-year financial support agreement to keep the plant open. The deal with Meta will ensure the plant's continued operation for the decades to come.
Tech companies need a tremendous amount of power to run their AI data centers, preferably from clean sources. That's leading them to turn to nuclear energy to support their surging power needs. As a leader in nuclear energy, Constellation Energy is in a strong position to capitalize on growing demand. It will likely announce additional nuclear PPAs with technology companies over the next three years. Additionally, it could approve an investment in a new nuclear power plant. For example, the U.S. government signed a strategic partnership with Westinghouse to accelerate the deployment of nuclear power by constructing at least $80 billion of new nuclear reactors in the country. As a leader in the sector, Constellation Energy could seek to participate in this partnership by investing in the construction and operation of these plants.
Constellation Energy will be much bigger in three years
Constellation Energy is on track to nearly double its size this year upon closing its transformational acquisition of Calpine. That deal alone will add more than 20% to its earnings per share this year, while supporting incremental earnings growth through 2029. Meanwhile, its nuclear power PPAs will drive additional earnings growth during that period. Additionally, surging power demand should support new investment opportunities in natural gas and nuclear power for the company. These catalysts all suggest that Constellation Energy will be a much larger and more profitable company by 2029, with strong growth prospects into the next decade.
