Constellation Set to Become the Largest Thermal Producer in the U.S.

On January 10^th, the energy industry witnessed a significant transaction, with Constellation acquiring Calpine for a net purchase price of $26.6 billion. Constellation, well-known for its nuclear fleet, will be adding a portfolio primarily of geothermal and natural-gas assets through the deal. This strategic move not only diversifies the company’s operations but also positions it as the largest producer of dispatchable generation in the U.S. In this insight, we will explore the implications of this acquisition, focusing on the expansion of installed capacity, market positioning, and expected divestiture of assets.

Firstly, the acquisition of Calpine significantly boosts Constellation's installed capacity across several key markets. The figure below shows a breakdown of Constellation’s generating capacity before and after the acquisition in each respective ISO.

After the deal, Constellation's total installed capacity will exceed 60 GW. This expansion is particularly notable in regions like PJM and ERCOT, where energy demand is high and expected to grow. In the last year, both ERCOT and PJM have released forecasts projecting significant increases to their peak load driven by large flexible loads (LFLs), such as bitcoin operations, data centers, and industrial facilities. The figure below shows the anticipated growth in these areas, with ERCOT and PJM expecting a peak load increase of 81% and 43%, respectively, by 2034.

The projections in these markets are favorable towards this deal. Constellation's added capacity enables it to further capitalize on rising demand through various revenue sources, such as capacity auction payments, reliability unit commitments, and peak demand pricing. These projections might also justify extending the operational lives of many of its assets through repowers and uprates. The company recently announced they intend to apply for nuclear license extensions and invest in technological upgrades, including carbon capture and sequestration (CCS), to increase output and reduce emissions of its plants.

However, with the increased market presence comes the challenge of managing market power concerns, especially in PJM, where Constellation will further expand its footprint. Regulatory bodies, including FERC, are expected to scrutinize this expansion to prevent any horizontal market control that could adversely affect competition and pricing. To address these potential issues, Constellation may need to consider divesting certain assets within the PJM market. The map below shows the concentration of the company's assets in PJM that may need to be diluted.

Constellation will need to alleviate these concerns to maintain compliance and a competitive market. It is unclear what plants the company may divest. If it is interested in pursuing a less carbon-intensive footprint, the company may be inclined to part with its oil plants along the New Jersey border, although these plants operate at extremely low-capacity factors—less than 0.1% in 2024. Once the deal is reviewed by FERC, we will get a better idea of what sales will be needed as part of their market screening.

Constellation's acquisition of Calpine Corp represents a major transaction in the energy sector. It not only increases Constellation's installed capacity and market share but also aligns its operations with future market demands. However, the company must navigate potential regulatory challenges due to its increased market concentration. For a better understanding of Constellation’s assets, including ownership stakes and capacities, see our global power plant dataset.

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