Dive Brief:
- Constellation stands to benefit from anticipated load growth and tightening generation supplies on the PJM Interconnection as hyperscale data centers and other large loads come online, Constellation President and CEO Joseph Dominguez said Tuesday on the company’s Q2 earnings call.
- Continued power pricing volatility, and strong retail and wholesale market performance, boosted Constellation Energy’s commercial business in Q2, the company said Tuesday. Constellation raised its full-year 2024 guidance for adjusted operating earnings to a range of $7.60/share to $8.40/share from a range of $7.23/share to $8.03/share in the previous quarter.
- Higher nuclear output, less reactor downtime from refueling outages, the addition of an ownership stake in the 2.6-GW South Texas Project power station, and revenue from the federal nuclear production tax credit drove an approximately 3% increase in year-over-year adjusted earnings for the quarter, Constellation said.
Dive Insight:
The results of PJM’s latest capacity auction ”[tell] us what we already know: demand for electricity is growing and supply and demand fundamentals are tightening,” Dominguez said on the call.
Capacity prices for the 2025/26 delivery year hit $269.92/MW-day, up from $28.92/MW-day in the previous auction, according to a July 30 auction report. Total costs to PJM consumers rose from $2.2 billion in the previous auction to $14.7 billion in the current auction.
Anticipated load growth and generator retirements were among the factors driving the increase in capacity prices, according to a PJM media briefing last month.
The Federal Energy Regulatory Commission’s approval in January of changes to PJM’s capacity accreditation method should result in “a fair level of compensation” for reliable generating resources like Constellation’s nuclear reactor fleet, Dominguez said on the earnings call.
Higher capacity pricing and PJM’s longer-term expectation for up to 50 GW of new data center load is likely to incentivize new generation resources in its territory as PJM works to reduce interconnection delays, Dominguez said.
In the meantime, higher pricing and tighter supplies increase the urgency for hyperscalers to finalize power supply deals, Dominguez said.
“People need to get moving to lock up their supply,” he added.
According to Dominguez, Constellation is pursuing on-grid and behind-the-meter power supply deals to data center operators seeking reliable, zero-emissions power. But Constellation believes behind-the-meter colocation “is the fastest way to develop digital infrastructure without burdening other customers,” he said.
Among other benefits, colocating new data centers with existing nuclear generation can improve transmission efficiency and reduce grid congestion, provide economic certainty that can facilitate subsequent license renewals, reduce interconnection delays and avoid unnecessary grid upgrade costs, Constellation said in its Q2 earnings presentation. Under colocation deals, data centers pay for their own electricity delivery facilities, the presentation said.
Constellation’s presentation echoed the findings of a July paper by former PJM Interconnection executive Michael Kormos. The paper cast doubt on arguments by Exelon and American Electric Power that a proposed colocation deal between Amazon Web Services and Talen Energy for up to 960 MW of power produced by Talen’s Susquehanna nuclear plant would shift $140 million in annual transmission costs to PJM customers.
FERC’s concerns around the Talen-AWS deal — detailed in an Aug. 2 deficiency letter — prompted the commission to schedule a technical conference this fall on large-load colocation arrangements. The conference is an opportunity for Constellation and others to discuss the benefits of colocation in a non-adversarial setting, Constellation Executive Vice President and Chief Strategy Officer Kathleen Barrón said on the earnings call.
FERC’s work on colocation deals harkens back to the debate around cogeneration facilities in the 1970s, Dominguez said. Utilities were initially unfriendly to cogenerators, but “policymakers insisted on non-monopoly alternatives [for heat and power generation] and things got better,” he said.
Given the amount of time that has passed since the cogeneration debate, Constellation “has [to do] a bit of work to educate and inform” a “new generation of policymakers” about the potential benefits of colocation, he said.
Dominguez expressed optimism that FERC would approve Talen’s interim service agreement for the AWS data center, noting that the commission recently sent two deficiency letters “with the exact same language” to Commonwealth Edison before approving the projects in question.
The upcoming technical conference could significantly reduce longer-term uncertainty around colocation arrangements, which would be a boon for data center operators and power producers like Constellation, he added.
“Having clarity [on this issue] is going to be a good thing…because people will then know exactly what they’re contracting for,” Dominguez said
