Shell Just Sold a $715 Million Stake in a Major New England Asset to Constellation Energy. Here's What Investors Need to Know.

A large energy asset in New England is about to change hands, if an agreed-upon new deal ends up closing. Global energy giant Shell (NYSE:SHEL) has signed a deal for one of its subsidiaries to sell the business that owns the Rhode Island State Energy Center (RISEC). The buyer is the sprawling U.S. utility company Constellation Energy (NASDAQ:CEG), and the price is $715 million.

RISEC is the No. 1 electricity-generating facility in its state by output; that, plus the transaction's price tag, makes this deal meaningful. Here's how it'll impact both companies.

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Good reasons to own RISEC

That $715 million will be paid entirely in cash by Constellation and is subject to customary purchase price adjustments. Constellation wrote in its press release about the arrangement that the effective net cash outlay is $580 million, due to $135 million in expected first-year tax benefits.

The sale is subject to approval by the relevant regulatory authorities. Both companies said they expect it to close in the first quarter of 2027.

RISEC is a facility powered by natural gas that makes the "juice" with two combustion turbines and a single steam turbine. Its capacity is 609 megawatts of electricity. As a relatively recent construction -- it came onstream in 2002 -- it is efficient, with its combined-cycle operation capturing and reusing heat from the gas turbines to produce additional power. Such a system is notably more efficient than a traditional single-cycle natural gas plant, and its emissions are lower, according to Constellation.

In its press release on the deal, Constellation quoted its CEO, Joe Dominguez, as saying that as the company's business in the New England region expands, "we need a reliable asset that is well-positioned on both the electric grid and the natural gas pipeline system. RISEC checks all of these boxes."

The company expects RISEC to be immediately accretive to its operating profit. It made a point to add that purchasing it won't affect management's goal of executing $5 billion in share repurchases by the end of 2027.

A peak performer

In its own press release on the RISEC sale, Shell simultaneously announced a buy. The subsidiary that (for now) owns RISEC, Shell Energy North America (SENA), has acquired Hunlock Creek Generation, which owns two natural-gas-fired power plants in Pennsylvania. Combined, the pair's generation capacity is 169 megawatts. Shell did not disclose the purchase price.

The company wrote that this deal "secures supply and capacity offtake for SENA in the Mid-Atlantic power grid operated by PJM Interconnection." PJM is the most significant wholesale electricity market and grid operator in the U.S.

One of the two Hunlock assets is a 44-megawatt peaking plant, i.e., a power generation facility that can generate significant electricity on short notice, making it ideal for periods of high demand. What's particularly attractive about such assets is that they operate on the 'capacity market," i.e. they draw revenue simply by a commitment to be available during such peak times. On top of that, they get paid for the electricity they produce in these periods of need.

Like Constellation with RISEC, Shell is expecting Hunlock to be a very productive asset. It wrote that it anticipates this business will exceed the company's benchmark internal rate of return (IRR) for power investments. The company didn't provide detailed guidance on how its latest acquisition might affect the fundamentals.

Powering the future

Both Constellation and Shell are adjusting their U.S. electricity generation portfolios at a time when power demand should rise, in no small part due to the feverish build-out of artificial intelligence (AI) compute capacity in this country. For Constellation, RISEC is a modern and highly productive facility that appears to be essentially plug-and-play -- hence the stated expectation of immediate accretion to its future parent's business. Meanwhile, Shell's take-up of Hunlock feels like an opportunistic buy of an asset that benefits from that two-stream revenue model.

So if I were a shareholder of either company, I'd welcome the news of this little web of deals. After it was announced, Constellation's share price dipped slightly while Shell's moved marginally higher. That's likely because the two companies are large enough that neither buy will make or break their new owners. They're still positive and might even impact their respective fundamentals more than expected, though, so I'd be bullish in both cases.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy. The Motley Fool has a disclosure policy.