Episode 9 – Back to the Future: Nuclear Power and Capacity Expansion

Marc (00:13.134)
Welcome to the ScottMadden Energy Exchange, conversations with leaders shaping the future of the energy industry. I’m your host, Marc Miller, partner and energy practice leader at ScottMadden. In this podcast, we explore the most important issues facing utilities and energy companies, from infrastructure and regulation to operations and strategy. We focus not just on what’s changing, but on what it takes to execute in a complex and evolving environment.

There was a time not very long ago when talking about significant growth in US nuclear generation felt more like a history lesson talking about the past. Today, it increasingly feels like we’re talking about the future. Electric demand is growing again as data centers, AI, advanced manufacturing, and electrification are creating enormous new requirements for power. Utilities need generation that’s reliable and

Available around the clock and capable of supporting a rapidly growing system. And companies with some of the largest electricity needs in the world are becoming directly involved in securing new generation. All of that has put nuclear power back in the conversation. But what’s especially interesting is that this isn’t just a conversation about building new reactors.

Some of the most immediate opportunities involve getting more from the nuclear fleet that we already have through uprates, life extensions, restarts, and potentially even completing plants that were never finished. At the same time, the industry is trying to move small modular reactors, advanced reactors, and even a new generation of large reactors from concepts and commitments into actual deployment. So, appropriately enough, today’s episode is called Back to the Future:

Nuclear power and capacity expansion. My guest is my colleague Luke Martin, a partner at ScottMadden and one of our experts in nuclear power. Luke has more than twenty years of experience working with utilities, power producers, and energy technology companies with a particular focus on generation strategy, nuclear energy, operational modernization, and emerging tech.

Marc (02:28.332)
He’s also been involved in industry and national laboratory initiatives focused on expanding nuclear capacity. Luke, welcome to the ScottMadden Energy Exchange.

Luke (02:39.246)
Thanks, Marc. It’s great to be here and great to talk about nuclear.

Marc (02:43.426)
Yeah, love the topic. Luke, let’s start off big picture. For years we’ve heard people talk about a potential nuclear, I don’t even want to say the word, renaissance. There was plenty of enthusiasm, but not really a lot of new

Something feels different this time around. Why is nuclear back in the conversation now? And is this really a nuclear resurgence or are we getting ahead of ourselves?

Luke (03:14.7)
Yeah, I do think this time is different for a couple of reasons, but I’d stop short of declaring it a renaissance until we see more actual projects delivered. The demand in this case is real. As you mentioned before, utilities are planning for significant load growth from data center demand, manufacturing, and broader electrification while still having to keep the system reliable and affordable. Nuclear is unique in that it brings dependable, around the clock output.

at scale. The current policy support and environment has really helped level the playing field, but the more basic driver that the system needs is a lot more firm baseload power. The shift I see from is really from asking whether nuclear has a role to play to asking how quickly can we add capacity and who’s prepared to execute.

Marc (04:07.692)
Great point, Luke. And one of the things that strikes me is how much the demand side of the equation has changed. For for much of the last couple of decades, the industry was planning around flat or modest load growth. Now we’re talking about what some utility executives are calling generational load growth, which you know it certainly is. And a lot of that demand, particularly data centers, isn’t just large. It wants massive amounts of electricity, essentially all the time.

Does that change the value proposition for nuclear?

Luke (04:43.224)
So yes, absolutely. A large data center or industrial campus can be hundreds, if not thousands, of megawatts and and may operate it near full load around the clock. So what that does is it puts a premium on energy that’s available when it’s needed. So think peaks in activity for your household when you return home from work, or in the case of a data center when they’re training AI models, not just capacity that looks good on paper.

An operating nuclear plant is especially valuable in that setting because the output is dependable and reliable and the site and grid connection are already in place. Nuclear will not be the answer everywhere though. cost, timing, location, transmission interconnection all still really matter. But the value proposition now is clearly stronger than it was a few years ago when load growth was flat to declining.

