The US government and investors have made a $9bn gamble on small nuclear reactors to power the AI boom and lower emissions — but experts warn the technology could prove too costly to be viable.
Data compiled by the FT shows that since 2019, government agencies including the energy and defence departments have committed over $6bn to developers of small modular reactors (SMRs) through awards, loans and cost sharing agreements.
Private investment has also soared, with over $3bn raised in the same timeframe.
The technology promises a one-stop solution to data centres’ power needs by providing clean, reliable and cheap electricity for companies to train and run their AI models. Investor enthusiasm has lifted the share prices and valuations of companies with little or no revenues or operating projects.
“There’s a lot of cheerleading happening, but the amount of capital that you need to cross the finish line is huge,” said Chris Gadomski, head of nuclear research at BloombergNEF, which estimates data centre power needs will more than double by 2035.
“What I see happening with SMRs and data centres reminds me of the internet boom and bust of the early 2000s.”
Small modular reactors generate up to 300 megawatts of power each — a fraction of the roughly 1,000 megawatts produced by reactors at utility plants like Georgia’s Vogtle, the largest in the country.
But questions linger over whether the technology can produce electricity which is cost competitive with bigger nuclear plants, renewables and natural gas.
Past efforts to build SMR projects in the US have been plagued by delays and cost overruns.
In 2023, NuScale — which has a design approved by US regulators — was forced to cancel a project after costs ballooned more than 120 per cent. The three operating SMRs worldwide, which are located in Russia and China, exceeded their original cost estimates by 300 to 400 per cent.
Estimates of SMR’s “levelised cost of energy” — power cost that should be charged for the project to break even — produced by independent analysts and the companies themselves vary significantly.
According to data from Wood Mackenzie, by 2030 SMRs should generate power at $182 per megawatt hour compared with $133 per megawatt hour for conventional nuclear.
Natural gas is expected to sit at $126 per megawatt hour, while onshore wind and solar, backed up by battery, are projected to be around one-third less expensive.
According to Oklo, the SMR developer backed by Sam Altman and energy secretary Chris Wright, its technology will generate power for $90 per megawatt hour, while NuScale says its power cost is $64 per megawatt hour.
Some nuclear engineers say larger reactors are cheaper to build, citing the greater need for steel, concrete, safety systems, cooling pipes and sensors required for multiple smaller units.
“There are many companies that think if they go Henry Ford and build an assembly line, everything will be cheap,” said Nick Touran, a nuclear engineer and consultant. “There are massive economies of scale that they’re neglecting.”
Supply chain bottlenecks also weigh heavily on reactor costs.
Most SMRs are designed to use high-assay low-enriched uranium, a denser fuel than what is used in larger reactors. Since its production is dominated by Russia and there is only one plant in the US licensed to produce at scale, companies are reliant on government stockpiles.
“We need the supply chain to be built out,” said Dimple Gosai, head of US cleantech and sustainability equity research at Bank of America, who estimates that elevated fuel costs could add up to $20 per megawatt hour to developers’ power costs.
However, advocates say the cost of SMRs will track downwards over time.
“Any first plant will have challenging economics,” said Simon Irish, chief executive of Terrestrial Energy, which says its power cost is $69 per megawatt hour. “But from there we roll downhill.”
Valar Atomics founder and chief executive, Isaiah Taylor, said SMRs’ lower safety requirements enable cost savings. “If you start small, you have intrinsic safety, which you can use to make it simpler and deploy a lot faster,” he said.
Others point out that although its supply is stretched, uranium prices are less volatile than natural gas.
“You get a more stable and predictable 60-year price on a nuclear plant,” said X-energy chief executive J Clay Sell.
SMR companies are increasingly signing power supply deals with utilities and tech companies, with over 32 gigawatts of commitments since 2023.
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Some deals, such as one between Google and Kairos, a reactor developer, for the latter to provide 500 megawatts by 2035, are binding agreements, but most are exploratory agreements.
Still, even nonbinding deals are a “significant step forward”, says David Brown, director of Wood Mackenzie’s Energy Transition Practice, since investors are warier of nuclear than other technologies and offer developers higher interest rates.
“It’s a big vote of confidence in the sector and shows there’s a path to commercial viability.”
