Constellation Energy, the largest nuclear generator in the U.S., will take over NRG Energy’s 44% ownership stake in the 2.6-GW South Texas Project Electric Generating Station (STP), a nuclear power plant located in Bay City, Texas.
Under a definitive agreement announced by two companies on June 1, Constellation will acquire NRG’s 44% equity interest in the Texas nuclear plant—an output of approximately 1,164 MW—for a purchase price of $1.75 billion. In a statement, Constellation estimated the purchase price would fall to $1.4 billion “after taking into consideration the present value of tax benefits.” The transaction will require a series of regulatory approvals, including from the Nuclear Regulatory Commission (NRC), Hart-Scott-Rodino, and the Public Utility Commission of Texas (PUCT), the companies said.
NRG currently owns STP along with municipal utilities CPS Energy (which owns a 40% stake) and Austin Energy (which holds 16%). The plant comprises two 3,853-MWth Westinghouse four-loop pressurized water reactor (PWR) units. STP Unit 1 began operating in 1988 and Unit 2 in 1989, and both units have renewed NRC licenses that expire in the 2047 and 2048 timeframe.
NRG’s Move Geared Toward Portfolio Optimization
NRG’s sale of its long-standing stake in the giant nuclear plant just 90 miles south of Houston is notable, given that it represents a substantial share of the company’s combined 10-GW portfolio in Texas, which operates within the Electric Reliability Council of Texas (ERCOT). Across the U.S., NRG has interests in or owns a 16.4-GW generating fleet. The fleet has shrunk dramatically compared to the 53 GW it held in 2015 as NRG—once a pure-play independent power producer—moves toward a simplified customer-driven integrated power model that favors its retail businesses.
In December 2021, after NRG closed on the sale of 4.8 GW of oil and gas-generating assets to ArcLight Capital Partners for $760 million, NRG’s Board of Directors authorized a $1 billion share buyback program. As of May 2023, roughly $650 million shares had been repurchased, and $350 million remained. On Thursday, the Board of Directors authorized an additional $650 million share repurchase program that is slated to initiate as soon as the STP stake sale has closed. “When combined with the $350 million outstanding from the December 2021 share repurchase program, the total amount of share repurchases to be completed is $1 billion,” NRG noted.
Mauricio Gutierrez, NRG president and CEO, in a statement, said the sale was a continuation of the company’s strategy to optimize its portfolio “while creating significant shareholder value.” Gutierrez noted that work on this transaction, which began several months ago, would “release significant capital to be deployed at value—accelerating and upsizing our current share repurchase program while achieving our balance sheet targets.”
According to NRG spokesperson Laura Avant, NRG periodically reviews its portfolio to examine ways to optimize the value of its business. “This includes evaluating investments in our existing assets and in new assets,” she told POWER. NRG, however, remains “committed to our core energy business, including supply and demand, as we further integrate into the home through complementary products and services,” she noted. “We also remain committed to the responsible energy transition and our net zero goal.”
Constellation: STP Is a ‘Strategic Fit’ in Constellation’s Fleet
For Constellation, which was spun out of Exelon Corp a little more than a year ago, the acquisition of NRG’s share potentially boosts the company’s already substantial nuclear interests. Today, the company is primarily a power supplier—one of the largest competitive electric generation companies in the U.S.—that holds a 32.4-GW fleet, which it says is 90% carbon-free.
Constellation’s nationwide fleet comprises 21 GW of nuclear from 23 units, 8.8 GW of natural gas and oil, and 2.7 GW of hydroelectric, wind, and solar assets. The company’s nuclear fleet, which produced 173 TWh in 2022, includes interests or full ownership of 13 plants: Braidwood, Byron, Calvert Cliffs, Clinton, Dresden, FitzPatrick, LaSalle, Limerick, Ginna, Quad Cities (75% ownership), Peach Bottom (50% ownership), Salem (42.59% ownership), and Nine Mile Point Unit 2 (82% ownership). (See an interactive map here.)
During an investor business update on Thursday, Constellation officials highlighted STP’s myriad benefits, underscoring how the “large, young, dual unit site” poses a “strategic fit” in Constellation’s current fleet. Joe Dominguez, president and CEO of Constellation, also stressed the acquisition will be made “at a very attractive price.”
“We’ve been very clear since separation [from Exelon Corp.] that we take a disciplined look at [merger and acquisition] opportunities, and we factor in the quality of the asset, the age of the asset, how well the asset has been maintained, and the security of its fuel supply,” Dominguez said. “And this is one of the largest nuclear plants in the country, and one of the best operating assets in the country. It produces about 21 TWh of reliable affordable carbon-free electricity.”
STP is identical to Constellation’s Byron and Braidwood stations, Dominguez noted. “So we understand the machines inside and out.” In addition, the plant “is very well maintained. It has no exposure to nuclear fuel risk, with supply lined up through 2028.”
STP is also one of the newest nuclear plants in the U.S, he added. “To put this into context, the only plant that is younger than STP is our Limerick station, and with continued policy support, the units will run well past mid-century for at least an additional 46 years—approximately twice as long as new renewable energy installed today.”
Another key driver for Constellation’s acquisition of NRG’s share is that STP already operates as a competitive asset. And while Texas load is slated to grow at more than 2% annually, STP has historically performed with a capacity factor average of 93% to 94%, Dominguez said.
In addition, he suggested that the federal nuclear production tax credit (PTC) “provides economic stability to the plant while allowing it to participate in the market upside, just as it does for the rest of the fleet.” Beginning in 2024 and terminating at the end of 2031, the PTC, enacted by the August 2022 Inflation Reduction Act (IRA), will fully apply when gross revenues are at or below $25/MWh but it phases out completely at $43.75/ MWh. Constellation has said the PTC provides “downside commodity risk protection.”
During the call, officials also confirmed that STP, a dispatchable resource, may qualify for the Performance Credit Mechanism (PCM), which the PUCT unanimously adopted in January 2023 to secure grid reliability during times of low non-dispatchable power production. “This asset not only meets that criterion for dispatchable energy, but in addition to that, it’s clean. So it’s really a unique asset in the [ERCOT] market,” noted Dominguez. For Constellation, which holds 3,520 MW of natural gas-fired generation at its Colorado Bend II, Wolf Hollow II and Handley generating stations in Texas, owning part of STP is a bonus, he suggested.
Finally, Constellation and NRG may reap even larger financial benefits, given that the transaction is an all-cash deal for an asset. As Dan Eggers, Constellation CFO, explained, “We will be able to immediately deduct a large portion of the purchase price because of the bonus depreciation rules. After considering the net present value of this deduction of more than $300 million, we are effectively paying approximately $1.4 billion for the assets,” he said.
After the transaction closes, Constellation plans to run STP alongside Austin Energy and CPS Energy. South Texas Project Nuclear Operating Company (STPNOC) will continue to operate the plant. “We expect the deal to be completed by year-end,” the company said.
Updated (June 2): Adds comments and details from NRG Energy about the sale of its stake in STP.