Big Tech is now in the power business

Amazon has paid $650 million for a data centre campus wired directly to Talen Energy’s Susquehanna nuclear power station. Generative AI's appetite for electricity has turned Big Tech into a major industrial customer of the utilities, and the deal marks a shift in how the hyperscalers buy their power.

The seller's history adds a twist. Talen, which owns the two-reactor plant in Pennsylvania, went through Chapter 11 bankruptcy and emerged last year, and the campus next to Susquehanna was one of its bets on finding a better use for the plant's output than selling it into the wholesale market. Amazon Web Services now takes over that bet, along with a long-term agreement to buy power from the station.

Why the grid is the bottleneck

Data centres used to be a rounding error in utility planning. The International Energy Agency reckoned in January that electricity use by data centres, AI and cryptocurrency mining could roughly double by 2026. Much of that growth is concentrated in a few places, such as northern Virginia, where utilities have warned that they cannot connect new facilities as fast as developers want. Queues to connect new generation to the grid in many regions now run for years.

The hyperscalers have also tied their own hands with climate pledges. Amazon has committed to net-zero carbon emissions by 2040, and Google has pledged to run on carbon-free energy around the clock by 2030. Buying wind and solar power on paper was enough to meet annual targets. Matching every hour of demand with clean power is much harder, and a nuclear plant is the only large carbon-free source that runs day and night regardless of weather.

Plugging straight into nuclear

Training and running large language models takes gigawatts of carbon-free baseload power, available 24/7, which wind and solar farms cannot reliably supply. Direct 'behind-the-meter' links to nuclear plants let tech companies skip grid bottlenecks and lock up scarce capacity. In effect, Big Tech's balance sheets are paying for a nuclear revival.

The economics of the arrangement explain its appeal to both sides. For Talen, a long-term contract with a creditworthy buyer replaces volatile wholesale prices with predictable income, which lowers its cost of capital and makes the plant easier to finance. For Amazon, paying a premium for reliable carbon-free power is cheap relative to the value of the servers it will run; a data centre that sits idle for want of electricity is the costlier outcome. The price of power matters less to a buyer whose margins come from renting computing time than it does to a manufacturer.

An old model for a new industry

Heavy industry has done this before. Aluminium smelters, which use enormous amounts of electricity, were long built next to cheap hydroelectric dams in the Pacific Northwest, Canada, Norway and Iceland, often under long contracts that tied their fortunes to a single power source. When those contracts expired or power prices rose, many smelters closed. Data centres are becoming the new electricity-intensive industry, with the difference that their owners are among the richest companies in the world and can afford to outbid almost anyone for supply.

The appetite goes beyond existing plants. Microsoft has signed an agreement to buy electricity from Helion, a fusion start-up, whose plant does not yet exist, and technology companies are investing in developers of small modular reactors. Those bets are long-dated and uncertain. Existing reactors that are already running and licensed are the only nuclear capacity available now, which is why Susquehanna commanded attention.

Who gains and who pays

The owners of existing nuclear plants are the clearest winners. Their output was long priced as a commodity in wholesale markets; now it can be sold under long contracts to buyers with deep pockets and a particular need. The Inflation Reduction Act also introduced a production tax credit for existing nuclear plants that begins this year, putting a floor under their revenue. Shares in operators such as Constellation Energy have risen strongly this year as investors price in that demand.

Other electricity users may lose. A plant that sends its power directly to a data centre is no longer supplying the wider grid, so other customers must rely on the remaining supply, and utilities lose transmission revenue that helps pay for the network. If enough capacity is carved off this way, grid operators and regulators will have to decide who pays for keeping the lights on elsewhere.

The case against a nuclear rush

The limits are real. Nuclear power supplies only about a fifth of America's electricity, and there are few existing plants left to sign up. New reactors are slow and expensive: the Vogtle expansion in Georgia came in years late and billions over budget, and NuScale cancelled its first small modular reactor project last November as costs rose. Hyperscalers may instead turn to gas plants, grid-scale batteries and more efficient chips. Behind-the-meter arrangements could also attract objections from regulators and other utilities.

None of that undoes the logic of this deal. Those objections limit how many such deals can be done, which makes each existing plant more valuable. The signals to watch are further contracts between tech companies and nuclear operators, regulators' treatment of co-located data centres, and the capital-spending plans that the hyperscalers disclose each quarter.

Amazon's deal suggests that access to power will matter as much as chips in the AI race. Other hyperscalers will probably chase the remaining nuclear capacity, and the plants' owners will charge accordingly, with similar contracts likely to be signed within the next year.