Tag: nuclear

Project Financing and Funding of Nuclear Power in the US

The past several decades have seen minimal greenfield nuclear plant development in the U.S. Units 3 and 4 of the Vogtle power plant in Greensboro, Ga., came online in 2023 and 2024, respectively, representing the first new projects in nearly a decade. Since 1990, the only other project placed in service was Watts Bar Unit 2 outside Knoxville, Tenn., which is owned and operated by the Tennessee Valley Authority (TVA). Financing is one of the principal challenges that needs to be overcome for nuclear energy to realize its full promise and potential.

Chart of U.S. Nuclear Electricity Generation Capacity and Generation from 1957 to 2022

Financing Traditional Nuclear Projects: Cash (Flow) Is King

Non-recourse or limited-recourse financing for nuclear energy projects has been difficult to obtain. Traditionally developed nuclear generating assets are among the most expensive infrastructure projects. Typically in the range of approximately 1 gigawatt (GW) per unit, they are principally characterized by their technical and regulatory complexity.

Long and often-delayed permitting and construction lead to cost overruns, creating a highly unpredictable cash flow that may not be realized for 20+ years. Given the scale and capital investments involved in developing and constructing nuclear power plants, as well as the lack of greenfield development in the U.S. over the past three decades, there are few (if any) engineering and construction firms currently able to deliver projects on a lump-sum, turnkey basis.

A further complication to attracting private sector financing arises from the deregulated structure of power markets in many regions across the U.S. Debt financiers will typically look to predictability of future cashflows as a primary measure of assessing risk with any power project. For nuclear facilities in liberalized wholesale markets, this will often be difficult due to energy price fluctuations and the frequent absence of dedicated offtake terms.

Although nuclear power plants can participate in forward capacity auctions, these are generally conducted three years in advance with a limited capacity commitment period. Due to the aforementioned construction timelines, nuclear project developers are rarely in a position to bid on future capacity auctions prior to the commencement of construction.

The nature of funding required to build large-scale traditional nuclear plants severely limits – if not precludes – private investment . Governmental support has been provided in a number of different contexts. The Inflation Reduction Act (IRA) introduced a new zero-emissions nuclear production tax credit, which provided a credit of up to 1.5 cents (inflation adjusted) for projects that meet prevailing wage requirements.1 Further, the IRA’s transferability sections have allowed project sponsors the ability to unlock greater revenue streams.2 In addition to the tax credits, the IRA allocated $700 million in funding for the development of high-assay low-enriched uranium (HALEU), while the Infrastructure Investment and Jobs Act (IIJA) allocated funding for the development of modular and advanced nuclear reactors. A more direct form of project-level governmental support comes in the form of direct lending or loan guarantees. For instance, the development of Vogtle Units 3 and 4 received a $12 billion loan guarantee from the Department of Energy.

Permitting Reform Can Help

Ultimately, a stable and favorable regulatory regime would lower the discount rate and hence the required rate of return for nuclear power projects. The Trump administration has signaled its intention to promote the nuclear industry through a number of early executive actions, though legislation would likely be needed to create meaningful changes in this regard.

Notwithstanding this apparent support for nuclear energy, federal agencies have been ordered to pause the disbursement of funds appropriated under the IRA and the IIJA for at least 90 days, creating some uncertainty as to the status of funding for nuclear energy projects (as well as a broad range of clean energy projects) appropriated thereunder. Permitting reform and further funding to encourage greater development of nuclear projects receives strong bipartisan support, but is subject to delays if made part of a larger political compromise.

Permitting reform and further funding to encourage greater development of nuclear projects receives strong bipartisan support, but is subject to delays if made part of a larger political compromise.

Small Modular Reactors, Lower Hurdles to Financing and Deployment

In order to sidestep some of the technical challenges that have traditionally resulted in delays and cost-overruns, the nuclear industry has moved towards the adoption of small modular reactors (SMRs) as a means to lower delivery costs, and in turn, reduce financing hurdles. Based on the International Atomic Energy Agency’s definition, SMRs include units of up to 300 megawatts (MW) of generating capacity. There are numerous technologies currently competing under the umbrella SMR classification, but in general, these technologies allow generating assets to be largely fabricated off-site on a standardized basis, potentially reducing manufacturing costs and regulatory uncertainties, and hastening deployment of new technologies.

