How to Harness Small Modular Reactors for a Greener Future

The Global Stocktake in Dubai at the 2023 United Nations Climate Change Conference (COP28) witnessed a landmark decision. This crucial assessment under the Paris Agreement recognised nuclear energy as a versatile technology for achieving global net-zero emissions targets. This consensus, agreed by over 195 countries, underscores the growing international acceptance of nuclear energy as one of the solutions against climate change. Over 20 countries at COP28 committed to tripling nuclear power generation during the next 25 years to emphasise their decisive posture to accelerate decarbonisation. This ambitious goal will likely be manifested through advanced technologies like small modular reactors (SMRs) and microreactors. These configurations promise to offer greater flexibility and potentially faster deployment.

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SMR and Its Advantages

SMR is a novel and pragmatic approach to nuclear energy generation. SMRs’ modular design facilitates efficient factory fabrication and transport, enabling streamlined site construction. With up to 300 MW(e) capacities, they exhibit versatility across diverse reactor technologies like water-cooled, gas-cooled, liquid-metal-cooled and molten-salt designs. SMRs promise enhanced safety, increased deployment flexibility and potentially reduced capital costs compared to conventional large-scale nuclear power plants. Thus, they can cater to various niche applications, such as replacing carbon-based fuels in difficult-to-access locations, managing the stability of renewable energy grids, powering marine propulsion, etc. SMRs can help the industrial sector decarbonise as they can be configured to provide low-carbon thermal energy and pink hydrogen.

Recognising these strengths, private and public sector players express renewed interest in committing to SMRs. Economies of scale backed by growing demand promise to drive further innovation, with over 70 SMR designs currently under various stages of development globally, as reported by the International Atomic Energy Agency (IAEA).

SMR Adoption: Scale Up, Costs Down

A McKinsey report suggests that up to 800 GW of new nuclear capacity may be required to achieve the world’s net-zero targets. However, the most important and widely accepted metric on which the acceptance of SMRs will hinge is the levelized cost of electricity (LCOE) calculated over a plant’s lifetime since its construction. Legacy nuclear facilities have high initial capital expenditures associated with the construction phase. However, SMRs, by design, should be modular and suitable for standardised assembly-line manufacturing in a factory setup. Hence, the costs are expected to be significantly lower than conventional nuclear facilities. This development approach will also help optimise the logistics of raw materials and ensure shorter commissioning timelines. Learnings from other industries, such as oil & gas, shipbuilding and aerospace, can be considered to seize opportunities for cost reduction as economies of scale kick in. As per IAEA, LCOE of SMRs will achieve cost parity with large nuclear power plants when the world reaches a threshold of 5 GW of deployed capacity and manufacturing capability of about a dozen SMRs per annum.

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Commercial Feasibility

From the demand side, power offtake agreements with data centres, artificial intelligence (AI), and cryptocurrency service providers are low-hanging fruits that justify the viability of SMRs. As additional design features, SMR should be versatile enough to offer agility to accommodate requirements emanating from power grid companies (load management), district utility agencies (heating), water suppliers (desalination), cement/chemical industries (hydrogen), etc. Such services are not captured as a part of LCOE but can contribute towards achieving a faster break-even for SMRs.

Managing the Tail Risk

The modular nature of SMR facilitates phased investments, enabling flexible capacity expansion and potentially attracting investors seeking greater flexibility. However, securing financing for nuclear projects is a significant challenge. High capital intensity (per unit), tail risk (potential liability claims arising from nuclear damage), adverse public perception, intricate regulatory oversight, inherent country-specific risks and still a loss-making business deter most investors.  In addition, the early stage of adoption of SMR, 70-odd prototypes developed across the globe, and high R&D cost make the business warrant investors with a long-term horizon and significant appetite. However, corporations, Venture Capital firms, and Private Equity firms are willing to take the bet.

Here, the intervention of governments is crucial to accelerate the adoption of SMRs. Governments are best positioned to take care of certain risks, which the private sector cannot. They can manage tail risks (by safeguarding nuclear-specific risks), address public perception risks associated with nuclear technologies, and minimise regulatory flip-flops. Besides, government grants in the early years of SMR development will be crucial to attract private investors as the benefits of technology diffusion are very high in the early-stage development of any technology, which discourages private investors from investing at a very early-stage technology. Additionally, the government must facilitate an ecosystem to channel pre-seed and seed capital for supporting Research and Development, demonstration, and scale-up. For SMR technology, which is close to commercial viability, governments can explore the regulated asset base (RAB) model and contracts for difference (CfD) – these models are used in various clean energy technologies to offer a stable revenue base to companies, which is essential to attract investments.

SMR can be a reliable, affordable, clean, safe energy source and accelerate net-zero transition. Governments must foster policy environments that accommodate nuclear energy within the low-carbon solutions umbrella to boost SMR deployment.

(Prasad Ashok Thakur is an alumnus of IIM Ahmedabad and IIT Bombay and Labanya Prakash Jena is a climate finance expert.)