Liam Denning of Bloomberg reports that Big Tech has the cash to pay a premium for energy and address any regulatory concerns. Denning writes:
Nuclear power plants are designed to withstand a plane crash. We are now getting a live experiment in whether the nuclear sector is built of similar stuff, after federal regulators dropped a bomb on Friday night. In a 2-1 vote, the Federal Energy Regulatory Commission rejected an amended interconnection agreement for the deal that sparked a frenzy for nuclear power stocks earlier this year: Amazon.com’s acquisition of a datacenter co-located with a reactor owned by Talen Energy Corp. Few saw it coming, and the sector dived on Monday morning.
Once the smoke clears, though, two realities are likely to re-emerge: Datacenter builders want power supply secured sooner rather than later and they can afford to pay a premium for it. As long as the market’s foundational assumption — that we are in the early innings of an artificial intelligence-inspired datacenter boom — holds, power developers will benefit. The FERC ruling will reshape how that happens, however. […]
In other words, Big Tech will pay up, a lot, for power. Even if owners of datacenters have to sign more virtual supply contracts, like Microsoft’s, their apparent comfort with paying $100-plus in a $50 wholesale electricity market suggests generators have room to offer a discount — to take account of transmission fees and longer development schedules — and still make a decent profit. Given the bubble of expectation that had built up in nuclear stocks after the Amazon and Microsoft deals, this will still hurt; a month ago, Constellation’s earnings multiple had surged to almost match Nvidia Corp.’s. Still, the underlying narrative of AI-propelled power demand remains. […]
FERC’s concerns about the effective removal of nuclear plants from servicing the wider grid signals a desire for datacenters to BYOP — bring your own power. That would mean factoring in the costs associated with building new, utility-scale generation capacity as well as onsite backup power. Given the hyperscalers’ desire for speed, this could favor new gas-fired plants, perhaps twinned with renewables to ameliorate the emissions impact. Longer term, it could strengthen the case for bets on small modular reactors, such as Google’s recent contract with Kairos Power LLC. Either way, unless AI itself turns out to be a passing craze, power providers stand to gain.
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