Marc (05:38.136)
That seems like an important distinction, Luke. This is not just about nuclear benefiting from renewed policy interest. the underlying electricity systems creating a different need for large quantities of dependable around the clock generation. Nuclear fits that very well. Luke, you’ve used a framework that I think is really helpful here. Nuclear capacity expansion, I’ve heard you say, is really happening on two clocks. The first clock is

Fleet that exists. The second is new nuclear deployment. Can you explain a little bit what you mean by that two-clock framework?

Luke (06:17.166)
Sure. Yeah, the first clock is really the nuclear fleet we already have today. So in the US, that’s the light water reactor fleet. And really the opportunity there really is around up rates, improved plant performance, longer operating lives, moving from eighteen to twenty-four month fuel cycles, and selected restarts of closed or shuttered plants. those can produce megawatts sooner because the site

The interconnection, the cooling, all of the specific elements you need are already in place, including the operating organization. The second clock is really new nuclear. So large new units, small modular reactors or SMRs, non-lightwater reactors, and smaller micro reactors, those generally require more development time. We really need to run both clocks at once.

And at a recent nuclear conference, I think this was one of the themes that that we took away was there’s a lot of activity stacking up for nuclear operators and owners in the next five to ten years. So really getting more from the proven assets now while laying the foundation and doing the work needed to make new nuclear real in the twenty thirties and beyond is going to be critically important over the next five years.

Marc (07:34.318)
And I know those aren’t mutually exclusive strategies. As you’ve said, a utility shouldn’t necessarily be saying, do I upgrade an existing plant or do I pursue an SMR? It could be pursuing those incremental megawatts from the existing fleet now while developing options that may produce much larger amounts of capacity in the early twenty thirties and beyond, depending on the developer and their timing.

How should utilities think about managing those pathways in parallel?

Luke (08:07.96)
Yeah, so thank you, Marc. The I think our thought there is to start with the capacity need and the timeline. So what do you need in the next five years and what might the need be in 10 to 15 years from now? The federal government and through a lot of the executive orders have really specified some targets on nuclear capacity expansion that are pretty aggressive. And I think right now operators are evaluating, especially for the existing fleet.

How they look at equipment condition, their existing outage schedules, what’s been approved from a capital standpoint, their license renewal and life extension. And then bottom line, the economics of adding additional output. Not all these projects will pencil and make financial sense without incentives. For new nuclear, I think looking at evaluating the site locations, the technical maturity.

their target customers, and then who carries that early finance and development risk are really important. We’ve seen a lot of agreements in the news with hyperscalers and new nuclear companies and even the utility operators over the last 12 to 18 months. But the practical issue is really sequencing. So you don’t want three major programs competing for the same engineering resources, stressing your supply chain. All this work

typically has to fit within the outage windows existing at the the current plants and ensuring the capital is there are are all really important drivers. So we advocate for kind of laying everything out into one integrated plant.

Marc (09:48.898)
That’s one of the most important points in the conversation. When people hear nuclear expansion, they naturally picture a new reactor, but the fastest nuclear megawatt probably comes from a reactor that’s already operating, or in some cases, one that used to operate. Let’s talk about the existing fleet. The the opportunity is pretty significant. Power up rates have added roughly eight and a half gigawatts of nuclear capacity since 2000.

including the current pipeline and federal initiatives are explicitly targeting additional capacity as you just mentioned through licensed renewals, restarts, uprates, and other efficiency improvements. For somebody who doesn’t spend so much time in the nuclear industry, how do you actually get more megawatts out of an existing nuclear plant?

Luke (10:42.764)
I think you just squeeze really hard on the fuel bundles and see what happens. really there’s a range. So at the smaller end, better measurement, thermal performance and doing what’s called balance of plant improvements can help recover incremental output or increase capacity factor. So oftentimes those are referred to as MURs, measurement uncertainty recapture.

those are pretty quick. You still have to file some licensing activities and do some engineering work, but it’s it’s less intensive in terms of actually installing new equipment or components within the plants. The next type is really stretch up rates or stretch power up rates, SPUs, which increase reactor power without replacing too much of the major equipment.

