The European Commission’s new SMR Alliance provides significant support for the distinct role of SMRs in driving this transition, write Andrew McDougall KC and Kirsten Odynski (White & Case Partners) and Counsel Ximena Vásquez-Maignan. However, there are still several considerations when it comes to the commercialisation of SMRs.
On 6 February 2024, the European Commission published a Communication on Europe’s 2040 climate target and path to climate neutrality by 2050. The targets set for 2040 expect a 90% net greenhouse gas (GHG) emissions reduction compared to 1990 levels and a reduction of fossil fuel imports by 80%, to ensure energy security and economic stability in the European Union (EU). These targets are ambitious and will require the development and deployment of all zero and low-carbon energy solutions, including nuclear.
The Commission called for industry partners to join a new Industrial Alliance to accelerate the development and deployment of small modular reactors (SMRs). This SMR Alliance targets a wide range of stakeholders, including vendors, utilities, specialised nuclear companies, financial institutions, research organisations, training centres and civil society organisations.
This is the first time in decades that the Commission is taking action to support the development of nuclear fission technologies in the EU and their deployment, by early 2030. The climate targets mentioned above would be difficult to meet without nuclear. Fossil fuel-dependent sectors, such as transport and energy-intensive industries, will go through a fundamental transformation. This is especially true for energy-intensive industries, which require a stable heat or electricity input and cannot fully rely yet on solar or wind power due to their inherent intermittent nature.
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The SMR Alliance will likely come as positive news for energy-intensive industries, which are scrambling to find viable solutions to assist in decarbonisation. The Communication puts additional pressure on this industry – as well as the transport sector – to decarbonise their activities in order for the EU to be able to achieve their climate targets.
According to Eurostat, in the third quarter of 2023, the economic sectors in the EU that were responsible for the most GHG emissions were manufacturing (21.6 %), electricity and gas supply (17.6 %), agriculture (15.4 %), households (14.9 %), followed by transportation and storage (14.4 %).
While the SMR Alliance signals that nuclear must be part of the energy mix to achieve the Commission’s climate goals, SMRs are still in the development phase and will need to be licensed and commercialised.
Nuclear solutions to decarbonisation
Large nuclear power plants are being considered by some EU Member States to contribute to energy security and complement renewables. But the majority of EU Member States that are planning to strengthen, develop or revive their nuclear programmes are looking into SMRs. SMRs have in fact been developed mainly for off-grid purposes, and some have been specifically developed to decarbonize industry.
The International Atomic Energy Agency has listed more than 80 different designs of SMRs, going from 4 MWe to 470 MWe. They can be fully or partially built in a factory and may adapt their capacity to the needs of the end-users, as modules may be added on-site to produce the required heat or electricity to fit each offtaker’s needs.
Why small modular reactors?
The advantages for an industrial site to be powered or receive heat from an SMR are several. An SMR can improve the footprint of an industrial site, as nuclear is a low-carbon energy. What’s more, nuclear energy is reliable and not intermittent. And with stable production costs, it will ensure a stable energy price.
Given the size and the new construction approach, the construction phase is planned to be dramatically shorter than for a large nuclear power plant. Even for the largest SMRs, construction is expected to last five years at most, providing the vendor with more agility when it comes to time and budget. Most of all, SMRs provide the end-user with a long-term security of supply.
There are already several companies from different industries in various parts of the world that have started discussions with the nuclear sector about the possibility of using these new types of reactors. Dow Inc. plans to replace gas-fired combustion and steam engines with an SMR, and Canada’s Belledune Port Authority is pursuing the use of SMR technology as part of a future expansion to generate heat and power for industrial users at the port’s recently announced Green Energy Hub.
Meanwhile, technology and blockchain companies are considering nuclear to power their data centres; and mining companies intend to replace by nuclear existing coal-based energy sources.
Commercialisation pending
There are several considerations when it comes to the commercialisation of SMRs. For instance, in order to be commercialized, SMRs need to be licensed by the nuclear safety authorities of the countries where they will be deployed. Secondly, in order for vendors to be able to produce SMRs in series – which will allow their costs to be lower – there has to be significant interest.
Only a few SMRs have been authorized to date, and vendors are trying to reach out to different industrial organizations to ensure that a critical number of SMRs are secured before starting their production. It is expected that the deployment of such reactors will start at the earliest in 2030, but most certainly by the end of that decade.
However, these innovative technologies also entail innovative regulatory approaches and financing schemes – potentially setting up the runway for accelerated commercialisation.
Nuclear power is extremely regulated, and an important number of legal requirements will need to be assessed and adapted in light of the risks involved with regard to SMRs. That being said, these risks should be lower than for large nuclear power plants. The fact that SMRs will need to be located near industrial sites also raises the question of complying with the regulations and safety requirements applicable to the relevant industry.
The project will also need to be structured depending on the involvement the vendor and the end-energy user will want to have. There is a variety of structures that can be considered depending on who will be the owner and who will be the operator of the reactor. The end-energy user itself could be both (some may consider setting up their own nuclear operator to operate the SMRs for their industrial sites worldwide); it could delegate the operation of the SMR to the vendor or a specialised company; or it could just buy the electricity or heat in a similar approach to merchant power plants.
Finally, SMRs are expected to cost less than large nuclear power plants, which should allow industrial groups to consider this alternative. Notably, SMRs and advanced nuclear reactors have been included in a number of taxonomies, which should attract commercial banks. The financing scheme will undoubtedly be very different from the one used until now for large nuclear power plants, which are mostly financed with public funds. In Europe, the next step will be to facilitate the financing of the development of the technology and the projects themselves.
Looking forward
Few would have bet not so long ago that nuclear would be part of the solution to decarbonising the economy, and most of all industry sectors. However, the European Commission’s new SMR Alliance provides heavyweight support for the distinct role of SMRs in driving this transition.
That being said, it is important for each project to be taken on a case-by-case basis. Nuclear technology, and the very industrial activity for which it will provide energy, as well as the vendor and the energy end-user’s approach to developing the project, will all differ and will bring specific benefits and challenges.
