If nuclear power is the future, small modular reactors (SMRs) are the pathway, potentially offering a flexible, scalable, always-available, potentially cost-effective means of generating clean energy. So concludes a new report from the Information Technology and Innovation Foundation (ITIF) the non-profit research institute which finds that while US companies are currently at the cutting edge of SMR development and deployment, competition from China, Russia, South Korea, and European companies is intensifying. However, the authors argue that for SMRs to achieve widespread adoption, they must eventually reach the key P3 benchmark – price and performance parity with conventional energy sources and in particular with fossil fuels. They add that to do so, they need to scale.
One of the key advantages of SMRs, large-scale factory production, can exploit economies of scale and can also lead to faster production but the authors posit that the question is how to get there, and the role the US government should play in achieving that.
The technology development route
The report, titled ‘Small Modular Reactors: A Realist Approach to the Future of Nuclear Power’ notes that technology development broadly follows a four-phase pathway: initial basic and applied research that leads to a prototype; testing and further development leading to a fully complete design; first-of-a-kind deployment demonstrating the feasibility of scale up to commercial size; and, the scale-up phase in which multiple copies are produced and sold, allowing costs to fall. For SMRs scale-up requires settling on a design, developing a fully functioning factory, and building an order book deep enough to support production at scale.
Today, large reactors have reached the scale-up phase but have largely stalled there, and show no sign yet of successfully reaching P3. There are simply not enough orders in the United States to generate sufficient scale economies. The authors suggest that while proponents hope that a coalescence of orders around the Westinghouse AP1000 design (a standard model for large reactors) will get large reactors to scale, that seems unlikely. SMRs are at a much earlier stage, only now reaching the end of the testing and further development phase, with leading-edge designs preparing for first-of-a-kind deployment in the United States and elsewhere.
As a result, the question of whether SMRs will crack the scale-up problem remains unknown and will remain so for at least a decade. Nonetheless, the report concludes that, unlike large reactors, there is a greater possibility that SMRs will indeed scale, costs will fall, and P3 will be achieved.
The SMR risk challenge
Expensive new technologies that will take a decade or more to reach scale (if they ever do) are very high risk, and SMRs face four distinct kinds of risk: Technology risks; Market risks; Regulatory risks; and, Political risks. It is therefore not surprising that derisking has been at the heart of policy discussions exploring how can governments mitigate or perhaps even eliminate these risks in ways that don’t simply shift them entirely onto the backs of taxpayers?
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By GlobalDataFinancial risk mitigation means finding ways to share risks between different stakeholders, including vendors, constructors, utilities, lenders, ratepayers, large end users, state and local governments, and national governments. In the United States, funding comes from three primary sources: government grants for research and development (R&D) and eventually deployment; tax credits for either investment or production (Investment Tax Credits (ITC)/Production Tax Credits (PTC), with the latter currently set at $30/MWh; and, potentially, loan guarantees from the DOE’s Loan Programs Office (LPO).
Other countries are using or exploring quite different approaches. The UK government, for example, is exploring rate-asset-based support, where ratepayers are required to pay a contribution during the construction period rather than just paying for electricity. In Finland, cooperative structures link vendors, construction companies, utilities, and large end users. In several European countries, Contracts for Difference (CfD) provide flexible operating subsidies that are tied tightly to market conditions, offering government subsidies where operating costs are higher than market prices. Many governments have provided loans at below-market rates, while in Asia in particular, China has offered very attractive funding packages for new nuclear plants. The United States could clearly benefit from reviewing these options in a systematic way and aligning them with a much stronger emphasis on P3 assessment.
On the demand side, risk mitigation usually involves a long-term power purchase agreement (PPA), which are effectively mandatory for large reactors and will likely be mandatory for large SMRs, for the same reason. Microreactors of 20 MW or less may however be different – the amounts at stake are smaller and some microreactor companies aim to build and operate reactors themselves, simply delivering energy to clients.
Mitigating non-financial risks is also important. In the US technological risk is being mitigated by the close alignment between SMR companies and the National Labs – Idaho National Laboratory (INL), Oak Ridge National Laboratory (ORNL), Pacific Northwest National Lab (PNNL), and Argonne National Laboratory (ANL) – which have facilities that can be shared by different SMR companies both at stages of R&D and later in preparing designs for NRC certification. This is an important building block and it would be devastating over the medium term if this work were not fully supported.
There are non-financial production risks to consider also. For example, many SMR designs require enriched uranium fuel (High-Assay Low-Enriched Uranium (HALEU)), and that supply chain is both global and insufficient. DOE is working on this, but other companies will likely have to follow TerraPower and cut their own deals.
Regulatory risk is still substantial, despite recent efforts at NRC, where a new rulemaking aims to provide an optional alternative path for safety and operational certification for advanced reactors. This pathway will not be operational until at least 2027 though. More worrying, there has been no public discussion of a pathway for iteration and tweaking, or even full-scale pivots. Regulatory risk is not limited to NRC either: the National Environmental Policy Act (NEPA) plays a significant role in delaying infrastructure projects although fairly radical amendment is increasingly likely. State policy too impacts deployment, although anti-nuclear feeling is reversing, and this is being reflected in changes in state regulations for nuclear. Other regulatory concerns include SMR transportation and siting as well as waste streams, all of which are in some state of flux.
Government action and the pathway to P3
Based on their analysis, ITIF concludes that the US government has plenty still to do to support SMR development. Key recommendations include:
- Expanded funding for basic and applied research. The Advanced Reactor Demonstration Program (ARDP) has clearly been successful in supporting SMRs. Early funding is critical and the discovery phase for this technology will require significant help in the form of grant funding and access to National Labs expertise and capabilities.
- Testing, certification, and further development. New nuclear technologies are a decade or more from deployment at scale and federal funding in the form of matching grants will be crucial, as will access the National Labs and support for the regulatory pathway.
- First-of-a-kind commercial deployment. Office of Clean Energy Demonstrations (OCED) funding will be absolutely critical for SMR deployment. The ITIF report strongly recommends that OCED be reset to focus only on technologies that have reasonable prospects of reaching P3, but that support should be renewed and possibly expanded.
- Scale-up. Here too existing mechanisms will play a key role. The LPO should also be reoriented, mandated to focus explicitly on scaling up promising new technologies that are within reach of P3. It should avoid funding projects on either the supply or demand side that have no pathway to sustainability, and subsidies should be explicitly designed to support projects in reaching scale and hence P3. Subsidised loans and tax credits are, however, not the only mechanisms available; the administration should explore multiple alternatives including, for example, risk tiering, the use of CfD, and vertically organised consortia.
The report concludes that regulation is key to SMR success and the NRC must both find ways to reduce the time before designs are certified and develop ways to support SMR design iteration. Distinguishing between iteration that has safety impacts and those that don’t will be central, and NRC will also have to make significant strides in certifying factory-built reactors and new approaches to waste management and transportation. SMRs will also need resolution of the current problems with interconnection. Finally, international regulation matters; SMRs must work within global markets to achieve scale, so DOE should work to align certifications and safety with other regulators.
Given that SMRs are a promising technology with the potential to reach P3, which the authors contrast with standard large nuclear reactors, they argue that the DOE should therefore focus its nuclear resources primarily on SMRs.