The larger ones, kind of as you continue to scale, are extended power up rates or EPUs. Those add much more capacity, but they require significant work on turbines, generators, pumps, heat exchangers, and your electrical systems within the plant. Those are significant capital expenditures, multi-year projects, and often get implemented over several outage cycles. They also compete right now for

components that are in very high demand from nuclear generation as well as other gas-fired generation as as much press has indicated, especially around steam turbines. So a simple way to say that we’re safely converting more of the plant’s existing nuclear capability into electrical output delivered to the grid. So that’s how you can think of an operating.

Marc (12:32.162)
Got it. And presumably those opportunities aren’t all created equal. Getting a relatively small amount of incremental output through improved measurement or plant performance is very different as you just described it from a major extended power up rate that requires those substantial equipment modifications. But how does an owner determine how far to go what the opportunity is?

Luke (12:59.832)
Yeah, so we typically do not start with a target percentage. So hey, we’re targeting an eleven percent power up rate. We often see operators starting with the plant condition, the need for additional capacity, and then simply what the equipment can support. So oftentimes there’s an engineering study or technical analysis that’s performed on the front end really to lay out what’s feasible and what’s possible.

that’s a that’s typically the point where we would get involved where we help test the economics. We review kind of the remain remaining plant life or life extension plans, the value of the increased additional megawatts and whether those will be kind of converted to to power that’s sold through traditional means or if the upgrade is seen as a separate project with a power purchase agreement tied to that incremental capacity.

Then looking at what capital is required and whether that has been been raised, equipment lead times and the impact to the outage plan and schedule. So a larger operate is not automatically the best answer. If it adds scarce components or pushes work into another outage, a smaller option may create more value with less risk. I think we’ve seen companies looking at

adjusting from eighteen month to twenty-four month fuel cycles in the near term while they’re planning for more significant uprates in the next few years.

Marc (14:33.998)
Great insight, Luke. Let’s move to something I think would have sounded almost unbelievable five or ten years ago, restarting retired nuclear plants. Palisades in Michigan, the Crane Clean Energy Center, which was the former Three Mile Island Unit One in Pennsylvania, Dwayne Arnold in Iowa. And then there’s VC Summer in South Carolina, which raises an even more unusual possibility, completing units whose construction

in the case of BC summer was halted years ago, what has changed economically and strategically that makes owners willing to reopen those questions?

Luke (15:14.734)
Yeah, so reliable generation is more valuable and a retired nuclear site often has assets that would be extremely difficult to create. So we talked earlier about grid interconnection, a lot of that infrastructure is existing at these sites, cooling water, land, security infrastructure, and almost most importantly people who know the plant and know how to op know how to operate existing nuclear reactor.

Many of those folks are embedded in the community. Some have transferred and gone to other sites, but a lot of that expertise still remains. Another kind of change economically is that the long-term customer commitment and federal support can now help improve the economics. So we’ve seen many instances of long-term power purchase agreements or PPAs.

with nuclear operators in merchant Marcets by hyperscalers or data center providers. Every restart though is its own case. So equipment condition, where they stand from a licensing perspective, the workforce, the fuel, the project schedule, and capital all have to hold up. But maybe an interesting anecdote is kind of looking at it bigger picture from a risk perspective.

Would you take on the risk of a VC summer plant that had undergone significant capital spend, had many components already on site, and was well on the way through some of the engineering and construction milestones versus a greenfield site where you’re still going to have to go through many of those same steps, but you’re not you you don’t have that head start, if you will. So from a risk perspective, we’ve heard some

Utilities and operators think that that may be a lower risk proposition than starting brand new, especially when the customers are looking to get power at scale in a clean carbon free way as soon as possible. So a restart’s not automatically gonna be easy or cheap, but in the right situation, it may be faster and more practical than starting from a blank slate.

Marc (17:30.798)
Luke, you alluded to this in your answer, but there’s a really interesting connection here to the big tech, the hyperscalers. As you said, Google has a long-term agreement with the Dwayne Arnold. Microsoft has a 20-year agreement supporting the Crane restart for its AI-related electricity needs. And, you know, of course, Meta is is very involved in Amazon as well, even with some of the

you know, newer SMRs and Gen four technology. how important is that new class of customers to nuclear economics?

