This is the second of two Kenan Insights based on findings from the New Nuclear Power and Climate Strategy Conference. Read the first insight here.


CHAPEL HILL – In the quest to decarbonize while meeting growing energy demands, nuclear power could play an important role as a cost-effective source of domestic power. Moreover, the fragility of global energy supplies highlighted by Russia’s war in Ukraine has illustrated the importance of long-term domestic sources such as nuclear power. But even if it looks like a good solution on paper, is there actually a viable path for resurrecting nuclear power in the U.S.?

The New Nuclear Power and Climate Strategy Conference, organized by UNC Kenan-Flagler Business School’s Energy Center, examined the feasibility of incorporating more nuclear power into the U.S. energy portfolio. In a previous insight, we outlined some opportunities and challenges of nuclear power discussed during the conference. Here we dig deeper into key findings, specifically the implications of nuclear power in the United States.

The Economic Challenges

The economics of nuclear power remain one of the biggest hurdles. Traditional nuclear plants (known as light-water reactors) are large, expensive and slow to build. This requires shareholder-owned utilities to take a long-term view and make heavy upfront investments. Despite planning for long construction times and high costs, U.S. utilities have been dismayed by the results of their recent nuclear projects. The Summer nuclear project bankrupted SCANA, a South Carolina utility. Georgia Power has seen the cost of its new Vogtle reactors balloon to more than double the original estimates. Leading utility CEOs call these experiences “bet the company” risks and are keen to avoid similar outcomes.

Facing pressures to decarbonize but wary of new LWR projects, several utilities are turning their attention to advanced small modular reactors. These are touted to be safer, less expensive and faster to deploy while also taking up less space than LWRs. If proved true, such SMRs could reduce risk for utilities and investors.

While these smaller next-generation reactors offer many advantages, they also generate less electricity per site. Currently planned projects expect to produce between a tenth and a third of the power of a typical LWR. This loss of scale poses challenges for SMR economics; they must compensate by being cheaper and quicker to build and with improved safety that allows the plants to dispense with some layers of redundant safeguards. For all of this, the new reactors still present issues regarding the handling of nuclear waste and a continued exposure to possible terrorist attacks. These issues, combined with the still-substantial upfront investment necessary to demonstrate SMR technologies at scale, have made the economic viability of next-gen reactors unclear.

To address their economies of scale challenge, SMR providers hope to attract substantial order books. Having a series of committed projects will allow them to establish supply chains that become more efficient over time, thus bringing down project costs. Because next-gen reactors use modular components made primarily at factories, repeat orders allow suppliers to grow their own scale and refine operating processes. A sufficient volume of projects could generate supply chain efficiencies that compensate for the SMRs’ smaller-scale power capacities. New nuclear advocates are thus quick to argue that, assuming an adequate order book, SMR future costs will be substantially lower than those of the early projects. Nuclear’s opponents are quick to counter that alternative low-carbon technologies, such as renewables, battery storage and hydrogen, also will get less expensive over time.

Given these uncertainties, the demonstration economicsof the first at-scale next-gen projects will be critical to determining the industry’s appetite for further SMR investments. It is predicted by some that these first projects will cost at least double what later plants would cost. This leads to questions as to whether next-gen nuclear projects will materialize soon enough and in sufficient quantity to help with climate mitigation.

Overcoming Barriers

In the U.S., attitudes toward nuclear power are mixed. Groups opposing new nuclear power emphasize that, despite the benefits, serious risks remain. Several environmental groups, including the Sierra Club, remain staunchly opposed to nuclear power. Greater adoption of nuclear power will require changes in U.S. legislation and regulatory approaches and a softening of opposition from environmental NGOs and the public.

This makes the recent passage of the Inflation Reduction Act a significant development for nuclear power’s future. For one thing, it signaled considerable bipartisan political support for nuclear as part of the U.S. decarbonization strategy. Moreover, the legislation provides for both a production tax credit for existing nuclear plants and the choice of either a production tax credit or income tax credits available for new construction. These provisions will help existing plants stay online and assist the new reactor technologies to scale the high-cost wall posed by their initial projects.

Regarding those initial projects, there hasn’t yet been an at-scale project demonstrating what the new technologies can really deliver. There are a few SMR pilot projects underway in the U.S., but the most important trials of next-gen nuclear reactors will likely be in Eastern Europe. The current energy crisis there has only increased the drive to push next-gen nuclear projects ahead. U.S. utilities will be watching closely to see what insights these efforts might offer on the validity of safety, operating and economic claims made about SMR technologies. If successful, these European demonstration projects might help justify more projects in the U.S. and encourage many shareholder-owned utilities to start placing multiple orders with suppliers.

Developing new next-gen technology in the U.S. could also help the economics of global nuclear power. The U.S. doesn’t have a proprietary nuclear technology that can economically compete with lower-cost Russian and Chinese designs. New next-gen designs could provide this type of product, however, and help secure multiyear orders from Eastern Europe and Canada. Such a development would not only help build out the needed U.S. supply chain but also offer developing countries a U.S.-approved and supported alternative to the Russian and Chinese reactors.

Steps Toward a Nuclear Energy Future

As noted, government support is required for nuclear power to play a bigger role in the U.S. energy portfolio. This support will be crucial to encourage development of the necessary technology, infrastructure and supply chains. The Inflation Reduction Act is a major step in a positive direction, but more may be needed. Fortunately, there are several other nonsubsidy ways that more support can be provided.

One option is to add a Nuclear Portfolio Standard in the broader Clean Energy Standard. This would include requirements that nuclear power be used for a certain portion of a utility’s energy generation, irrespective of the cost. Such mandates for solar and wind were successful in building their supply chains and resulted in significant cost reductions.

The government could also incentivize turning old coal plants or other brownfield sites into new nuclear plants by providing streamlined licensing and permitting. This presents a win-win for utilities as they would be encouraged to retire coal plants while the new nuclear plants would benefit from the existing infrastructure. Most of these sites already have a range of approvals ranging from geologic soundness to community acceptance, and many have site prep, access roads, logistics and utilities already in place.

Finally, U.S. utilities can follow Europe’s lead in favorably reviewing the life extensions of existing nuclear plants. The current fleet of plants contributes to U.S. energy security and the overall low-carbon energy mix. Although rigorous safety criteria should be applied to each site, it is feasible to preserve most of these plants via reasonable relicensing procedures and by recognizing nuclear’s capacity and low-carbon benefits in the pricing structures of existing merchant power markets.

(C) Kenan Institute