Advanced Nuclear Energy Is In Trouble

Earlier this month, NuScale, the first company to receive a design certification from the Nuclear Regulatory Commission for a small modular reactor, announced that it was canceling its longstanding deal to deploy its first reactors to serve UAMPS, a consortium of small electricity cooperatives in the intermountain West, due to escalating project costs. The NuScale announcement follows several other setbacks for advanced reactors. Last month, X-Energy, another promising SMR company, announced that it was canceling plans to go public. This week, it was forced to lay off about 100 staff. In early 2022, Oklo’s first license application was summarily rejected by the Nuclear Regulatory Commission before the agency had even commenced a technical review of Oklo’s Aurora reactor. Meanwhile, forthcoming new cost estimates from TerraPower and XEnergy as part of the Department of Energy’s Advanced Reactor Deployment Program are likely to reveal substantially higher cost estimates for the deployment of those new reactor technologies as well.

In the wake of these developments, there has been an understandable desire among many nuclear advocates to whistle past this graveyard, with advocates rightly pointing out that there are many promising advanced nuclear technologies and companies working to bring new reactors to market. You can’t score if you don’t shoot and the nascent advanced nuclear industry is planning to take a lot of shots on goal. But taken together, recent developments suggest that efforts to commercialize a new generation of advanced nuclear reactors are simply not on track.

There is broad public agreement among many parties that a new generation of nuclear reactors will likely be necessary in order to achieve both U.S. and global decarbonization goals. The Biden administration is set to announce an international commitment to triple global nuclear energy capacity by 2050 at the forthcoming COP28 meeting in Dubai.

But if advanced nuclear energy is ever going to deliver on its promise, policy-makers are going to need to make more serious commitments to commercialize them. That will require nuclear advocates, in both the industry and the NGO communities, to have an open and public conversation about the nature and seriousness of the challenges that the technology presently faces and what it will take to overcome them.

Prominent among those challenges are:

1. High Interest Rates and Commodity Prices

   The post-pandemic runup in both interest rates and commodity prices have been challenging for all capital-intensive clean energy technologies. Recent months have witnessed a slate of cancellations and bankruptcies for off-shore and on-shore wind. Even electric-vehicle manufacturers are facing serious headwinds. Upward pressure on material costs and higher finance costs for manufacturers, developers, and customers are slowing demand for all of these technologies. The increase in finance and materials costs for NuScale over the period between the launch of its deal with UAMPS in 2016 and its denouement in 2023 is instructive. Over that period, the U.S. Treasury prime interest rate more than doubled, to more than 8% from less than 4%. The price of steel almost tripled, to more than $650 a ton from less than $250 a ton.

   Absent a substantial shift in macroeconomic conditions, deployment of all capital-intensive low-carbon technologies will be increasingly challenging. Low interest rates, expansionary fiscal policy, and globalized supply chains have been underappreciated factors in the growth of clean technology since the 2008 financial crisis. Tax credits, clean energy standards, and loan guarantees, along with implicit reliance upon low-cost production in China, have been the primary tools that policymakers have used to drive clean tech expansion.

   It is unclear in the current environment that these policy levers will be sufficient or that the latter reliance on Chinese supply chains is politically viable. Already, during the Trump years, Terrapower and a number of other nuclear developers concluded that developing their technologies in China was no longer a viable option as economic and political tensions between the U.S. and China rose. Solar, battery, and other cleantech sectors are facing similar issues today.

   For nuclear energy, the present challenges resulting from rising commodity prices and interest rates are further amplified by the regulatory environment. Simply licensing a new reactor has typically taken well over a decade, which exacerbates financing costs when interest rates rise. And regulatory restrictions deeply constrain supply chain flexibility.

2. Constrained Supply Chains

   The big runup in steel prices that occurred while NuScale was attempting to secure regulatory approval for its design don’t fully reflect the supply chain challenges the company faced. NuScale couldn’t just go out and solicit competitive bids from many different vendors for critical components for its reactor design. That’s because all key components for nuclear reactors need to be nuclear certified.
   

