Nuclear power stocks faced a major downturn this week after the Federal Energy Regulatory Commission (FERC) rejected Talen Energy’s proposal to supply additional power to an Amazon Web Services (AWS) data center.
The decision, made late Friday, has reverberated throughout the sector, triggering a sharp sell-off in the nuclear power sector.
The FERC decision: A blow to the sector
On November 1, FERC voted 2-1 against PJM Interconnection’s proposed amendment to increase power supply from Talen’s Susquehanna nuclear plant in Pennsylvania to a nearby AWS data center.
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The amendment aimed to boost the center’s power capacity from 300 MW to 480 MW. Commissioners Mark Christie and Lindsay See opposed the amendment, citing concerns over grid reliability and public costs, while Chairman Willie Phillips dissented.
Following the decision, Talen Energy’s stock plunged 8.6% on November 5, while Constellation Energy (NASDAQ: CEG) and Vistra Corp (NYSE: VST) saw declines of 13% and 6.7%, respectively.
These declines reflect investor concerns about the broader implications of the FERC decision, which could hinder future deals between nuclear power providers and large tech firms.
“Talen believes FERC erred and we are evaluating our options, with a focus on commercial solutions. We believe this ISA amendment is just and reasonable and in the best interest of consumers. FERC’s decision will have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey.”-the company stated
At press time, Talen Energy is priced at $170, reflecting an 8% decline over the past five days.
Smaller nuclear firms also faced sharp losses, with Oklo Inc. (NYSE: OKLO), Nano Nuclear Energy (NASDAQ: NNE), and NuScale Power (NYSE: SMR) seeing shares drop between 4% and 7%, while Centrus Energy took a 29% hit.
Broader implications for the sector
The FERC decision has broader implications for the burgeoning relationship between nuclear power and AI-driven data centers.
In recent months, tech giants such as Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL) have increasingly turned to nuclear power to meet the rising energy demands of AI data centers while maintaining their climate commitments.
Constellation Energy, for instance, recently secured a 20-year deal with Microsoft to supply power for one of its data centers, which includes plans to reopen a unit at the Three Mile Island nuclear plant.
Unlike the Talen deal, this arrangement doesn’t threaten existing grid supplies, potentially shielding it from similar regulatory challenges.
Analysts are divided on the fallout from the FERC decision. Jefferies described it as a major setback for the nuclear data center model. In contrast, Morgan Stanley, as noted on TipRanks, viewed the stock declines as a buying opportunity, particularly for Constellation Energy, Vistra, and PSEG.
Despite regulatory challenges, Morgan Stanley remains optimistic about the future of nuclear power, particularly in regions like PJM and ERCOT. The firm expects that many large data centers will continue to be strategically co-located with power plants in these regions.
Nuclear power stocks: Resilience amid challenges
While the immediate fallout from the FERC decision has caused significant turbulence in nuclear power stocks, it’s important to note that not all challenges faced by the sector are regulatory.
Commodity prices, particularly uranium, play a role in the operational dynamics of nuclear power plants. However, their impact on nuclear power producers is relatively limited.
According to the World Nuclear Association, nuclear fuel costs account for just 15% to 20% of the total operational expenses of a nuclear plant. This insulates energy producers like Dominion Energy (NYSE: D) from the volatility of uranium prices, making them less sensitive to fluctuations compared to uranium miners such as Cameco (NYSE: CCJ).
In fact, lower uranium prices could even benefit electricity producers by reducing overall costs, provided demand remains stable or increases due to technological advancements like AI-driven data centers.
A sector poised for growth despite challenges
Despite the immediate setbacks, the long-term outlook for nuclear power remains promising.
The sector continues to attract investment from major tech firms eager to secure sustainable energy sources for their expanding AI operations. This is exemplified by Microsoft’s ongoing project at Three Mile Island and Amazon’s investment in advanced modular reactors.
Moreover, bipartisan political support for streamlining nuclear regulations is gaining momentum. The recently passed ADVANCE Act aims to reduce permitting times, and both U.S. presidential candidates have expressed support for nuclear energy initiatives, although concerns about safety persist.
As the sector navigates these challenges, nuclear power is well-positioned to capitalize on its potential as a cornerstone of future energy infrastructure.
