Despite 2024’s market buoyancy giving way to a 2025 market that has been fraught with uncertainty, interest in AI as a key component of the “fourth industrial revolution” continues. That continued interest drives questions around the outlook for power availability to fuel the electricity needs of the data centres required to advance AI – as reflected in the equity performance of the Power & Utilities sector.
While resource adequacy and having sufficient electricity to supply forecasted data centre needs remain important topics, the energy mix selection around data centres is also a persistent and evolving part of the discussion.
Nuclear energy, initially highlighted as a favoured solution for data centres given a perceived preference for clean baseload, dominated headlines and hyperscalers’ press releases in the back-end of 2024. Whilst co-location with existing large reactors (i.e. the Talen-Amazon Web Services data centre deal) and Power Purchasing Agreements (PPA) underwriting the restart of dormant reactors (i.e. Constellation Energy’s revival of Three Mile Island for Microsoft) underpinned the unique behind-the-meter approaches available for the current light-water reactor fleet, hyperscalers have been seemingly open to advanced reactor technologies as well.
Recent notable corporate agreements have included:
- Google (NASDAQ: GOOG) and Kairos Power entered into an agreement in October 2024 for Google to purchase up to 500 MW of power from up to seven molten salt reactors, with expectations that the first reactor would be running by 2030 and the fleet would be complete by 2035.
- In the same month, Amazon (NASDAQ: AMZN) announced a co-investment in X-energy’s USD500 million Series C funding round, further committing to an initial 320 megawatt Small Modular Reactor (SMR) project with Energy Northwest in Washington State using X-energy’s design. The project includes an option to increase capacity to 960 megawatts.
- Meta (NASDAQ: META) announced a RFP for 1-4 gigawatts of new nuclear capacity in December 2024, with eligibility extended to both traditional large reactors as well as SMR projects.
- Google entered into an agreement with startup Elementl Power to develop three sites for advanced reactors, with each site expected to generate at least 600 megawatts. Upon project completion, Google will retain the option to purchase power from the reactors.
While most power purchase agreements signed by hyperscalers for supply by advanced reactors acknowledge start dates in the 2030s, questionability around what the timeline could actually look like has prompted discussion around whether current players can deliver working reactors as per schedule.
On this subject, key findings from recent Third Bridge experts suggest that deploying next-gen reactors within the next decade will be challenging, and such reactors are unlikely to be cost effective unless less proven reactor technologies (such as molten salt reactors) are used to limit upfront CAPEX. Furthermore, the actual revenue rates on power needed to underwrite an advanced reactor for data centres are likely to be significantly above current industrial energy pricing.
Conversations with our Third Bridge experts highlighted the following points of note:
Timeline: Due to bottlenecks including permitting, affordability and supply chain constraints, one of our experts estimates a realistic timeline for mass deployment of SMR technologies to be 15-20 years, with prototypes taking 7-10 years to provide proof of concept. Other experts have estimated, with a high degree of confidence, that 20 SMRs within 20 years is a feasible timeline for what type of nuclear capacity can be added based on existing supply chains. On the more optimistic side of the spectrum, some experts anticipate the earliest commercially active SMR in the US to be operating by late 2030 / early 2031, dependent on regulatory approvals.
Electricity pricing for data centres: Experts have suggested that data centre PPAs for traditional large reactors would likely be structured as 20-year contracts, with electricity prices ranging from USD 80-100 per megawatt hour. By comparison, advanced reactor technologies may require higher initial prices of USD 110-115 per megawatt hour to account for uncertainties in fuel and maintenance costs.
CAPEX and build costs: New SMR generation could feasibly cost USD 7,000-8,000 per kilowatt, with any reactor designs that boast USD 2,000-3,000 per kilowatt likely “fishing for investment” and unlikely to be realistic, according to experts. With their high upfront costs and lower generation capacity, experts have opined that many next-gen technologies likely have inferior unit economics compared to traditional large reactors that have scale advantages. Whilst modular advanced reactor builds could cut typical reactor and site build cost estimates, such modularity benefits are more likely to manifest after the first round of advanced reactor deployments, when developers can finetune designs and then standardize components. Third Bridge experts appear to have a positive outlook on Molten Salt Reactors due to expectations of lower upfront costs vs large reactors, reducing reactor CAPEX by 40% through cutting out the containment dome structure and reducing overall physical footprint.
Extending plant lives and brownfield expansions: SMRs and other advanced reactor designs have the potential to extend existing large reactor lives via on-site expansions. As an example, an expert consulting with Third Bridge sees the opportunity for Dominion Energy (NYSE: D) to accommodate four additional gigawatts of capacity through advanced reactor builds on the existing North Anna site, subject to constraints like cooling water and transmission.
Regulatory outlook: Permitting and regulations are likely to be a major bottleneck on the timing of the commercial rollout of advanced reactors, with manpower shortages, attrition and lack of experience with non light-water reactor technologies at the Nuclear Regulatory Commission (NRC) likely to further elongate approval timelines. Experts indicate that the NRC’s decisions around how to regulate key reactor component factory production and transportation are also likely to be headwinds for modular reactor builds, potentially hitting feasible ROI forecasts. Despite this, there are some promising indicators that the NRC may trend towards more streamlined approvals – a Third Bridge expert that successfully attained a construction license for a molten salt reactor indicated that the permitting process took two years following roughly 15,000 hours of NRC review. All-in-all, advanced reactor permitting could take four years for full approvals (two years for a construction license, two more for an operating license) and see the first advanced reactor operating by 2030 at the earliest.
Supply chain constraints: Advanced reactor builds suffer from a tight supply chain with key components and inputs coming from a concentrated vendor base. As an example, Centrus Energy (NYSE: LEU) is the only current producer of high-assay low-enriched uranium (HALEU) that the majority of SMRs will need as fuel, but produces around one tonne per year that goes to the government. Whilst Urenco Group is developing a 10-tonne facility due for completion in 2031, Third Bridge experts believe that 100 tonnes of HALEU at least is needed to service current production forecasts – especially since SMRs can consume five times the amount of HALEU that traditional reactors do.
With regards to key players in the advanced reactor space and their positioning to be the first to successfully develop commercial-scale advanced reactors, Third Bridge experts have drawn conclusions based on the relative advantages and disadvantages of the underlying technology. As an example, some experts consider sodium-cooled reactor designs to face significant challenges, including fully proofing electromagnetic pump manufacturing and potential corrosion issues. As such, these experts have only “10% confidence” that companies developing sodium-cooled reactor designs will operate commercially within ten years. Similarly, despite NuScale (NYSE: SMR) being an early pioneer of SMRs and having the only NRC-approved SMR design certification, its design includes custom components which can be 2-3x more expensive than off-the-shelf components, threatening its competitiveness vs other reactor options.
On the list of developers poised to potentially succeed in deploying advanced reactors, experts have indicated that Kairos, Oklo and TerraPower look to be frontrunners in generation IV reactor development. Experts with this view expect that commercial viability of their technologies at scale is potentially between 2032 and 2035, citing these players’ “technological readiness” and “economic potential”. For Kairos specifically, one Third Bridge expert anticipates that Kairos will have 1-2 reactors running by 2030, 10-12 by 2032-33 and 25-30 by 2035, commercializing rapidly due to perceived strength of talent, relationships with the NRC and clarity of the commercialization plan.
While the feasibility of advanced reactor technologies and which players will be the first to deploy them commercially remains uncertain, there is a clear interest in the subject given concrete moves by hyperscalers to make advanced nuclear a tool in their box of energy solutions.
