Energy Capital Partners (ECP)'s $5.6 billion acquisition of natural gas power producer Calpine in 2017 is poised to become the most profitable single private equity deal in history.
According to reports, including dividends, this investment will generate over $25 billion in returns for ECP and its co-investors—far surpassing Blackstone's previous record of $14 billion from the Hilton Hotels deal.
ECP is nearing completion of Calpine's sale to Constellation Energy, expected within the next month. Approximately $18 billion will be paid in Constellation stock, which has surged nearly 50% since the deal was announced in January.
At the time, the transaction was seen as a contrarian bet. The shale gas boom and renewable energy expansion had led to a natural gas oversupply, squeezing margins for the Houston-based company. Gas-fired power plants were widely viewed as poor investments amid the global shift toward renewables.
However, the market failed to anticipate a surge in electricity demand. Factors such as manufacturing reshoring, electric vehicle adoption, cryptocurrency mining, and later the AI boom—with its massive power requirements—drove this shift.
**A Contrarian Bet on Gas Power** When ECP acquired Calpine in 2017, it was considered a highly controversial move. The shale revolution had flooded the market with cheap gas, while renewables were gaining momentum, casting doubt on the future of gas-fired plants.
Sources reveal that ECP viewed Calpine as undervalued, capable of generating strong cash flows with targeted improvements. The firm believed the energy transition would take decades and that natural gas would remain critical for grid reliability.
Founded in 2005 by ex-Goldman Sachs partner Doug Kimmelman, New Jersey-based ECP is now the largest private owner of U.S. power assets. Last year, UK private equity firm Bridgepoint Group acquired ECP, creating a combined entity managing around $86 billion.
**AI Boom Ignites Power Demand** ECP couldn’t foresee the sudden spike in long-stagnant electricity demand. Reshoring, EVs, and crypto mining were early drivers, but the AI explosion—sparked by OpenAI’s ChatGPT launch in late 2022—supercharged the trend. As data centers’ massive power needs became apparent, utility valuations soared, giving Constellation the equity "currency" for acquisitions.
In January, Baltimore-based Constellation—America’s largest carbon-free energy producer (mostly hydro, wind, solar, and nuclear)—agreed to buy Calpine for $4.5 billion in cash plus 50 million shares.
**Operational Upgrades Unlock Value** Post-acquisition, Calpine launched growth initiatives like battery storage projects, expanded its Geysers geothermal plant in California, and refined hedging strategies. Under ECP, profits nearly doubled, enabling debt reduction. Sources note $8.5 billion was distributed to investors during ECP’s ownership.
ECP President Tyler Reeder, familiar with Calpine’s management, spearheaded the deal. While other PE firms evaluated the company, none were willing to make such a bold bet on gas.
Comments