A Cost Stabilization Facility for Kickstarting the Commercialization of Small Modular Reactors

A Cost Stabilization Facility for Kickstarting the Commercialization of Small Modular Reactors (October 2023) presents a policy framework with a new approach to addressing construction cost risk to enable the small modular nuclear reactor (SMR) industry in the United States. These advanced reactors can help enhance the security, resiliency, and reliability of the nation’s energy supply as well as meaningfully contribute to decarbonization of the power and industrial sectors. The modular design of SMRs allows significant portions to the plants to be factory-built and then shipped to a location and installed on-site, making them more cost-effective than conventional reactors.

Currently, SMRs are advanced concepts and prototypes on the cusp of commercialization, and investors are wary of the economic viability. The dual barriers of construction cost magnitude and cost uncertainty are key impediments to first-of-a-kind SMR deployment. Still, SMRs offer the promise of substantial cost reductions for future “nth-of-a-kind” installations due to learning effects and cost efficiencies inherent in factory-built, simplified components coupled with repeatable construction.

Sufficient demand is imperative—these cost reductions would only be realized through iterative deployment. One approach outlined in the paper is to form an “orderbook”—multiple, identical installations of a particular design.

The paper focuses on the key missing ingredient that holds up development of robust SMR orderbooks: a solution to address the potentially large unanticipated or unforeseen construction cost overruns for the first sets of deployments of a given design.

It proposes a cost stabilization facility that centers on a special loan mechanism provided by the federal government through the U.S. Department of Energy’s Loan Programs Office. Employing existing lending authorities, the new cost stabilization facility is an augmented loan product with features specifically designed to significantly reduce the tail risk faced by pioneering SMR project proponents during the development and construction phases.

The innovative approach to financing outlined in the paper is an active thread of research at the EFI Foundation’s Energy Futures Finance Forum (EF³) to assess options to help the United States overcome the cost magnitude and uncertainty barriers for first-of-a-kind SMR designs and begin enabling SMRs nationally. This work will be updated as concepts are refined.