SMR financing is rapidly evolving. Since there are currently no operational SMR projects in the U.S., the first generation of projects to come online will require “first-of-a-kind” (FOAK) financing. This can be challenging for a number of reasons, as it will require financiers to accept the elevated risks associated with a commercially unproven technology. Government can and does derisk initial equity financing through loan guarantees and/or grants. In fact, we saw evidence of such this in 2021’s Bipartisan Infrastructure Law, in which the US Department of Energy announced $900 million in funding to support SMR deployment. Earlier this month, the TVA and American Electric Power (AEP) led an $800 million application with partners including Bechtel, BWX Technologies, Duke Energy to pursue advanced reactor projects. The substance of the proposals is to add SMRs at existing generating sites including TVA’s Clinch River site and Indiana Michigan Power’s Spencer County site. It is unclear if the Trump Administration’s funding freezes and priority changes will jeopardize disbursements from this legislation, but general support for the nuclear industry appears to continue.

Since there are currently no operational SMR projects in the U.S., the first generation of projects to come online will require “first-of-a-kind” (FOAK) financing.

Even without governmental support, innovative financing structures will be available to assist in the deployment of SMR projects. A number of companies developing SMR designs are doing so together with corporate customers that plan to deploy these reactors as sole-source providers for facilities such as AI data centers. With a dedicated power purchase agreement with a creditworthy offtaker, many SMR projects will be considered bankable notwithstanding the novelty of the technology being deployed.

Conclusion

Although nuclear energy is widely seen as playing a key role in grid expansion and decarbonization initiatives, there are a number of obstacles which render financing challenging. Strong political support alongside appropriately tailored policy tools can help unlock the private capital needed to deploy nuclear energy at scale. The arrival of SMR technology will produce initial challenges with FOAK financing, but in time more predictable returns will attract the financing to permit a more widescale adoption of nuclear energy in countless use cases.

Knowledgeable and experienced legal counsel can assist with the proper structuring and risk allocation in transaction documents to help unlock financing and drive projects forward. Given the enthusiasm for the role of nuclear in supporting energy expansion, however, there is room for optimism about the opportunities for greenfield nuclear projects in the coming decades.

1 26 U.S.C. § 45U.
2 26 U.S.C. § 6417.

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For more on US Nuclear Power Developments, visit the NLR Environmental Energy Resources section.

Congress Passes ADVANCE Act to Accelerate Deployment of Advanced Nuclear Reactors

On June 18, the Senate passed the Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE) Act as a section of the Fire Grants and Safety Act (S.B. 870). The Senate approved House amendments to the bill with a vote of 88-2, opposed only by Senators Edward Markey (D-MA) and Bernie Sanders (I-VT). The ADVANCE Act has diverse backing from industry, government, and nonprofit stakeholders, and its passage reflects strong bipartisan support for promoting advanced nuclear reactors, which offer carbon-free dispatchable energy generation for both electricity and industrial applications. The ADVANCE Act now heads to President Biden, who is expected to sign the act into law.
The ADVANCE Act is the latest in a series of recent legislative and regulatory developments aimed at bolstering the development of a technology that may be necessary to meet the nation’s growing energy demand. Advanced reactors promise improvements over conventional, much larger light water reactors. These improvements include additional safety features, lower waste yields, and operational flexibility that can complement integration with intermittent renewable energy or energy storage. One category of advanced reactors, small modular reactors (SMR), is of particular interest; SMRs hold the potential of fitting within the footprint of industrial applications.
In 2019, President Trump signed into law the Nuclear Energy Innovation and Modernization Act (NEIMA), which directed the Nuclear Regulatory Commission (NRC) to streamline its licensing process for advanced reactors and modified the fee structure for traditional and advanced reactors. The passage of the ADVANCE Act builds on NEIMA and provides even more support to deploy advanced nuclear reactors efficiently and successfully.

