Accelerating Commercialization Through Incentivizing On-Time Nuclear (ACTION)

Executive Summary

Nuclear energy plays a critical role in achieving national energy security, meeting clean energy goals, and fostering technological innovation. However, nuclear projects have historically experienced schedule delays and cost overruns, often tied to high financing costs. To address these challenges, this proposal recommends a Milestone-Based Financing Incentive Program administered through the Department of Energy’s Loan Programs Office (LPO).

Addressing Project Risk

Nuclear energy is an important source of clean firm energy that the nation needs to ensure energy security, meet increasing demand from strategic sectors such as AI, promote national security, and compete internationally. Cost overruns at recent projects, namely Vogtle Units 3 and 4, have fueled skepticism about the feasibility of deploying nuclear energy projects on time and on budget.

Unforeseen challenges or problems that may arise during the construction process are typically addressed with contingency costs. These costs are typically included in the initial budget to provide a financial buffer, as a portion of total costs, against unexpected issues encountered during construction. This decreases the financial risks associated with such uncertainties, serving as a partial warranty against budget overruns and delays. Contingencies have not been sufficient to mitigate project costs for multiple reasons. Contingency costs address the symptom (i.e., an overrun), not the cause of the overrun. Developers are incentivized to reduce contingency costs as much as possible to reduce overall project costs, which drives them to shift or pancake risks on other stakeholders. The result is that the overall costs and the likelihood of failure increase. Causes of project delay and failure are due to systemic project management and planning challenges, or external factors out of the developer’s control, not component-specific problems and rework that contingencies are designed to address.

The delays and cost overruns in nuclear projects stem from decades of not building plants. This gap eroded supply chains, workforces, and institutional knowledge that once kept costs low and timelines on track. Without consistent follow-up orders, the industry lost economies of scale and efficiency, driving up costs and slowing deployment. These challenges have made buyers hesitant to be first-movers and created financing challenges for buyers who are willing to be early adopters.

Looking backward does not provide sufficient clarity on what is needed to jumpstart new construction. Timeline projections, MOUs, and non-binding commitments for new nuclear projects so far have been insufficient to instill confidence in buyers, public utility commissions, and financing decision-makers within the current landscape. Without the demonstration of on-time and on-budget projects since Vogtle, little has changed to assuage first-mover risks, apart from substantial government grants for FOAK demonstrations.

A cohesive national and state-level nuclear deployment strategy does not currently exist. Without a strategy, it is not realistic to have a federal program that covers all of the project risk or simply reimburses developers for all of the overrun costs. Even if there was a national strategy for deployment, state-level PUCs would decide how regulated utilities, and ultimately rate-payers, absorb an overrun. There are risks inherent in every investment. That does not mean risks cannot be mitigated; a build-own-operate model coupled with a PPA, or delivery of a turnkey completed plant to a buyer, can avoid project risk for a premium cost. However, a program that guarantees a utility will be “made whole” under any overrun scenarios cannot exist given the current electricity market, the financing of the nuclear projects, and the limited budget of the federal government.

Appropriate project planning and investment in resources upfront are essential to address the key drivers of delays, uncertainty, and inefficiencies. However, that level of up-front project planning is expensive, difficult, and often sidestepped without a firm order, particularly for projects that require large capital investment in the early stages. Government support is vital to restoring industry confidence, streamlining deployment, and building a robust order book within today’s environment by focusing on the cause of challenges, not the symptoms. Contemporary industry challenges call for incentivizing investment in appropriate early planning and consistent project execution to create confidence that the project will be delivered on time.

Proposal

To accelerate American nuclear energy development, the status quo will not suffice; action must be taken. There have been many attempts to reignite a nuclear renaissance; many of them have been haphazard or ill-timed. This proposal brings together the best ideas from what has worked in the past and coalesces them into a unified approach, drawing not only from the nuclear industry but also from other infrastructure projects, government programs, and financial arrangements. The result is a novel approach that encourages the construction of new nuclear and incentivizes the on-time and on-budget completion of nuclear projects through a single mechanism. The proposal does not initiate direct outlays of public funds to developers or require mandatory spending. Furthermore, the program could be implemented with a smaller budget than the one modeled in this proposal and then scaled over time.

Through new legislation, the government should create a milestone-based program for advanced nuclear energy projects that incrementally reduces interest rates through credit subsidies when project milestones are achieved on time. When developers achieve milestones, they tangibly demonstrate lower project financial risk, justifying a reduced interest rate than initially estimated. Under this program, nuclear developers who meet technology-neutral milestones within specified timeframes will be eligible for a 25 basis point interest rate reduction after each milestone. The program utilizes four milestones total for a maximum 100 basis point reduction. The resulting lower cost of capital provides a strong financial incentive for on-time project delivery.

This approach would:

• Incentivize on-time and on-budget projects that can save up to $780 million on nominal project finance costs.

• Achieve scale to reach commercialization by supporting over 25 projects simultaneously.

• Efficiently leverage government funds for large project impacts.

• Enable economically sound projects and incentivize developers to meet deadlines. Exceeding project timelines due to delays contributes to the two largest drivers of cost overruns - ballooning finance and labor costs.

• Mitigate risks and costs for taxpayers by allowing for a diverse portfolio of designs, projects, and technologies while significantly lowering project costs for buyers, utilities, and developers of all sizes.