Constellation spin-off underscores nuclear’s role in US decarbonization effort

Constellation spin-off underscores nuclear's role in US decarbonization effort

The Clinton Power Station in Illinois will be part of a 22,000-MW nuclear fleet operated by the new Constellation Energy Corp. when it formally spins off from Exelon Corp.
Source: Exelon Corp. Constellation Energy Corp.’s spin-off from Exelon Corp. arrives at a pivotal moment for nuclear power, with the new company signaling it could be on the hunt for assets and as state and federal policy begins to reflect the technology’s value as a carbon-free power source.

The separation of Exelon Generation Co. LLC and retail business Constellation Energy Resources LLC from Exelon is expected to unlock the nuclear fleet’s capabilities as the engine for carbon-free growth opportunities, Constellation management said during its Jan. 11 analyst day. The new company, which is expected to begin publicly trading Feb. 1 under the CEG ticker, initiated 2022 adjusted EBITDA guidance of $2.35 billion to $2.75 billion.

Wells Fargo analysts said in a report that Constellation is "poised to produce meaningful free cash flow, providing management with substantial financial flexibility to execute on … asset acquisitions" after Joseph Dominguez, Constellation’s incoming president and CEO, called the company "one of the only natural buyers" for nuclear infrastructure.

KeyBanc Capital Markets wrote on Jan. 6 that Constellation "may be the only natural buyer for [Public Service Enterprise Group Inc.’s] nuclear assets should PEG decide to divest at any point," given that the new company is already a partner in Public Service Enterprise Group’s Salem and Peach Bottom plants in New Jersey and Pennsylvania, respectively.

CreditSights, meanwhile, in a Jan. 11 report named as the "most logical" acquisition targets: Dominion Energy Inc.’s roughly 2,097-MW Millstone nuclear plant in Connecticut, as well as Energy Harbor Corp.’s 1,872-MW Beaver Valley nuclear plant in Pennsylvania, and in Ohio its 908-MW Davis-Besse and 1,268-MW Perry nuclear plants.

‘A clear pathway’

"Given the lead time associated with some of its growth initiatives and its 2022 commitment to debt reduction, we would not expect any material activity over the next 6-9 months," BMO Capital Markets analyst James Thalacker wrote in a Jan. 11 report, estimating the market cap for Constellation at about $14 billion. Constellation plans to seek a 20-year renewal of operating licenses to extend the lives of units in its 22,000-MW nuclear fleet up to 80 years. Company management also sees opportunities to utilize their existing fleet for "clean hydrogen production" and to power data centers or direct air capture facilities.

"In […]

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