Datacenter 'ripple effects' favor merchant nuclear plants – Morgan Stanley

Merchant nuclear power plants are particularly well positioned to supply on-site generation for tech companies building US datacenters, with generation assets totaling nearly 22 GW poised to take advantage, according to a pair of Morgan Stanley reports.

Nuclear reactors have a significant edge due to their large footprints and substantial amounts of cooling water, while plants with more than one unit provide redundancy, analysts wrote March 24. Datacenters with colocated nuclear generation can also avoid clogged interconnection queues, they added.

The bank raised price targets for Constellation Energy Corp., Vistra Corp., NRG Energy Inc. and Public Service Enterprise Group Inc., whose stock prices are soaring ahead of expected financial windfalls as electricity markets tighten. Datacenters' projected energy needs are fueling much of that surging demand.

As much as half of the 22 GW owned by those companies could be available for hyperscalers — cloud service providers that offer computing and storage services at a massive scale and rely heavily on datacenters as part of their core business.

"We see ripple effects across the power generation and retail market landscape from the significant electricity needs that are coming with the data center build-out ahead," Morgan Stanley analysts wrote, particularly following the March sale of a datacenter campus in Pennsylvania owned by Talen Energy Holdings Inc. to Amazon Web Services Inc. for $650 million. The campus, which has up to 960 MW of datacenter capacity, is adjacent to and will be powered by Talen's 2,494-MW Susquehanna Nuclear power plant.

Industry experts have pointed to the transaction as a signal that major tech companies intend to pay premiums for round-the-clock electricity.

"We had previously assumed that data center deals with nuclear plants could potentially be priced in the $10-[$]15/MWh range, and our price targets for several nuclear plant operators had incorporated upside from potential data center contracts at these levels," Morgan Stanley analysts wrote. "In light of Talen's deal we are re-running the upside potential from contracts with data centers and factoring in a $30/MWh uplift level for this opportunity."

The International Energy Agency projected US datacenter electricity consumption to grow from 200 TWh in 2022 to about 260 TWh in 2026 and account for 6% of total power demand. Grid planners have almost doubled the five-year load growth forecast over the past year, consulting firm Grid Strategies LLC wrote in a recent analysis based on filings with the Federal Energy Regulatory Commission.

Location, location, location

Among the reactors ripe for datacenter colocation are the two Salem units in New Jersey with a combined 2,284.7-MW capacity, according to Morgan Stanley. Public Service Enterprise Group subsidiary PSEG Nuclear LLC recently notified the US Nuclear Regulatory Commission that it plans to seek authorization in 2027 to renew those licenses. If approved, licenses for the reactors, which it co-owns with Constellation, would be extended by 20 years, to 2056 and 2060.

Another plant, the 1,872-MW Beaver Valley in Pennsylvania, was recently acquired by Vistra when it purchased Energy Harbor LLC's nuclear fleet.

When it comes to greenfield power, Morgan Stanley suggested that renewables developers such as AES Corp. and NextEra Energy Inc., as well as companies that could combine different types of power such as Bloom Energy Corp. and GE Vernova LLC, are primed for datacenter upside.

"We recommend an increasing focus on companies providing on-site 'primary power' for new data centers," the analysts wrote April 4. "We have been seeing a surge in interest among data center developers in installing primary power generation on-site — this is a different approach from the historical approach, in which energy storage and diesel gensets served solely as backup power."

Renewable developers secured contracts for at least 4,012 MW of capacity in the 12 months ended Feb. 1 that tech companies will use in part or entirely to power US datacenters, according to an analysis of S&P Global Commodity Insights data.

AES contracted the most capacity that could be used by datacenters, selling all 1,000 MW from its planned Bellefield and Bellefield 2 solar projects in California to Amazon. The solar-plus-storage projects, which have up to 500 MW each of colocated four-hour battery storage capacity, are expected to come online in 2025 and 2026, respectively.

"We also believe we may see interesting new combinations of wind, solar and natural gas-fired generation, with data centers built at these sites — this offers the advantage of predominantly zero-carbon power with reliability from multiple sources of power, including dispatchable natural gas-fired power generation," the Morgan Stanley analysts added.

Bloom Energy CEO and Chairman K.R. Sridhar said during a February conference call that the datacenter "sales funnel for this sector alone is massive, not in the megawatts but in the gigawatts" because utility companies cannot provide them with excess capacity.