US nuclear start-ups battle funding challenge in race to curb emissions

US plans to build up its nuclear industry face big funding and regulatory challenges which could delay a new generation of smaller, more efficient reactors touted by advocates as critical to fighting climate change.

Industry experts told the Financial Times a declaration signed last week by Washington and 21 other nations at the COP 28 climate summit to triple the amount of installed nuclear energy by 2050 was a step forward, given the sector’s ability to provide emissions-free power. But a sharp fall in market support for start-ups developing so-called small modular reactors and other advanced nuclear facilities threaten US ambitions, they said.  

Last month NuScale Power Corp cancelled plans to build the first SMR in the US, despite receiving $1.4bn in government cost-sharing pledges. Not enough power utilities expressed an interest in purchasing electricity from the facility in Idaho when NuScale increased power prices by more than 50 per cent over two years to $89 per megawatt hour.

The setback followed the collapse of a $1.8bn deal agreed between X-energy and special purpose acquisition company Ares Acquisition, which was intended to enable the developer of nuclear technologies to go public.

Now the industry is focused on whether Oklo, a start-up chaired by OpenAI chief executive Sam Altman, can successfully go public via a blank-cheque company announced in July with AltC Acquisition Corp. The merger was proposed at a valuation of $850mn and would provide Oklo with $500mn to develop and commercialise its reactor design.

“There was already some investor aversion surrounding Spacs in general, and then you saw the first SMR cancelled, inflation causing a big increase in costs and X-energy’s deal fall through. So investors are certainly more sceptical,” said Marc Bianchi, analyst at Cowen.

“This would seem to raise the bar for future transactions,” he said. 

The industry is racing to develop SMRs — new types of advanced nuclear reactors that have a power capacity of 300MW or less, which is about a third of standard facilities. Governments and private investors — including Rolls-Royce, GE and Hitachi — have spent billions of dollars to commercialise the technology over the past decade.

But a combination of rising interest rates, inflation and concerns about the nuclear industry’s poor record of delivering projects on time and on budget have dented investor and customer sentiment towards the small but growing cluster of start-ups and other companies in the sector.

Shares in NuScale, which listed via a Spac last year, lost almost a third of their value following the cancellation of its Idaho contract. The shares are down nearly 70 per cent this year.

The problems at NuScale are rippling across the SMR sector.

X-energy, which is backed by chemical giant Dow, was forced to lay off staff last month following its failure to conclude its Spac merger. And the US Defence Logistics Agency confirmed it had rescinded a notice of intent to award a contract to Oklo to provide power for an Alaskan air force base.

Clay Sell, X-energy’s chief executive, said NuScale’s difficulties, combined with macroeconomic factors and war in Ukraine and Gaza, had a chilling impact on its proposed Spac merger.

“When we announced our deal they [NuScale] were trading at a significant premium above their go public price and when we called off the transaction they were below $3,” he said. “So there were certain realities about the market, which . . . put public equity providers in a risk-off situation.”

Despite the headwinds, Oklo said it was confident it could conclude its Spac deal in the first quarter of 2024. Its reactors, which generate 15MW of electricity, enjoy significant advantages over existing technology, including being able to operate for 10 years or more before refuelling.

“There is a lot of value in staying small because it keeps the project in the scope of a manufacturing and installation project, and not a large infrastructure project,” said Jacob DeWitte, Oklo’s chief executive.

Oklo is aiming to build its reactors for under $60mn, a fraction of the cost of the larger utility scale projects that make-up the existing US reactor fleet. They can be located next to industrial customers’ facilities and use factory produced designs, which should dramatically reduce costs.

Cost blow outs and delays have blighted large-scale nuclear projects in recent decades, which has made investors wary of the sector. Georgia Power’s Vogtle Plant faced seven years of delays and a $17bn budget overrun before the first of its two new reactors began operating this year.

Vogtle deployed Westinghouse’s new AP1000 reactor design and was the first nuclear reactor the country has built from scratch in more than three decades. The problems it encountered “reinforced the reputation for negative construction experiences in the United States”, according to The Uncertain Costs of New Nuclear Reactors, a report published on Thursday by Columbia University.

Oklo enjoyed initial success, attracting funding from the US government and fuel from Idaho National Lab to power its first plant in the state, which it hopes will operate from 2027. But like many of the new generation of nuclear start-ups, Oklo has experienced setbacks, as it tries to prove its technology to regulators and raise funds.

Last year the Nuclear Regulatory Commission denied the company’s application to build and operate its Idaho project, saying it did not provide enough information on its reactor design.

DeWitte told the Financial Times the company’s application process was hampered by the pandemic and Oklo is engaging with the commission and expects to file a new application next year.

Adam Stein, director of nuclear energy innovation at The Breakthrough Institute, a Washington-based think-tank, said the existing regulations were not designed to be flexible because they focused on the existing fleet of reactors — typically large 1 gigawatt water-cooled reactors.

“New applicants have to ask for exemptions from specific regulations that are not applicable to their technology, justify why those exemptions are reasonable and hope that the regulator grants them . . . [this] makes it more lengthy, cumbersome and introduces additional regulatory risk.”

The regulatory challenges come in spite of strong bipartisan support in Washington for the nuclear industry.

The Biden administration recently asked Congress to provide $2.16bn to support US-based companies seeking to boost enrichment and conversion capacity for nuclear fuel. It has also ensured nuclear projects are eligible for a 30 per cent tax credit outlined in the Inflation Reduction Act for zero carbon power plants.

Kathryn Huff, assistant secretary for nuclear energy, told the Financial Times that progress has been made but admitted the sector must overcome these near-term challenges if the US and others are able to meet their 2050 emissions reduction goals. At least five to 10 contracts for new build nuclear reactors would need to be finalised in the next few years to enable construction to be completed by 2035.

“There are dozens of American nuclear reactor start-ups, which is just a crazy thing that you wouldn’t have heard 20 years ago when nuclear reactors were the bread and butter of big Fortune 500 engineering firms,” she said.

“[But] in the next two or three years, we need to see those contracts in hand, or else we will not reach the commercial lift-off that is required to get to the amount of clean power we need for 2050.”