Nuclear has historically been very challenging when it comes to attracting to private investment. The solution is a recruitment campaign for the investment community, says Meera Kotak of Charles River Associates


Historically, nuclear has been quite challenging when it comes to drawing private investment. (Credit: Albrecht Fietz from Pixabay)

“Traditional nuclear is all about the cost overruns and the regulatory regime. It’s a risk problem,” explains Meera Kotak, Associate Principal at Charles River Associates Energy Practice. Considering the need for new nuclear capacity, the emerging rollout of small modular and advanced reactor technologies and the market for private investment those risks remain but given its early stage there are a lot of additional technology risks too. Addressing those risks is vital if nuclear is to attract investment and go on to meet its potential. It’s vital for us too given that nuclear is central if the world is to meet its emissions reduction targets.

“We’ve been working with utilities to think about that question of how do they invest in nuclear, what role do they play and how do they de-risk a project? One idea is this approach of having a champion that can make a market. It could be a developer but more likely it’s going to be either a large utility or an off-taker that’s a sizeable off-taker,” says Kotak.

She cites recent moves by Dow and X-energy to advance efforts to deploy advanced small modular nuclear reactors at an industrial site under the US DOE’s Advanced Reactor Demonstration Program. In March, Dow and X-energy signed a joint development agreement to develop a four-unit Xe-100 facility at one of Dow’s US Gulf Coast sites. However, while energy-hungry commercial enterprise is clearly a suitable candidate to champion SMRs and advanced reactors, other interests also have a role to play. “You see governments and utilities playing a bigger role in that de-risking process. That could be around the technology, it could be around having the right off-take agreement in place, it could be about having the licensing process streamlined, things of that nature,” says Kotak. She refers to places like Poland, the Czech Republic and Canada where governments are stepping in to support development of advanced reactor technologies. However, when considering SMRs and advanced reactors one element of the technology risk concerns the multitude of different designs that are currently being mooted. “There are over 80 different technologies being bandied about. Some of them won’t make it past the design stage and some will go all the way through and become major businesses. It’s understanding which ones will make it through which ones won’t,” adds Kotak.

The Nuclear Energy Agency (NEA) has deployed a Small Modular Reactor dashboard which includes an analysis of 21 SMR designs and the progress towards their deployment and commercialisation. The dashboard looks beyond the technology readiness level and assesses progress across six additional conditions including licensing readiness, siting, financing, supply chain, engagement and fuel. CRA offers a similar readiness dashboard, the S mark, which also supports de-risking of SMRs and advanced reactor technologies. “We looked at the full spectrum of risk from technology to supply chain to licensing to TRLs and so forth and we filter down to the top 15 or 20 technologies that are the most promising across the world in terms of an investment perspective,” explains Kotak.

Taking a lead on investment

While external influences like government and industry clearly have a major role to play in de-risking investment, Kotak argues that the industry itself can do more too. “Looking generally across the nuclear sector we think the different players within the industry can have their own role to attract more investment. Looking from an operator perspective, they have a lot of experience in traditional nuclear but they can leverage those learnings across other nuclear technologies even though there are different construction timelines and different sorts of risks associated with advanced reactors there are also a lot of synergies. That reduces those risks upfront, mitigating the construction risk for example or lessening the construction time, which of course is more palatable from an investment perspective.”

Furthermore, Kotak says, operators can also optimise their existing customer relationships by identifying those that could benefit from, for example, process heat on existing sites: “Thinking slightly outside the box can move forward the discussion on how investment can be attracted by reducing those upfront costs and risks which traditionally have been the stumbling blocks to getting investment.”

Kotak continues: “It is really important to understand the needs of the customers. They’re going to sign up for this. If it’s a utility just looking for power that’s straightforward, but if it’s an industrial operator, they may want heat as well. Those considerations come into play. You have to look at the whole value chain to see what’s needed and then from that look at the right technologies that will fit those needs. Once you have that it’s about trying to think about what’s the lowest risk solution that’ll meet those needs.”

“I think that’s really how this champion concept is a future way of being able to de-risk but also attract more investment because it enables the OEM, such as GE Hitachi, to have that operator-developer-customer lens all in one. Knowing what those connection points are is how a lot of the problems that we’re seeing with large-scale capital and infrastructure-intensive projects is how the process can be simplified to reduce cost,” she adds.

Kotak also references the role of the government in supporting additional investment: “The final player that we see within the nuclear sector and having a known role in attracting more investment would be government bodies.”

However, even where governments are encouraging investment some reform is needed to ensure that technologies and designs can not only keep up with the pace that’s needed for nuclear to remain a key part of the transition, but also for investors to recognise that there is state or central government backing and that their investment in that is also considered.

“That’s something that we have seen work well in countries where private investment has been stimulated because of central government backing and funding, for example with Poland and its nascent nuclear market. They’ve got a lot of private investment now because of government steps to reduce the complexity of regulation, enable commercial frameworks, sign binding relationships with established players. Looking at it from the regulatory perspective is also helpful when thinking about how we can encourage more investment. The current regulatory process is very drawn out and it’s not conducive to attracting investment,” says Kotak.