Key Provisions of the ADVANCE Act

PROMOTING NEW NUCLEAR TECHNOLOGIES

  • Reduced Fees for Advanced Nuclear Reactor Application Reviews. The Act amends NEIMA and sets a specific fee reimbursement rate for NRC’s review of advanced nuclear reactor licensing applications. While applicants are responsible for direct program salaries and benefits for the nuclear reactor safety program, the costs associated with indirect program and agency support expenses will not be passed onto applicants.
  • Prizes for Advanced Nuclear Reactors. To incentivize the successful development and deployment of advanced nuclear reactors, the Act establishes multiple prizes. The first entities to successfully deploy the specified types of advanced nuclear reactors can receive federal funding to cover the licensing and permitting costs associated with deployment.
  • Development, Qualification, and Licensing of Advanced Nuclear Fuel Concepts. The Act directs the NRC to improve its ability to qualify and license advanced nuclear fuel. The NRC must collaborate with the Department of Energy (DOE) to test and demonstrate accident-tolerant fuels and advanced nuclear reactor fuel concepts; operate a knowledge-sharing database for agencies and the private sector; and ensure both NRC and DOE have the technical expertise to support advanced nuclear fuel from the research stage through commercial application. A report detailing these efforts must be submitted to Congress within two years.
  • Licensing and Oversight for Nuclear Facilities on Brownfields and Retired Fossil-Fuel Plant Sites. The Act directs the NRC to identify and report on regulatory, guidance, or policy changes to streamline licensing reviews and oversight for nuclear facilities at brownfields and retired fossil-fuel electric generation sites. Within two years, the NRC must adopt strategies and initiate rulemaking to achieve these efficiency improvements. This provision recognizes the advantage of using existing power grid infrastructure to bring nuclear facilities online and the potential of advanced reactor construction to create more high-paying jobs for former fossil-fuel industry workers.
  • Licensing and Regulation of Microreactors and Nonelectric Applications of Nuclear Technology. The Act directs the NRC to develop strategies and guidance for licensing and regulating microreactors, covering items such as oversight and inspections, emergency preparedness, risk analysis methods, and the transportation of fueled microreactors. Additionally, the Act directs the NRC to submit a report to Congress detailing unique licensing issues or requirements for nonelectric applications of nuclear energy, along with a proposed budget and timeline for implementing regulatory guidance.

STRENGTHENING THE NUCLEAR WORKFORCE, FUEL CYCLE, SUPPLY CHAIN, AND INFRASTRUCTURE

  • Nuclear Energy Traineeship Program. The Act directs the NRC to coordinate with trade schools and institutions of higher education to establish a competitive nuclear energy traineeship program. The program must provide training that meets the critical mission needs of the NRC and nuclear workforce needs.
  • NRC Hiring and Compensation Improvements. The Act includes provisions to ensure the NRC is prepared to review licenses safely and successfully should the demand for NRC licensing and oversight services increase. Specifically, the Act empowers the NRC Chair to appoint up to 120 exceptionally well-qualified individuals into the excepted service and up to 20 exceptionally well-qualified individuals into term-limited positions during each fiscal year. In addition, the Act allows the NRC to determine the compensation for these positions without regard to the General Schedule classification and pay rates, subject to some limitations. The NRC may also award hiring bonuses and performance bonuses.
  • Biennial Reporting on Spent Nuclear Fuel and High-Level Radioactive Waste. The Act requires the Secretary of Energy to submit a report to Congress no later than January 1, 2026, and biennially thereafter, that describes spending related to (1) breaches of contract under the Nuclear Waste Policy Act of 1982 and (2) storage, management, and disposal of spent nuclear fuel and high-level radioactive waste (including the projected lifecycle costs for such activities). The report must also describe mechanisms and recommendations to improve accounting of liabilities and lifecycle costs for spent fuel and radioactive waste. Additionally, the report must describe any activities taken in the previous fiscal year by DOE with respect to interim storage and the development and deployment of technologies that enhance the safe transportation and storage of spent nuclear fuel or high-level radioactive waste.
  • Report on Advanced Manufacturing and Construction Methods. The Act directs the NRC to submit a report to Congress within 180 days on advanced manufacturing and construction techniques for nuclear energy projects. The report must, among other things, assess licensing issues, identify safety standard gaps, and provide recommendations to use the existing regulatory framework or engage in new rulemaking to support advanced manufacturing and construction methods.

