Constellation Energy: Stranded Reactors Become AI's Strategic Power Supply

Constellation Energy's 21 reactors achieved a 94.8% capacity factor, meaning they produce power 94.8% of the time, versus solar at 20-25% and wind at 35%. This reliability gap matters because AI data centers can't afford downtime, making nuclear the only proven technology that delivers 24/7 carbon-free power at scale, creating pricing power as tech companies compete for scarce baseload capacity.

US data center electricity demand will reach 580 terawatt-hours by 2028, up from 200 TWh in 2023, a 13-27% annual growth rate driven by AI workloads. Constellation locked in 20-year contracts with Microsoft and Meta at $110-115/MWh, premium pricing that converts commodity electrons into strategic infrastructure revenue streams as Big Tech races to secure power before competitors do.

Long-term power purchase agreements now cover over 95% of Constellation's expected nuclear output through 2028, insulating earnings from spot market volatility. These contracts, signed when buyers feared supply shortages, provide revenue visibility that didn't exist when nuclear plants faced retirement risk, shifting the stock from cyclical commodity play to infrastructure annuity backed by investment-grade tech counterparties.

Additional Tech Company Power Purchase Agreements: After signing 20-year deals with Microsoft and Meta, Constellation is negotiating with Amazon, Google, and other hyperscalers racing to secure carbon-free baseload power. Each new contract announcement, especially at $110-115/MWh premium pricing, validates the nuclear scarcity thesis and adds $500 million to $1 billion in backlog revenue visibility through 2045.

• Three Mile Island Restart Ahead of 2028 Target: The 835-megawatt Three Mile Island reactor may restart in 2027, a year earlier than the initial 2028 timeline, after Constellation accelerated turbine procurement and staffing. Bringing the plant online ahead of schedule locks in Microsoft revenue 12 months sooner, validates the restart playbook for other shuttered reactors like Duane Arnold and Palisades, and proves nuclear economics shifted from retirement risk to strategic premium asset.

• Calpine Integration Unlocks $300 Million Synergies: The $26.6 billion Calpine acquisition adds 26 gigawatts of natural gas, hydro, geothermal, and battery storage assets closing in Q2 2026. Management targets $300 million in annual cost synergies through shared infrastructure, combined procurement, and commercial optimization. Successfully integrating Calpine without operational disruptions positions Constellation as the only US utility offering 24/7 clean baseload nuclear plus flexible gas peaking power, exactly what data centers need.

• Small Modular Reactor Deployment Creates New Revenue Streams: Constellation is evaluating small modular reactors at existing nuclear sites like Clinton Clean Energy Center, leveraging current permits, grid connections, and cooling infrastructure. SMRs offer 80-320 megawatt modular units with faster construction timelines than traditional gigawatt-scale reactors. If Constellation deploys 1-2 gigawatts of SMR capacity by 2032, it captures first-mover advantage as AI electricity demand triples and Big Tech exhausts available nuclear restarts.

• Federal Policy Shift Accelerates Nuclear Build-Out: The $1 billion Department of Energy loan for Three Mile Island restart signals bipartisan support for nuclear as critical infrastructure. If Congress extends production tax credits to existing reactors or streamlines Nuclear Regulatory Commission licensing, Constellation's 21-reactor fleet gains $500 million to $1 billion in annual cash flow support. Policy tailwinds could also enable life extensions beyond 60 years, turning 2030s retirement risk into 2050s revenue runway.

Solar and wind costs fell 10-15% in 2025 alone, with utility-scale solar now delivering power at $27-37 per megawatt-hour globally, roughly 56% cheaper than fossil fuels and undercutting nuclear's $100+ levelized costs. If battery storage costs continue dropping 5-10% annually, renewables plus storage could erode nuclear's baseload advantage within 5-7 years, threatening Constellation Energy's pricing power as data centers gain alternatives to 20-year contracts.

The $26.6 billion Calpine acquisition added $12.7 billion in net debt to Constellation's balance sheet, raising pro forma leverage above its historical 3.5x target. Higher interest rates mean annual debt service costs jumped $600-800 million, pressuring free cash flow and limiting capital for nuclear refurbishments. S&P noted Calpine's debt lacks cross-guarantees from Constellation, creating subordination risk if gas plant earnings disappoint during renewable oversupply periods.

Restarting Three Mile Island requires $1.6 billion in turbine, cooling, and safety system upgrades before the Nuclear Regulatory Commission grants a 20-year license extension, matching the entire project revenue if Microsoft pays $110/MWh. Licensing delays or cost overruns (nuclear projects historically exceed budgets by 20-40%) could turn premium contracts into break-even propositions, especially if regulators impose post-Fukushima safety standards that weren't factored into initial bids.