   A nuclear developer can’t simply go and source a pressure vessel or steel cooling tubes or rebar for its containment structure from any vendor around the world who can produce them at the lowest price. The materials used in a nuclear reactor need to be tracked from the mine head to the forge or manufacturer, manufacturers of components need to be certified to stamp components for use in nuclear reactors by the American Society of Mechanical Engineers (ASME), and the manufacturing needs to meet documented quality assurance standards monitored by the NRC.
   

   Some of these standards are clearly justified. A pressure vessel in a nuclear reactor, for instance, needs to be able to withstand higher temperatures and pressures than do pressure vessels used for many other industrial activities, and must receive a separate license to operate. But there is no particular reason that the rebar in a nuclear containment structure should be required to meet higher standards than the rebar in a suspension bridge or hydroelectric dam. Indeed, the consequences of structural failure are likely far higher in the latter two cases than for a nuclear plant, with many prominent examples.
   

   The nuclear risk exceptionalism implicit in the overuse of these standards has consequences for nuclear developers and, in the case of NuScale, resulted in greater cost escalation than would otherwise have been the case. There are only a handful of nuclear-certified heavy forging facilities globally that can forge a reactor pressure vessel, and NRC restrictions on many other components prevent NuScale and other nuclear developers from sourcing off-the-shelf components that are widely used for comparable industrial and construction applications competitively.

3. A Regulatory Regime That Penalizes Innovation

   Small modular reactors address a number of significant issues that have challenged efforts to deploy large conventional reactors in recent decades. Their smaller size makes them more suitable for project finance. This in turn, makes it feasible for developers to own and operate reactors and sell the power to utility customers in the same way that solar, wind, and gas plants do. Public support in the early stages of development can be delivered via tax credits rather than direct payments. Small reactors can be deployed in a variety of on- and off-grid contexts for which large, one gigawatt reactors are too large. And building many more small reactors enables economies of multiples versus economies of scale, allowing for technological learning via off-site manufacturing of many small reactors to drive down reactor costs.
   

   But all of those advantages evaporate if SMR developers are not able to benefit from the safety advantages of smaller and simpler designs. We have now witnessed two important use cases related to licensing small advanced reactors, Oklo and NuScale. In both cases, the NRC consistently rejected the safety benefits of smaller reactors, instead reverting to regulatory methodologies, standards, and design requirements established for large light-water reactors.

   In NuScale’s case, the company initially chose to license a small 50MW design that would be deployed in clusters of up to 12 reactors, not the somewhat larger 77MW that would be deployed in clusters of 6 reactors that is currently under review. NuScale had chosen to commercialize a 50MW design as its first-of-a-kind reactor because its smaller size allowed for a simpler design with a lower-rated pressure vessel and containment system.
   

   But despite detailed analysis by NuScale showing that the pressure vessel and containment system could withstand reactor pressure well beyond the latest ASME-certified design pressure standards, a series of NRC determinations, based on requirements for conventional pressurized water reactors that are typically 20 times larger, forced the company to upgrade specifications for components, including its pressure vessels and containment structures. These changes brought greater costs associated with these components, which are typically one of the most expensive parts of a reactor, because they require significantly more steel and concrete.
   

   Once the upgrade in components was required, the lower power 50MW design no longer provided any regulatory or cost advantage. NuScale attempted to salvage the situation by uprating its design to 77MW, to take advantage of the higher-rated pressure vessel and containment structure. But doing so would add another two and a half years to its licensing timeline, requiring the company to submit a new application to uprate the reactor after its original 50MW design had been certified by the NRC last January. The new application, which the NRC accepted for review this fall, will take at least an additional 24 months.
   

   In Oklo’s case, the company was attempting to commercialize a tiny reactor, nearly 1,000 times smaller than a conventional reactor, with a variety of passive and inherent safety features that would prevent the release of any significant radiological material into the environment in the event of even a worst-case accident. But the NRC rejected Oklo’s application, in part because its proposed methodology for evaluating the safety of its reactor did not specify requirements for the inclusion of specific components in the safety analysis, as is required for conventional reactors.
   

