Talen Jumps to Record After Buying Prime Power Plants to Feed AI
(Bloomberg) -- Talen Energy Corp. shares surged the most ever in intraday trading after announcing a $3.8 billion deal to buy two of the most efficient power plants on the largest US grid, joining a wave of deals by independent generators snapping up gas units to feed AI’s surging demand.
Talen will buy Caithness Energy’s Moxie Freedom Energy Center in Pennsylvania and Caithness and BlackRock’s Guernsey Power Station in Ohio, it said Thursday. Both assets are combined-cycle gas-fired plants and their combined capacity is nearly 3 gigawatts — enough to power about 2.4 million homes.
Talen’s shares rose as much as 24%, to about $324, at 9:54 am in New York. The stock has climbed 61% so far this year and is testing all-time highs, like many of its peers, as more gigawatt-sized data centers get announced.
The tech industry’s aggressive buildout of data centers for AI is driving the biggest increase in electricity demand in decades, if not ever. That has set off a race among energy companies for operational gas-fired plants, which are capable of providing round-the-clock power, unlike intermittent solar and wind. Independent power producers have now announced more than $34 billion worth of deals buying up mainly gas generation.
“These plants are the closest thing to adding another nuclear plant to our portfolio,” Chief Executive Officer Mac McFarland said on a call with analysts after announcing the deal.
Barclays Plc raised its price target on Talen by 33% to $359 per share because the deal is immediately accretive and allows the company to enter a new data center growth market in Ohio, analysts led by Nicholas Campanella wrote Friday.
The plants are two of the newest, most efficient big gas generators that came online in recent years in response to the shale boom within the footprint of PJM Interconnection. PJM already is home to the data center capital of the world in Northern Virginia, and growth is expanding rapidly on other parts of the grid that stretches from the mid-Atlantic to the Midwest.
“Data centers are coming and speed to market continues to be key,” McFarland said. “While there will be new generation assets coming in one form another, the market will struggle to keep up.”
Bidding was competitive to the end, McFarland said, and buying the plants was the fastest and cheapest way to help meet AI needs through this decade. Talen is paying 50%-65% less for the pair than the cost of building new versions at $2,400-$2,600 per kilowatt, McFarland said.
Moxie, with about 1 gigawatt of capacity, “is literally up the hill” from the Susquehanna nuclear plant in Pennsylvania and ties into the same substation, while Guernsey would serve the buildout of data centers by tech giants in Ohio, McFarland said. Last month, Talen signed a deal to double its agreement to supply power from the Susquehanna reactors to the adjacent Amazon center.
McFarland described Talen’s strategy as a flywheel: sign long-term supply contracts, like with tech giants, at existing power plants, acquire new generation, and repeat. He says he is optimistic the AI boom will support strong valuations for existing power plants at least through the decade and can be tapped to meet the initial ramp up of AI.
“We constantly desktop evaluate new builds and if we found the right opportunity under the right risk-return profile we would entertain such an investment, but let me be clear, that time is not now,” he said.
It has long been anticipated Talen would announce a deal to buy power plants – or that it needs to – after its peers went on a buying spree. This drumbeat of acquisitions underscores a dramatic turnaround in the industry that has seen bankruptcy-inducing swings amid volatile electricity prices.
In May, NRG Energy Inc. bought a fleet of gas generators in PJM from LS Power for $12 billion. Vistra Corp. followed up with a $1.9 billion deal from Lotus Infrastructure Partners. In January, Constellation Energy Corp. spent $16.5 billion to buy out privately-owned generator Calpine Corp. Vistra underscored the tide shifting toward the volatile industry of independent generators, which swing with power prices, by coming in early with its more than $3 billion purchase of a nuclear fleet with its Energy Harbor acquisition, which closed in early 2024.
The plants Talen deserve a premium valuation for being “incredibly efficient,” especially Moxie that operated on average 86% of the time last year, Moses Sutton, head of clean energy research at BNP Paribas Exane, wrote in a note Friday. “Given the quality, TLN’s purchase is actually the most impressive one.”
(Updates with share move and analyst comment in the first, third, sixth and last paragraphs.)
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