Dive Brief:

  • Due to high barriers for newly built advanced nuclear reactors, offtake agreements with existing conventional reactors may be a more cost-effective choice for high-load customers seeking 24/7 clean power in the near term, a panel of Morgan Lewis experts said in a May 23 webinar.
  • The comments came amid a broader discussion of nuclear energy as a decarbonization pathway for industrial and technology companies and the potential regulatory, financial and logistical barriers for customers interested in using newly built reactors to power their operations.
  • Despite significant challenges, it’s becoming easier for data center operators and industrial facilities to make a business case for local offtake and behind-the-meter nuclear projects, said Morgan Lewis partner Michael Müller, an infrastructure development and financing expert. “If you’re … able to get a long-term power purchase agreement for power” from a microreactor or small modular reactor, “then suddenly that overcomes a lot of risk [factors]” perceived by lenders and local stakeholders, Müller said.

Dive Insight:

The historical norm is for civilian nuclear reactors to be owned by utilities and merchant generators for electricity production, Morgan Lewis partner Ryan Lighty said early in the webinar. 

But emerging reactor technologies come in a variety of sizes and configurations, opening up more flexibility for local or behind-the-meter electricity and industrial heat generation, he noted. Potential advanced nuclear reactor owners or offtake customers purchasing power from them include chemical manufacturers and other industrial users requiring large amounts of process heat, data centers, cryptocurrency mining facilities and raw material extraction operations in remote areas, he said.

Other technology and industrial users are pursuing colocation or local offtake agreements with existing nuclear plants, such as Amazon Web Services’ agreement to purchase a Pennsylvania data center built by Talen Energy along with power from the nearby Susquehanna nuclear power plant, Lighty said. 

Separately, Public Service Enterprise Group is in talks to sell power from two southern New Jersey nuclear plants to data center operators in the region. 

The paucity of SMR and advanced nuclear colocation announcements is attributable to the considerable risks inherent to first-of-a-kind infrastructure projects in general and the nuclear industry in particular, Müller said. These risks include regulatory and permitting challenges exacerbated by lingering negative public perceptions of nuclear energy; long and complicated construction timelines vulnerable to supply chain delays; and risks associated with novel technologies that haven’t been demonstrated commercially, he said.

Financing partners are especially attuned to these downsides following the failure last November of the Carbon Free Power Project, which would have been the United States’ first commercial SMR power generation facility, Müller said.

“New technologies are always difficult to finance,” he said.

Offsetting these perceived risks is an increasingly compelling set of “mitigants,” including rising public concern about climate change and the promise of hundreds of jobs associated with industrial and nuclear generating facilities, both of which may soften local opposition, Müller continued. 

A crucial selling point for financing partners is demonstrated demand for new or existing nuclear generation, such as a long-term offtake commitment from a data center or manufacturing facility, Müller added. Likewise, behind-the-meter or colocated generation facilities with “a long-term, fixed-price revenue contract [may overcome the] hurdle of upfront construction costs” and end up looking “like a traditional financing deal with a power purchase agreement,” Müller said.

High-load customers weighing whether to invest in new advanced nuclear reactors or colocate with existing conventional generators should understand that “regulatory considerations are significantly more for a new build of any kind,” said Morgan Lewis partner Alex Polonsky, who leads the firm’s nuclear energy practice. 

However, because certain advanced nuclear designs can achieve higher temperatures than conventional reactors, new builds may be “economically feasible” for users seeking process heat, Polonsky said. Dow plans to use X-energy’s reactor technology for process heat at a Texas petrochemical plant, he noted.

Whether colocating with existing nuclear or building new, Polonsky said offtakers should consider:

  • Whether their reactor design requires HALEU, whose U.S. supply chain is just beginning to develop;
  • When the reactor’s operating license is set to expire and whether the operator plans to renew, which matters for long-term offtake planning;
  • Whether any portion of the offtaking facility will be located within the generating facility’s fenceline, which may require an access agreement and introduce regulatory complexity; 
  • How many individual reactors are onsite and whether backup power exists if one or more goes offline for any reason; 
  • Whether the plant operator is a merchant generator or utility; and
  • Whether any grid upgrades or interconnection agreements are needed, particularly for new builds.