   Oklo had instead proposed a performance-based methodology that would only include components necessary to demonstrate that a reactor could meet NRC standards for the release of radiological material into the environment in the event of a design basis accident. Specific components would be included at the discretion of the developer, consistent with demonstrating that the design could meet NRC safety requirements with a significant margin of safety. As it happened, the NRC never evaluated the safety of this approach because the agency peremptorily rejected Oklo’s application based on methodological grounds before the licensing review ever proceeded to a technical review of the actual reactor design.
   

   Because it deviates little from the NRC’s currently established rules for licensing conventional reactors, the NRC’s new proposed framework for licensing advanced reactors, Part 53, would, if adopted by the commission, functionally codify much of the approach that the agency took to the NuScale and Oklo applications, making it extremely difficult procedurally and costly administratively for advanced reactor developers to license new reactors that take advantage of small, innovative designs.

4. Project Costs Versus System Costs

   One of the ironies of nuclear technologies is that they generally use significantly less steel, cement, and other materials per kilowatt hour of electricity produced than just about any other clean energy technology and yet they are more susceptible to inflationary pressures from material costs and interest rates than any other energy technology. This apparent paradox is evidence that nuclear costs are not intrinsic to the technology, as many nuclear opponents have long claimed, but rather are subject to a number of unique and non-technical obstacles that other technologies do not face.
   

   Regulatory pressures are one example. The NRC quantitative health standards for latent cancer risk associated with radiological exposure, for instance, are 100 times stricter than EPA standards for air toxin and air pollution exposure. But nuclear’s unique non-technical challenges go well beyond the regulatory arena. In electrical systems, nuclear must compete with both natural gas generation, which pays no cost for its carbon pollution, and solar and wind generation which pays no cost for its intermittency. Multiple studies have consistently concluded that when the full system cost and value of low-carbon electricity are accounted for, nuclear energy has a critical part to play. But in electrical systems that continue to rely substantially on fossil fuels, incremental additions of wind and solar are cheaper than nuclear, because substantial amounts of remaining fossil fuel generation can balance the system.
   

   UAMPS has always said that the alternative to the NuScale project is additional firm natural gas generation, not variable renewables. So, it is not accidental that in lieu of moving forward with the NuScale project, UAMPS announced that it would instead add new natural gas generation, with the fig leaf that it planned to co-fire the plant with 30% hydrogen. We will see if the hydrogen co-firing ever actually materializes. Most analyses find that doing so, given current hydrogen technology and production methods, is neither cost-effective nor emissions-reducing. But what is clear is that the alternative to nuclear in most power grids will either be marginal additions of wind and solar that can’t provide firm power or additional fossil fuel generation that is firm but polluting.

5. Fuel Production

   Since the 1990’s, the United States has outsourced much of its overall nuclear fuel production capability to Russia and all of its ability to enrich fuels to the levels that most advanced reactor technologies require. That short-sighted policy has come back to bite advanced nuclear commercialization efforts since the Russian invasion of Ukraine. Terrapower and X-Energy have both pushed back their licensing and commercialization timelines due to the lack of fuel availability. Congress has appropriated funding to rebuild U.S. fuel enrichment and production capacities, but not enough. The Department of Energy is soliciting proposals for new fuel enrichment capacity, but those efforts have been slow to ramp up and also lack sufficient funding.

Taken together, these developments suggest that current efforts are unlikely to be sufficient to deliver on the promise of advanced nuclear energy. Nuclear energy remains saddled with an outdated and radically conservative regulatory framework that substantially overstates the public health risks associated with nuclear technology while failing entirely to account for its public health and environmental benefits. It must compete in electricity markets that don’t value its benefits as a source of clean and firm power. Nuclear developers have little ability to control costs or innovate through their supply chains while a supply chain for enriched fuel for advanced reactors no longer exists. Meanwhile, policy support presently available for advanced nuclear commercialization is simply not sufficient for developers to build a real order book with enough regulatory and market certainty for private investors to stay the course over the multiple decades that it currently takes to develop, license, and commercialize a new reactor design and build up supply chains sufficient to scale production and drive down costs.

