A bold partnership to power Amazon's AI operations with nuclear energy hit a regulatory barrier on Friday, causing a ripple effect in both the tech and energy sectors. The Federal Energy Regulatory Commission (FERC) denied a request to increase the power supply from Talen Energy's Susquehanna nuclear plant to Amazon's data center in Pennsylvania, raising concerns about grid stability and costs for consumers. The decision has sent nuclear and energy stocks plummeting, with companies such as Talen Energy, Constellation Energy, and Vistra Corp. seeing sharp drops as investors reevaluate the future of similar agreements.
In March, Talen sold a data center campus to Amazon for $650 million in a groundbreaking deal that would make it the first data center directly powered by nuclear energy. Amazon's growing demand for electricity to fuel its AI operations drove the push for a substantial increase in power from the Susquehanna plant, which serves the grid through PJM Interconnection. The request was to boost power supply from 300 to 480 megawatts. But FERC Commissioner Mark Christie, supporting the denial, noted, "The ramifications for grid reliability and consumer costs could be significant," underscoring the potential impacts on the broader energy system.
The decision led to a sharp drop in Talen's stock, which fell over 14% early Monday, as well as losses for other major players in the energy sector. Constellation Energy and Vistra, both highly dependent on nuclear power and previously outperforming the S&P 500 due to anticipated demand from tech firms, also saw losses. Constellation's stock tumbled over 9%, while Vistra shed nearly 4% in early trading. The ripple effect extended to smaller, speculative nuclear stocks, such as NuScale Power and Nano Nuclear Energy, which each saw declines between 4% and 7% in premarket trading.
Talen Energy voiced its disappointment with the FERC's ruling, calling it a setback for economic growth. The company warned in a statement that the decision could "have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey." While Talen continues to assess "commercial solutions" to move forward with Amazon, the decision casts a shadow over the future of co-located nuclear energy projects, which many in the sector view as an efficient way to meet the demands of data centers and AI.
Amazon's data center can still use the 300 megawatts it was already receiving from Susquehanna, but Talen's proposed increase would have required diverting power currently allocated to the regional grid. This scenario is emblematic of a larger trend as tech companies turn to nuclear energy to support AI and other energy-intensive technologies. Nuclear energy, which is carbon-free and highly reliable, has become an attractive option for tech giants looking to reduce their carbon footprints and manage the immense energy requirements of advanced computing systems.
For nuclear energy providers, the FERC's decision comes as a stark reminder of the regulatory hurdles that could complicate expansion plans. Analysts at UBS noted that "increased scrutiny on power deals could weigh heavily on future co-location agreements" as regulators may place a higher priority on maintaining stability in the general power grid. Constellation Energy, which recently announced plans to reopen a unit at Three Mile Island through a power purchase agreement with Microsoft, is positioning to navigate these regulatory waters more cautiously. Unlike Talen's deal with Amazon, Constellation's contract with Microsoft will supply power to the general grid rather than directly to Microsoft's facilities.
Vistra, a top-performing stock in the S&P 500 this year with gains exceeding 210%, had previously indicated interest in developing partnerships akin to Amazon's nuclear initiative. Investors had been betting on increased nuclear demand from tech firms, a trend amplified by the exponential growth in data processing needs. But the FERC's decision introduces fresh uncertainty for nuclear energy providers. Vistra, which is set to report its quarterly earnings on Thursday, has yet to disclose any similar deals but was widely expected to pursue co-location agreements with tech companies.
With the U.S. presidential election and shifting policy landscapes in both China and the U.S., volatility is expected to continue in the energy markets. Analysts anticipate that the results of the election could influence energy regulations and federal support for nuclear energy. Additionally, the Federal Reserve's expected interest rate cut later this week could impact borrowing costs for energy companies looking to finance expansions or upgrades to accommodate data center needs.
