On Friday, US electric utility Constellation announced the restart of its Crane nuclear plant, that had been shut down in 2019 for economic reasons, along with a 20-year power supply agreement with Microsoft. The Tech giant will then secure 835 MW of power over 20 years to supply its data centers in the PJM Interconnection, that covers several states including Pennsylvania and New Jersey.
While Amazon AWS had already taken a similar initiative earlier this year, purchasing a 960 MW data center campus for $650 million in Pennsylvania that is directly powered by the adjacent Susquehanna nuclear power facility, the Constellation-Microsoft deal goes one step further as it involves the reopening of a plant.
The fact that Microsoft is apparently accepting to pay a large premium for the Constellation plant power (around $100/MW vs. market price of $50/MW) is also telling about the need to secure reliable power and get visibility on electricity costs amid rising power prices.
Overall, this deal highlights the increasing role of nuclear energy in the powering of AI operations at a time when the impact of AI on the grid is expected to spark a 2x-3x surge in US electricity demand over coming years and put the current infrastructure under strain. Data center operators are accordingly trying to get their data centers as close as possible to nuclear reactors and/or plugged directly to these reactors to be isolated from the grid and the risk of outage.
While there are no plans in the Constellation-Microsoft deal to colocate a data center at the nuclear plant, we believe colocation announcements could come soon, potentially followed by the construction of data centers with built-in nuclear power, with SMRs (Small Modular Reactors) seeming perfectly suited for this in terms of power output (up to 400-500 MW), land footprint and construction times (4-5 years).
From a financial standpoint, the deal is highly positive for Constellation as it is expected to deliver a 10-13% boost to its earnings. High prices for power supply agreement with hyperscalers and tax credits from the US administration could then incentivize other electric utilities to follow a similar path and consider reopening idle nuclear plants and/or breaking ground on new ones.
This would be a boon not only for these nuclear utilities but also for the whole supply chain, from uranium and nuclear engineering companies to power grid equipment (high-voltage cables, transformers…) that are highly represented in our Powering AI portfolio.