Furthermore, Kotak contends that there is ample evidence of an industry champion being key to a successful investment and development strategy for nuclear. “When we look at the success stories it really is where you see these partnerships and champions. In Canada, GE Hitachi is closely working with OPG and the government, almost as a partner rather than a vendor, which you also see a lot in the US. Some of the troubles that some of the developers are having is because they’re on their own in some ways. They’re fighting the government and the off takers over costs and things of that nature, rather than working together,” says Kotak, adding: “Launching new technology, the vendor has traditionally taken on a lot of the risk of early units in close partnership with the customer and the off-taker to make those projects happen.”

Getting government on board

A major investment risk for nuclear projects is the regulatory environment. As Kotak says: “Nuclear faces so much more scrutiny than any other technology. These regulatory processes are looking for 100% safety and that’s not just very costly, but adds complexity because if one government asks for one thing, another government will ask for that thing plus something else. So instead of having standard requirements when you have more than one regulatory agency in the picture it is actually worse because then you have the worst of both.”

She argues that having government investment, not necessarily in terms of money, but in terms of leadership, is key to addressing those kinds of investor concerns:

“If we think about the three buckets of risk in construction, having more than a verbal promise and an actual investment mitigates that first step in terms of the design development and the licensing. Certification is part of the process that isn’t actually anything to do with the commercialisation or the deployment of the reactor. It actually distracts from what is needed and I think it’s getting it to the point where they [governments] have a stake in the ground as well. if we are going to actually see nuclear getting to the heights that it has the potential to, these localised regulatory hurdles do need to be mitigated and perhaps there is some benefit in looking at how other industries have been able to do that, like aviation. Leveraging learnings from other industries that might deal with some of the same complexities or risks and are also global is another way of looking at how players can actually progress and not impede progress,” says Kotak.

A strong message for governments looking at expanding nuclear capacity would be to deliver the same regulatory coherence which exists in aviation and which is conspicuously missing from the advanced and SMR sector. “There’s probably some technology consolidation that needs to take place too,” notes Kotek. “There’s just too many different designs and that adds complexity too. The regulator has to examine 80 different technologies and they all have different approaches. This is a nightmare and having fewer technologies is probably something that’s going to need to take place as well.”

Value added factors

“In the beginning of the nuclear build out people talked about electricity being too cheap to meter. They said that because it was actually really cheap,” says Kotek. Certainly, there are reactors built in the 1970s and 1980s that are still running and for a fraction of the cost of just about any other form of electricity generation that is available today.

Kotek continues: “They’re really reliable, safe and they’ve been running for 50 years or more. We somehow lost track of that and the rise of all the clean energy sources like wind and solar have now created a stronghold. Actually though, when you look at the sustainability advantage of nuclear it is more favourable, yet we’ve added in these complexities and these layerings that are inhibiting its development. We are not only making it more expensive but actually, we’re missing out on some key sustainability advantages as well,” says Kotek.

Nonetheless, considering what is required to meet the 2°C scenario from the Paris agreement, the amount of solar, wind, batteries and EVs and the associated nickel, copper and lithium materials that are needed and all the mines that need to be developed too it is clear that nuclear must be part of the solution.

“If you look at where things are today and where they need to be in 10 years we’re just nowhere near. So there’s going to be a reckoning at some point. Nuclear is potentially a backfill for some of the challenges that we’re going to see in the medium term on the renewables front. We haven’t really hit it yet but we’re starting to feel it in the EV world where the battery supply chain issues are real and it’s around the materials supply chain.

There is going to be a more pressing overall drive for alternative technologies and we really mean nuclear if we mean low carbon,” says Kotek. She adds: “It’s not to pit nuclear against renewables. It’s more that renewables may not be able to get there in time because of the mining issues. Again, it’s a risk management issue given the obvious resource risk for renewables. If you were an investor and considered the technical risk of choosing one technology over another maybe they’re not considering there are other perhaps pressing risks that are associated with other technologies,” says Kotek.

Considering the complexity and the sheer volume of different technologies it’s very difficult to unpack all the issues and to see across the value chain where the pain points are. However, Kotek argues that a lot of activity in the small and advanced nuclear sector reflects this realisation that nuclear is going to be needed to transition to a low-carbon energy scenario. “My personal view is that nuclear has to play a part and there’s no way around it,” she says.

Turning to the messaging for investors about how to address some of these risks, she emphasises the commercial risks and ways to mitigate those risks by, for example, having a champion who would partner with developers to provide a ready market but also work with them in the development process and ease that process to reduce the construction development risks, but she also highlights the role that investors themselves can play: “This is all from the perspective of what investors need to feel more comfortable with making a large investment in nuclear. But investors can also have a voice to rally behind these points. A lot of trends that we were starting to see are because of the Russia-Ukraine war in terms of increased policy support like the US Inflation Reduction Act. So, the foundations are there for investment and now maybe it’s also on the investors to say what do they need to be able to make a comfortable decision. They need that de-risk and more of these tangible measures like having the regulatory licensing process paid for, but I think it’s also a point for them as well to shout a little bit as to what is needed to de-risk.”

Her key message: “An advanced nuclear rollout is not a ‘nice to have’ it’s a ‘must-have’ if we’re going to have an energy transition that works in any timeline that makes sense for climate. There’s a real need for this and investors should think about that and ultimately how the scale of this is going to increase.”

This article first appeared in Nuclear Engineering International magazine.