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Constellation Shifts Focus to Grid-Connected AI Data Center Projects Amid Regulatory Scrutiny

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Constellation Energy is shifting its strategy for supplying power to AI-driven data centers, now prioritizing grid-connected projects over previously favored direct (co-located) connections to its nuclear power plants, the company said Tuesday.

This pivot comes in response to growing regulatory pressure and industry concerns about the potential grid reliability issues and rising consumer energy costs linked to large-scale co-located data center developments.

“On-grid sales are increasingly attractive to us and to our customers,” said Constellation CEO Joseph Dominguez during a call with investors. However, he added that “behind-the-meter configurations”—where data centers are directly connected to power plants—may still be viable in certain cases.

Constellation, the largest operator of nuclear plants in the U.S., had previously proposed co-located data center developments at several of its reactor sites. But the approach came under scrutiny from the Federal Energy Regulatory Commission (FERC), particularly after a proposed expansion of an Amazon data center at a Talen Energy nuclear facility faced regulatory rejection.

FERC is currently evaluating new rules regarding such off-grid, single-customer arrangements to better manage power flow and protect ratepayer interests.

As the demand for electricity to power AI infrastructure skyrockets, utility firms like Constellation are adapting to meet needs while staying aligned with evolving regulatory frameworks and grid integrity standards.

AI to Fuel Record Year for M&A in U.S. Power Sector

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Dealmakers anticipate that 2025 will be a record year for mergers and acquisitions (M&A) in the U.S. power sector, driven by the surging demand for electricity to support artificial intelligence (AI). This growing appetite for power generation and infrastructure assets is fueled by the massive energy needs of data centers that power AI technologies.

According to sources in the industry and at the CERAWeek energy conference in Houston, the first two months of 2025 have already seen significant deal-making activity, with 27 power deals valued at $36.4 billion. A standout transaction was Constellation Energy’s acquisition of Calpine for $16.4 billion. This surge in deal volume contrasts sharply with the broader M&A market, which has experienced its weakest start since the global financial crisis.

Power sector deal flow is expected to increase as companies race to meet growing electricity consumption. Private equity firms and institutional investors, such as KKR and PSP Investments, are actively pursuing investments, with KKR and PSP’s $2.8 billion acquisition of a 20% stake in American Electric Power’s (AEP) transmission network as one of the major recent deals. Strong electricity price increases have boosted the shares of power companies, enabling larger transactions.

The influx of capital into energy investments is substantial, with $334 billion in dry powder (capital raised but not yet deployed) by the end of 2024. Much of this capital is earmarked for investments in power generation, infrastructure technologies, and renewable energy projects. These funds are also fueling the increasing trend of taking public power companies private, as seen in the $2.2 billion sale of Altus Power to TPG’s climate investment arm.

The demand for power infrastructure has also driven utilities to divest non-core business units. In early 2025, Eversource Energy agreed to sell its Aquarion Water unit for $2.4 billion, while National Grid announced the sale of its U.S. renewables business to Brookfield Asset Management.

Despite challenges, such as rising costs for essential components like steel, aluminum, and copper, and uncertainties around tax credits for renewable projects, the deal-making momentum in the power sector is expected to continue. Market volatility, including potential impacts from Trump administration policies and immigration reform, will likely make existing power assets even more valuable, spurring more deals.