Microsoft’s Mega Deal Is a Massive Victory for Nuclear Power

After Three Mile Island, what’s next?

That’s the question the nuclear industry and those who follow it were asking after news broke Friday that Constellation Energy was planning to reboot the facility’s Unit 1, which shut down in 2019. The deal is being anchored by Microsoft, which will purchase the power in order to balance out the emissions generated by its facilities in the PJM Interconnection, the multi-state power market that includes Pennsylvania. The plant is expected to be operational by 2028, Constellation said, and will be called the Crane Clean Energy Center, in honor of the company's former chief executive.

The demand for non-carbon-emitting power — and all power — has grown since Unit 1 closed and is expected to continue to in the future, especially as tech companies like Microsoft seek to build more datacenters while complying with their pledges to power their operations without greenhouse gas emissions.

The days of nuclear power plants shuttering not because of old age, safety concerns, or local opposition, but because of the economics of subsidized wind and solar and cheap natural gas, are likely over. New York, New Jersey, Connecticut, and Illinois all provided subsidies to their state’s nuclear fleet as plants were threatened with closure. California’s Diablo Canyon plant has seen its decommissioning delayed and received federal aid to help stay open. At a time when states representing a big chunk of US power consumption have aggressive emissions reduction goals and worries about power reliability, money is often easily found to keep nuclear plants open.

And now much of that cash might be coming from the private sector, specifically technology companies and independent power producers like Constellation.

“What we’re seeing is the fruits of previous labors coupled with the first-time-in-a-generation demand signals we had not yet seen,” Brett Rampal, a senior director at Veriten, an energy advisory company, told me.

These companies want the 24/7 carbon-free power that nuclear can uniquely provide. The federal government and several state capitals are also committed to bolstering the economics of America’s largest non-greenhouse-gas emitting, firm power source.

The Inflation Reduction Act contains considerable subsidies for both investing in and producing nuclear energy, as well as tools to finance nuclear power.

If history is any indication, having public and corporate policy rowing in the same direction can provide a huge boost for clean energy. For wind and solar, the two biggest demand boosters pulling forward their adoption has been technology companies wanting to buy clean power and federal subsidies for their construction and operation.

The structure Microsoft is using to purchase this power, the corporate power purchase agreement, was pioneered by Google in the late 2000s as a way for technology companies to support the development of clear power even when they couldn’t directly consume it. Now these tools are being used to support nuclear power. Constellation said Friday that the deal was the largest single power purchase agreement in history. According to figures worked out by Rampal, the deal will lead to some 135 terawatt-hours of generation over 20 years (a bit short of the annual electricity generation of Argentina), generating some $13.5 billion of revenue.

“Nobody would be moving forward with these projects,” explained Rampal, without tax credits or “extremely favorable loan support from the Loans Program Office.”

The other shuttered nuclear plant looking to restart, Michigan’s Palisades, has a $1.5 billion loan guarantee from the LPO.

“Constellation will be spending $1.6 billion of its own money to restart the plant – no state or federal aid. We may look at whether to seek a DOE loan for some of the financing, but that is not a given and not needed to make the project work. And even in that scenario, all the money is paid back in full. It’s just a slightly better interest rate,” Paul Adams, a Constellation spokesman, told me.

“The IRA contained nuclear production tax credits, which any nuclear plant is eligible for. The Crane Clean Energy Center would be no different once it is up and operating. That tax credit simply provides a floor price, in essence, to support nuclear production,” Adams said.

Almost immediately after the deal was announced attention turned to the Duane Arnold Energy Center plant in Iowa, which shut down in 2020 but whose owner, NextEra, has said could be a candidate for being relaunched.

After that, Rampal said, “there are tons of conversations around power uprates,” which is when nuclear plant operators install new equipment or alter the operation of existing plants to make them more powerful.

According to one study by Massachusetts Institute of Technology professor Koroush Shirvan, uprates could increase the capacity of America’s nuclear fleet by 50%. Actual uprates tend to be far more modest (and the paper acknowledges such dramatic uprates “are aspirational and may not be practical”). The last 10 uprates have averaged 1.6%, according to data collected by the Nuclear Energy Institute.

“Many more nuclear plants could be more aggressive with uprates. There’s technology out there that could produce more power,” Mark Nelson, managing director at Radiant Energy Group, told me.

The Loan Program Office can fund these upgrades and they will benefit from tax credits alongside other existing nuclear plants.

Microsoft is not the first technology company to get into the nuclear game, although many observers have long suspected it would. Alongside Google and Nucor, the company has committed to nurturing so-called clean-firm generation to help power operations on a 24/7 basis in a way that existing renewable generation cannot. The company has made several notable hires of nuclear industry veterans in the past few years.

“There’s nowhere in the USA where you can suddenly get power needed by Microsoft while making it additional,” besides bringing new nuclear power onto the grid, Nelson told me, referring to the concept that to fully prevent carbon emissions from new corporate activity, the non-carbon-emitting energy acquired has to be new to the grid. “Not just 24/7, but 24/7 at one location.”

Microsoft’s nuclear deal is also the second major one inked by a technology company just this year. Amazon purchased a data center site co-located at another Pennsylvania nuclear plant in March. That plan to link up a data center with the Susquehanna nuclear power plant has been controversial as it is “behind-the-meter,” meaning it would be powering Amazon’s facility directly, not providing power to the grid under a power purchase agreement like Microsoft will be doing with Constellation. Some argue it would still shift costs to others on the grid. The Amazon deal also does not provide any new clean power, it simply reallocates it to a big customer.

But there are only so many existing nuclear power plants that could uprate or recently-shut plants that could restart, but whatever new nuclear power does come online, there will likely be a technology company eager to scoop it up.

“We need to stamp out nuclear plants of designs that work now and lock in new construction,” Nelson told me. “We’re in a time of extreme scarcity.”