Constellation Energy (CEG) experienced a significant downturn early Monday, with its shares dropping as much as 12%, reflecting a wider slump in nuclear power stocks. This decline came after the Federal Energy Regulatory Commission (FERC) unexpectedly rejected a proposal last Friday, which would have allowed grid operator PJM to increase power supply from Talen Energy (TLN) to an Amazon (AMZN) AI data center. The rejection has affected the sector, notably impacting companies like Constellation, which have significant investments in nuclear energy solutions to meet Big Tech’s growing needs.
Despite this setback, Constellation Energy’s stock has been a standout performer year-to-date, surging nearly 100%. This growth underscores the increasing appetite from tech giants for nuclear energy, driven by the need to support expanding data centers that power AI technologies while adhering to climate commitments.
Major players like Amazon, Google (GOOG), and Microsoft (MSFT) have all ventured into nuclear power investments, with Constellation securing a 20-year agreement with Microsoft in late September to supply power for AI operations, which has contributed to a 36.7% rise in its stock over the last three months.
The company’s third-quarter financial performance added another layer to its narrative. Constellation reported adjusted EPS of $2.74 (from $2.13 p/sh in the third-quarter of 2023), surpassing Wall Street’s expectations of $2.65. Additionally, its revenue hit $6.6 billion, significantly higher than the $5.2 billion analysts had predicted. CEO Joe Dominguez highlighted the strategic importance of AI and data centers to national competitiveness and security, reaffirming Constellation’s commitment to meet this growing sector’s energy needs.
However, the allure of nuclear power comes with its regulatory challenges. The nuclear industry is heavily regulated due to historical incidents like Three Mile Island, Chernobyl, and Fukushima, which have led to an average approval timeline of 80 months for new nuclear plant construction by the US Nuclear Regulatory Commission. This regulatory environment was a key factor in FERC’s decision to reject the Amazon deal, citing potential threats to grid reliability and public energy costs.
The rejection by FERC has sparked a debate on the balance between promoting clean energy solutions for tech growth and ensuring grid stability and affordability. While tech companies continue to push for more nuclear energy to meet their sustainability goals and power needs, the regulatory hurdles highlight the complex interplay between innovation, infrastructure, and public policy. Talen Energy, for instance, has voiced its disagreement with the FERC’s ruling, indicating a potential legal or commercial challenge ahead.
As the industry navigates these regulatory landscapes, the focus remains on how to efficiently scale nuclear energy use while managing costs and ensuring the safety and reliability of the power grid. For investors and stakeholders in companies like Constellation Energy, these developments are critical as they could dictate the pace at which nuclear power can expand to meet the voracious energy appetites of the digital age.
Price Action: At last check, Constellation Energy shares were trading down 10% at $232.42.
h/t YF
As a matter of national security, the Commission should have approved the increase of power capacity from Talen Energy’s nuclear power plant in Pennsylvania for the Amazon data center. The Pentagon should step in now to see to it that it does so. AI is not just for business, but also for the military — which is why China is devoting enormous resources to it. But even for business, scared money doesn’t get us anywhere.