The Premium Power Boom Has Begun

Editor's note: Every Friday, we showcase a featured topic from our YouTube show, Altimetry Authority.

This week, we tackle themes from our latest episode, including Big Tech's latest big deals... and a clear winner of the cleaner-energy push.

Read on below...

When Microsoft (MSFT) struck a deal to restart part of the Three Mile Island nuclear plant, it made a brief splash in the headlines...

Then the story all but disappeared.

Most folks figured it was a one-off. A splashy sustainability play. Maybe a goodwill gesture to restart a shuttered facility.

But they missed something big. Microsoft reportedly agreed to pay between $110 and $115 per megawatt-hour ("MWh") for that power. That's more than double the going rate.

It seemed like a fluke back then... until Meta Platforms (META) joined the game.

Earlier this month, Meta signed a 20-year agreement to buy nuclear power from Constellation Energy's (CEG) Clinton Clean Energy Center in Illinois. Analysts believe it's paying a premium too, somewhere between $85 and $90 per MWh.

And just like that, overpaying became a trend.

Investors can no longer afford to ignore the uptick in energy prices... and what it means for energy vendors like Constellation.

Established utility players are critical to today's Big Tech industry...

Companies like Constellation don't need to wait years (or spend billions of dollars) for their projects to come online. They already have facilities set up.

That's why tech companies are racing to make new energy deals – at any cost. As soon as the ink dries, they can start accessing power.

And it's great for Constellation, too. Any premium it charges goes straight to the bottom line.

The Clinton plant is a perfect example. It was previously supported by state credits to stay open. Meta's deal replaces those subsidies.

And Constellation is planning to expand capacity, adding 30 megawatts of additional generation to its existing 1.1 gigawatts.

It's important to understand that these deals don't transfer electrons from one party to another. They're happening in the context of virtual power purchase agreements ("PPAs").

With a virtual PPA, a company pays a fixed price for clean power it never physically receives. In return, it gets the rights to the project's carbon-free attributes, like renewable or nuclear energy credits.

Said another way, it helps tech companies meet environmental goals while buying power from the general grid.

Recent deals show just how badly tech firms want clean, stable energy. They're willing to double the going rate because they need the power... and they need it now.

And Constellation is among the biggest providers of a consistent clean energy supply...

That's why it has been inking the biggest deals so far.

The market is just starting to catch on to these tailwinds. We can see this through our Embedded Expectations Analysis ("EEA") framework.

The EEA works a lot like a betting line in a sports bet... We use Constellation's current share price to calculate what investors expect from future performance and compare those forecasts with our own.

It tells us how well our "team" (the company) has to perform to justify the market's "bet" (the current price).

Constellation's Uniform return on assets ("ROA") reached almost 6% last year – its highest level in a decade.

Investors expect that number to nearly double, hitting 11% by 2029...

The market is just starting to recognize how transformative these premium deals can be...

Constellation doesn't need to invest any more into facilities that are already online. So when companies pay more than twice what its power is worth... returns can more than double.

Energy stocks were surging back in February. We worried valuations were getting ahead of fundamentals.

But looking at Microsoft and Meta, it's clear this shift is already here. The demand is locked in with 20-year contracts.

The story has changed. Constellation and other market-based energy vendors finally have pricing power. And the market is waking up to it.

Regards,

Joel Litman
June 20, 2025

P.S. We dove deeper into Constellation in the latest episode of Altimetry Authority. Check it out on our YouTube channel right here... and be sure to click the "Subscribe" button.