In order to ensure the affordability, reliability and sustainability of the nation’s clean energy supply, federal programs for renewable energy sources should be modified to encompass all credible carbon-free energy alternatives and become available to support SMRs. Modification of these programs to focus on carbon-free energy sources will better align with the goals of addressing climate change, spur more innovation in new technologies and increase competition that benefits consumers. Programs related to production tax credits, investment tax credits and portfolio standards that currently are available only to renewable energy should be modified to equally benefit all technologies that provide carbon-free benefits. Similarly, Federal procurement targets for renewable energy should be modified to include nuclear energy.
SMRs are flexible baseload generation that is “always on”, dispatchable and able to adjust output to respond to the needs of the grid; offering value that other sources can’t. As more baseload generation sources retire, the always-on value that nuclear energy provides, such as electric transmission grid stability provided by the inertia of large rotating masses, will increase. Similarly, as more intermittent wind and solar generation is connected to the grid, the value that flexible SMRs provide will increase. Policies should be established that recognize these reliability and flexibility benefits.
Infrastructure projects like SMRs may be best supported when built on a foundation of stable federal government and industry partnerships. The degree of partnership needed will vary based on many factors, such as market conditions and supply alternatives. The amount of private investment will be significantly more than the public contribution. After the initial demonstration of the technology through such a partnership, further SMR deployment is expected to be self-sustaining.
In order to ensure sufficient investment for SMR commercialization, SMR Start envisions the establishment of the following public-private partnerships and will work with interested stakeholders toward their formation and implementation:
Design and Licensing Partnerships
Design and Licensing Support – High costs and long timelines for regulatory approval are a unique barrier for new nuclear technologies. The total cost to obtain regulatory approvals and perform first-of-a-kind final design engineering for an SMR design is expected to be $1 billion or more. To date, four designers have invested a total of more than $1 billion dollars to develop their SMR designs. Potential owners of SMR plants have also invested tens of millions of dollars in preparing their sites for possible deployment of SMRs. DOE support is needed to reduce the economic, technical and regulatory barriers to efficient, timely and cost-effective deployment of new technology for two or more designs and the initial SMR plants.
Commercial Deployment Partnerships Construction of the first several SMR plants represents a unique set of risks to the “first movers” that will build them. The policy tools to stimulate investment will vary based on the unique needs of the plant owners. Flexibility is needed in the establishment of public-private partnerships for deployment of SMR plants in the U.S. to account for varied differences in the electricity rate regulatory structure and generation asset ownership (public or investor owned).
An SMR commercial deployment program that stimulates new SMR generation should be established and made available through a combination of production tax credits (PTCs), investment tax credits (ITCs), power purchase agreements (PPAs) and loan guarantees. The total size of the program should be sufficient to achieve design and licensing of two or more designs and deployment of six or more SMR plants for each design (approximately 5,000 megawatts-electric). Such a program would encourage the formation of customer groups to deploy these designs in sufficient volumes to achieve SMR costs that would be competitive in the market without further government support.
Tax Credits – PTCs and ITCs can offset first-of-a-kind risk for new SMR generating plants. A nuclear production tax credit (PTC) was established by the Energy Policy Act of 2005, and amended in 2018, for new nuclear generating capacity. However, the nuclear production tax credit requires additional changes to bring it on par with production tax credits for other generating sources, such as renewables. The value of the nuclear production tax credit should be commensurate with the need to incentivize new nuclear deployment, escalated with inflation and the lifetime capacity should be increased beyond the current limit of 6,000 megawatts to account for the development of SMRs and other advanced reactors. Although there is not currently a nuclear investment tax credit, ITCs are available for other energy sources. An ITC should be made available as an option for SMRs and other nuclear plants that would either not qualify for a PTC, or whose project structure would be more conducive to utilizing an ITC.
Power Purchase Agreements – Future business risk can be reduced, enabling larger investments in new plants, if there is a contractual commitment by entities to purchase the power from the plant once completed. Longer-term power purchase agreements (PPAs) are one such way this could be achieved, provided the purchaser makes the commitment early enough. One possible approach could be for the federal government to be the buyer, willing to enter into a longer-term agreement for the value of the clean and reliable energy to be supplied from the SMR plant, benefits that current markets do not value. Congress should specifically authorize the duration of PPAs to be up to 40 years to spread the investment over more of the SMR plant’s useful life and to lower annual cost allocations. Congress should also ensure that PPAs are “scored” by the Office of Management and Budget no differently than a multi-year building lease, each year impacting the federal budget for that year only, not the duration of the PPA being “scored” in the year the PPA is entered.
Congress should create a program directing DOE and U.S. Department of Defense (DOD) to pursue projects that meet stringent reliability requirements in a carbon-free manner at select facilities with large electrical requirements and programs important to national security. The program should be flexible to allow the PPA to be established based on the requirements of the federal purchaser (DOE or DOD) and the power provider. One option could be for the PPA to compensate the SMR owner for a commitment to provide highly reliable power from the SMR facility, the value of which is negotiated based on the requirements of the buyer. Authorization should permit similar compensation arrangements to be available to allow PPAs that purchase other energy products from SMRs deemed valuable to DOE or DOD like tritium, isotopes for use in medical treatment, purified water, process heat, fuel irradiation, or a source of neutrons for R&D. The DOE Joint Use Modular Program (JUMP) is one such way that the Labs could benefit from partnering on the deployment of SMRs.
Loan Guarantee Program – The existing loan guarantee program and authority should remain available through the design and construction of SMR plants and SMR component manufacturing facilities. Loan guarantees that facilitate borrowing of up to 80 percent or more of the total project cost can dramatically improve the scale of SMR commercialization. Unlike renewable projects, the loan guarantee program office charges the borrower for nuclear projects to cover costs associated with providing the loan guarantee. The existing loan guarantee program should remain available with no additional cost or authorization required in addition to tax credits and PPAs.
Manufacturing and Supply Chain Partnerships
Investment tax credits can incentivize investments in SMR designs, the construction of SMR facilities and kick-start a robust U.S. SMR supply chain and the manufacturing of SMR components for both domestic and international markets. One SMR designer has invested in excess of $300 million in a state-of-the-art purpose-built SMR manufacturing facility in the United States. An SMR ITC should be established to incentivize investments in U.S. SMR manufacturing facilities. This is similar in amount to the ITC for renewable energy sources.
Innovative Supply Chain Manufacturing – DOE support to innovate the SMR supply chain is needed to reduce manufacturing risks for SMRs and other advanced reactors. This effort would support the manufacturing of innovative first-of-a-kind components during the licensing phase to demonstrate advanced manufacturing techniques and allow fabrication of commercial units to occur at lower costs and in a compressed delivery schedule by incorporating lessons learned. This includes the demonstration of closing Inspections and Tests at the factory. This would also support the incorporation of advanced manufacturing methods in the SMR supply chain, including acceptance by the Nuclear Regulatory Commission and Codes and Standards organizations.