Two years ago, some thought that the nuclear energy had been leveled. But the industry today is picking up steam by getting construction licenses to build four new units and by getting government funding to develop smaller nuclear reactors that are less expensive and which may be less problematic when it comes to winning regulatory approval.

The creators of those roughly 100-megawatt electric modules want to sell their products first in this country before they would market them overseas to lesser-developed nations that don’t have a huge transmission infrastructure. They would be factory-built before being shipped and fueled to where the energy is needed. To the extent that more electric generation is required, no problem: Just lay the small-scale modules next to each other, making the financial outlays more manageable.

“Restarting the nation’s nuclear industry and advancing small modular reactor technologies will help create new jobs and export opportunities for American workers and businesses, and ensure we continue to take an all-of-the-above approach to American energy production,” says Energy Secretary Steven Chu.

To that end, the Obama administration is partnering with Babcock & Wilcox and Bechtel to develop those smaller nuclear reactors for the federally-owned utility Tennessee Valley Authority. The Department of Energy is expected to invest about $450 million in the project, which equates to roughly half of the overall cost. Industry will pony up the other half.

Babcock builds smaller nuclear units of 100 megawatts, which can also be aggregated together to supply as much power as a base-load nuclear generator, or 1,000 megawatts. The modules are stored underground.

Christopher Mowry, president of Babcock, says that TVA should expect to have those units running by 2020. Beyond the federal wholesaler of electricity, he says that other potential clients exist: smaller utilities that can only afford to make “bite size” investments in nuclear energy that include the electric cooperatives and municipalities.

“I’d like to rebuild the United States first and then sell oversees,” says Mowry, who spoke with this reporter.

Smaller nuclear units are just as viable in other nations where the transmission grids can’t handle larger generation. Once the concept is shown to be feasible, the developers can then build on the smaller facilities to form a larger base-load plant.

Currently, 104 nuclear reactors are located here in the United States. But half of them are nearing their retirement, although regulators will likely extend their lives to meet an expected increase in electricity demand. Southern Co. and Scana Corp. have gotten federal regulatory approval in the last year to expand their existing nuclear campuses.

Smaller reactors, though, have a place: They might not only serve niche markets but they could also replace at least some of those bigger and more centralized nuclear generation.

The right-sized reactors are expected to operate at high efficiencies and to have built-in advantages, ultimately giving those investments a respectable return. Such units, for example, generally come with a nuclear waste storage containment device. The facilities could also be used to create drinkable water supplies in those countries where such a resource is in short supply.

According to the Sandia National Laboratory, these smaller reactors would be factory built and mass-assembled, with potential production of 50 a year. They would all have the exact same design, allowing for easier licensing and deployment than large-scale facilities. Mass production will keep the costs down to between $250 million and $500 million per unit.

“This small reactor … could supply energy to remote areas and developing countries at lower costs and with a manufacturing turnaround period of two years as opposed to seven for its larger relatives,” says Tom Sanders, who has been working with Sandia. “It could also be a more practical means to implement nuclear base-load capacity comparable to natural gas-fired generating stations and with more manageable financial demands than a conventional power plant.”

In the case of Sandia, the right-sized reactors would generate their own fuel as they operate. They are designed to have an extended operational life and would only need to be refueled a few times during its projected 60-year lifespan. At the same time, the reactor system would have no need for fuel handling, all of which helps to alleviate proliferation concerns. Conventional nuclear power plants in the U.S. have their reactors refueled once every 18 to 24 months.

The issue that manufacturers of small reactors have is that they are relying on the venture capital community to back their ideas. While they may be worthy, they must still endure years of regulatory scrutiny before they would get the permission to be built in this country. Investors don’t want to tie up their money for that long. That’s why the Energy Department is getting involved.

Consider NuScale: It says that by taking its smaller modules and ultimately forming a 540 megawatt plant that it would cost between $2.2 billion and $2.5 billion. That’s marginally less expensive than a traditional plant. At a few billion, the company says that utilities would not be taking the kind of risks they might otherwise be incurring if they were to build a larger $10 billion facility. For most companies, the amount of money is too great, especially in the aftermath of a recession, credit crunch and Japanese nuclear crisis.

“We saw the economic value of taking virtually the entire nuclear system, including its containment, to a factory where they could be manufactured under more controlled conditions,” says Paul Lorenzini, founder of NuScale, in a previous talk with this writer. He goes on to say that smaller units are extremely safe because they are immune from the type of events that occurred in Japan.

Right-sized nuclear reactors face the same financial and regulatory obstacles as do their bigger brothers. But if the smaller and scalable technologies prove effective, they will establish valuable niche markets for themselves not just among the TVAs of the world but also among those local utilities and less developed countries that need a clean and continuous source of power.

Ken Silverstein is editor-in-chief for Energy Central's EnergyBiz Insider and a contributor to Forbes, where this article originally appeared. Follow him at @Ken_Silverstein.

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