Power Stocks Just Broke Out of a Long Slump. Here's Why.

Dow Jones
8 hours ago

Power company stocks were off to the races on Tuesday -- an abrupt turnaround for the industry that has been in the dumps for months. Companies that sell electricity have finally figured out a way to make money off the data center boom without ending up on the wrong side of the political fight against data centers.

On Tuesday, power company Constellation Energy agreed to sell 3.6 gigawatts of electricity to Alphabet-owned Google through long-term deals that will allow Constellation to upgrade 11 of its nuclear reactors in New Jersey, Illinois and Pennsylvania, pumping extra power into areas of the grid that need it badly.

Under the deal, Google will pay Constellation a set rate for the electricity it uses for its data centers and other facilities, but the plants themselves will still be hooked up to the larger grid, so that average customers continue to be supplied. Together, the reactor-upgrades are expected to unlock as much new electricity for the grid as a new nuclear reactor. Constellation is spending $4.3 billion on the effort.

The deal gets around some of the thorniest problems in power markets. If the arrangement works as expected, it will add power to the grid without raising the electricity rates of average homeowners. And Constellation gets to profit off its existing assets, rather than taking the risk of building a brand-new power plant.

Constellation stock jumped 12% and other power company stocks also rose. Talen Energy was up 12%, NRG rose 7% and Vistra was up 11%. On Monday, Vistra issued similar news -- the Energy Department agreed to offer the company $4.2 billion in low-interest government loans to upgrade its nuclear reactors.

The gains reflect a shift in sentiment. All of these power stocks had been down by double-digit percentages this year before Tuesday. In general, it has been bleak trying to sell electricity at a time when Americans are angry about fast-rising electricity prices and the data center boom that appears to be behind it.

Regulations around electricity and who pays for it have gotten tighter as politicians have pushed back against rising prices. And that has resulted in a logjam for companies that build power plants, who are waiting for more guidance from regulators.

At the same time, growing electricity needs have left several parts of the country without enough power plants to rely on during times of high stress, like heat waves. The Mid-Atlantic and Midwest regions where Google is buying the power is in a particularly tight spot, largely because of data centers. The grid there is run by a nonprofit known as PJM, which has tried with little success to get power companies to add electricity-generation. The process has dragged on for months with no resolution. In the interim, power stocks have floundered.

The Google-Constellation deal doesn't fully solve PJM's power-shortage problem. But it is a start. And it was the exact spark that power companies needed to get back on track.

 

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