These challenges were daunting in the last decade. They are far more challenging, given today’s macroeconomic conditions. Nuclear advocates and the nuclear industry, in our view, have been far too sanguine about these challenges for far too long: in part because they have feared aggravating a notoriously capricious regulator, in part because they have not wanted to spook investors, and in part because many have not wanted to risk running afoul of congressional Democrats, who have been increasingly willing in recent years to spend public money on nuclear energy but less willing to tackle the party’s long-standing shibboleths around nuclear regulation and safety.

But the clock is ticking on advanced nuclear energy. Without a regulatory environment that rewards rather than penalizes innovation and allows nuclear developers sufficient flexibility to develop and manage supply chains cost-effectively, electricity markets that value firm low-carbon generation and commercialization policies that provide nuclear developers enough certainty to build out production capacity and supply chains sufficiently to achieve real technological learning, there is no reason to believe that advanced nuclear has much of a future in the coming decades.

Insofar as the forthcoming commission vote on Part 53 is determinative of the future of advanced nuclear technology, it is a litmus test of sorts for the commission, Congress, and nuclear advocates alike, a necessary but not sufficient step toward modernization of both the regulator and the industry. It will need to be followed by dozens of actions, large and small, consistent with commercializing and scaling the technology at both the regulatory and legislative levels.

Congress will likely need to explicitly establish in the NRC’s statutory mission and mandate that the agency must value in a serious way the benefits of nuclear energy for climate mitigation, improved public health, and energy reliability. It will need to insist that the NRC stop regulating epidemiologically unobservable radiological health risks. And it will need to insist upon commissioners, Democratic and Republican alike, who take that mandate seriously.

The NRC will not only need to revamp its licensing frameworks but also undertake a top-to-bottom review of the material and quality control standards it applies to nuclear components and supply chains. There is no reason that a small modular reactor should be required to meet the same deterministic standards intended for a one-gigawatt pressurized water reactor. Nor is there any reason that the rebar in a hydroelectric dam or suspension bridge is not good enough for a nuclear reactor, large or small. If the component or function does not require higher standards than necessary for similar industrial or construction applications associated with other sorts of critical technology and infrastructure, requirements for ASME certification and NRC quality assurance oversight needs to be eliminated, so that nuclear developers can access the same supply chains and off-the-shelf components used by all other industries.

Finally, Congress needs to get serious about providing real resources, in terms of advance market commitments, not just single demonstration projects, for advanced nuclear developers to build multiples of their initial reactor technology, not just one over-budget reactor. Technological learning requires replication and current efforts to commercialize advanced reactors are simply insufficient for there to be any reasonable expectation that they will result in economically viable and scalable technologies, versus one-off white elephant demonstration projects. There are multiple models for doing so, from Operation Warp Speed to NASA’s commercial space flight initiatives to current tax credits for carbon removal and hydrogen production, that offer significant incentives contingent on actually delivering a viable product.

So yes, there are other promising nuclear energy projects besides the NuScale/UAMPS project. Yes, advanced nuclear developers will need to take many shots on goal to succeed. And yes, some of those efforts, as with any new technology, will surely fail. But every nuclear developer in the United States and most other places faces the same impossible regulatory, supply chain, and market challenges today. And while you can’t score if you don’t shoot, it is also true that if the rules of the game are rigged against hitting the target, taking additional shots on goal is unlikely to bring a better result.

What should be clear at this point is that the failure of the advanced nuclear industry will have serious consequences for America's decarbonization and energy security goals while perpetuating substantial public health impacts from continuing dependence on fossil fuels. For these reasons, the cancellation of the NuScale project with UAMPS should be a wake-up call not only for nuclear advocates, the nuclear industry, and nuclear allies in both parties, but also for anyone who cares about mitigating climate change, increasing energy security, and improving public health.