IMPROVING NRC EFFICIENCY AND EFFECTIVENESS

  • Updated NRC Mission Statement. The Act provides that the NRC must update its mission within a year to include that licensing and regulation will be conducted “in a manner that is efficient and does not unnecessarily limit” the civilian use of radioactive materials, the benefits of civilian use of radioactive materials, or the benefits of nuclear energy technology to society.
  • Periodic Review of Performance Metrics and Milestones. The Act amends NEIMA and directs the NRC to review its performance metrics and milestones at least once every three years and to revise them as necessary to reflect the most efficient metrics and milestones reasonably achievable.
  • Nuclear Licensing Efficiency. The Act mandates that the NRC establish techniques and guidance for evaluating nuclear reactor license applications that support efficient, timely, and predictable regulatory reviews and the safe use of nuclear reactors.
  • Modernization of Environmental Reviews. To streamline the approval of new nuclear reactor license applications, the Act directs the NRC to improve the efficiency, timeliness, and predictability of NEPA environmental reviews through the expanded use of categorical exclusions, environmental assessments, and generic environmental impact statements. The NRC must submit a report on these efforts to Congress within 180 days.
  • Report on Oversight and Inspection Program Improvements. The Act requires the NRC to provide a report to Congress within a year that identifies potential improvements to NRC’s oversight and inspection programs for nuclear reactors and materials. The report must assess options to maximize program efficiency through the use of risk-informed, performance-based procedures; information technologies; staff training; improved planning; and licensee innovations that may advance nuclear reactor operational efficiency and safety.

ADVANCING INTERNATIONAL NUCLEAR LEADERSHIP

  • Export and Innovation Activities. The Act directs the NRC to support interagency and international coordination related to nuclear reactor import and export licensing. Specifically, the Act directs the NRC to engage in international coordination to promote (1) international technical standards for licensing and regulating nuclear reactor design, construction, and operation; (2) competent nuclear regulatory organizations and frameworks in countries seeking to develop civil nuclear industries; and (3) exchange programs and training for foreign countries to improve their regulation and oversight of nuclear reactors and radioactive materials. The Act empowers the NRC to establish an “International Nuclear Export and Innovation Branch” to support these efforts.
  • DOE Global Nuclear Energy Assessment. The Act directs the Secretary of Energy to conduct a study in consultation with the Secretary of State, Secretary of Commerce, the Administrator of the Environmental Protection Agency, and the NRC that evaluates the global status of the civilian nuclear energy industry and its supply chains. The study must provide recommendations to strengthen the United States’ engagement with nuclear energy in foreign policy and modernize regulatory requirements to improve domestic supply chains of civilian nuclear energy.
  • Prohibitions on Russian and Chinese Enriched Uranium. The Act prohibits possession and ownership of enriched uranium fuel fabricated by an entity in Russia or China. A person may obtain a license to possess or own such fuel, but the Act provides that the NRC may only issue such a license in consultation with the Secretaries of Energy and State.
  • Foreign Ownership of Nuclear Facilities. Under the Atomic Energy Act, nuclear reactor licenses could not be issued to foreign corporations and other entities. The Act modifies this restriction and allows the NRC to issue licenses to governments, corporations, citizens, and foreign nationals of Organization of Economic Cooperation and Development member countries and India if issuance is not contrary to national security or public health and safety.

Other Recent Developments

  • DOE Funding for Small Modular Reactors. On June 17, DOE issued a Notice of Intent to distribute $900 million to support the deployment of small modular reactors (SMRs). Part of the funding comes from President Biden’s Bipartisan infrastructure Law.
  • Reappointment of NRC Chair. On June 18, the current Chairman of the NRC, Christopher Hanson, was sworn in for a second term – running through 2029. In his confirmation hearings, Senators pressed him to work harder on NRC reform.
  • NRC Rulemaking for Advanced Reactors. In response to NEIMA, the NRC has drafted proposed revisions to create a risk-informed, performance-based, and technology-inclusive framework for advanced reactors. An analysis by Van Ness Feldman lawyers found that the NRC has substantial headroom within its Congressional safety mandate to reduce the risk aversion and restrictiveness in its licensing and permitting process.
 
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