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Exelon's Power Play for NRG Could Create Nuclear Giant

Exelon’s (s exc) unsolicited $6 billion bid for its smaller rival NRG Energy (s nrg) may have been prompted by short-term concerns about raising capital and cash flow, but the longer-term outcome could reshape the nuclear industry’s landscape.

Nuclear power makes up only 5 percent of NRG’s power-generation capacity (vs. 46 percent for natural gas and 33 percent for coal). But the company has been gearing up for greater nuclear capacity for some time. In September 2007, it submitted the first application in 29 years to build a nuclear plant in the U.S.

Exelon, which at $19 billion in revenue last year was three times as large as NRG, owns 10 nuclear stations and 17 reactors, and is the largest player in the U.S. and the third largest in the world. Buying NRG will add to that total and give it enough resources and economies of scale to leverage even more plants in coming years.

Much of the coverage of the proposed NRG buyout focuses on short-term needs and realities. Exelon would buy NRG at a 37 percent premium to its closing price on Friday (accounting for NRG’s 30 percent surge Monday), but still equal to only one times NRG’s revenue last year. So Exelon has found a cheap way to strengthen its hand in the hard times and beyond. As one analyst told Bloomberg,

“Exelon couldn’t build the plants for the same price it would buy NRG for…It also gives them access to a bigger balance sheet to fund things like new nuclear plants.”

Which means, longer-term, Exelon could become a dominant force in nuclear power, right in time for its resurgence. While wind and solar are important alternatives to carbon-based energies, some argue that nuclear is the fastest and most feasible way to reduce dependence on oil, coal and natural gas.

The new nuclear plants will take years to come online — the facility NRG applied for last year isn’t expected to be generating power for six or seven years. Other companies are also jockeying to build the dozens of new plants that could be built in the next few decades. But Exelon’s power grab, if successful, could be seen later on as a bold move that increased its market share early on.