Luke (18:11.394)
Yeah, it’s interesting. The Dwayne Arnold is not too far from the field of dreams in Iowa. So if you build it, they will come. it’s really not that scenario at all. And so it changes it from kind of build it and hope the load comes to serving a specific customer need. And so we think that this class of customers really changes the game in terms of the economics because you bring a large long-term need for dependable power and

companies that have the resources to commit for twenty plus years. And so that revenue certainty definitely can support a restart or new project in a way that a short-term Marcet pricing cannot. And so the customer commitment doesn’t make construction, licensing, fuel, or some of the other operating risks disappear, but it can solve a major problem of the commercial equation. And we’ve seen some pretty unique deals being inked and then also some

Some ones that are in the works that that we think will come out in the in the near future.

Marc (19:15.822)
Yeah, historically one of the hardest questions around nuclear development has been who’s going to take the long term project and construction risk? If if you have a very large creditworthy customer that’s willing to make a twenty, twenty five year commitment to the output, does that begin to change that financing equation?

Luke (19:37.134)
Yes, and I think a long-term commitment from a strong customer can definitely reduce the revenue uncertainty and support debt and investor confidence. we’ve heard recently though, still nuclear projects carry, in in some view, asymmetric risk compared to other forms of generation, largely because of some of the the issues that plagued previous projects. So the harder questions move into the contract. Who absorbs delays?

what happens if the costs go up or increase? When do payments begin? And when is performance guaranteed? So that’s where these projects get get pretty interesting. The agreement can make the project more financeable, but only if the risks are assigned to parties that can actually manage them.

Marc (20:26.414)
Great point, Luke. We’ve seen bad risk allocation, you know, sync major developments in the past. So you’ve got to get that right. Let’s shift over to the second clock, as you call it, actually building new nuclear capacity. There’s a lot going on in this space. We’ve got the large Gen 3 Plus reactors, we’ve got many different kinds of SMRs, we’ve got non-lightwater advanced reactors or Gen 4.

And then we’ve got at the smallest end micro reactors and you know what some are calling extra small modular reactors. So so we’ve got a lot of options here. If if you’re a utility executive looking at this landscape, how do you make sense of all these different technologies?

Luke (21:14.05)
Yeah, we would say start with the problem, not necessarily the reactor design. And what I mean by that is how much capacity is needed, by when, what location, and for what kind of customer. Also a nuance to this is it’s not just electrical output that these SMRs and and new nuclear reactors can create. So process heat. helping industrial applications is also

kind of core to many of these designs. So a large reactor can add a lot of proven grid scale power and capability, but it’s a major capital project with a long schedule and some pretty significant supply constraints right now. SMRs may reduce the size of each investment and allow for some modularity, some flexibility.

We heard at a conference last year that Amazon went with the X Energy design because of kind of the Lego based approach. They can add scale and add additional capacity in stages. Non-lightwater reactor designs offer different operating features, but can bring new fuel and operating requirements. And then on the smaller scale, the micro reactors, everything from the reactors on a semi-truck bed,

to other designs are a different value proposition again. So those are in some cases, like the Army with the the Janus project is looking at a few different designs to really get away from hauling and and moving diesel fuel around to remote locations. So their mission and their their objectives are different than a data center or or other use cases. So those micoreactors also potentially get closer to the customer.

and closer to a repeatable product than a traditional large scale conventional plant.

Marc (23:09.774)
Great points. Luke, let let’s spend a little more time on SMRs because they’ve really generated an enormous amount of interest and and frankly also some significant skepticism. The promise is pretty easy to understand, smaller individual investments, modular construction, repeatability, potentially shorter project cycles, and the ability to add that capacity incrementally, as as you said, was attractive to some.

customers. But we’ve been hearing that promise for quite a while. And, you know, we used to say, hey, it’s always ten years out. You know, it seems to be getting closer than ten years now. What makes you believe the SMR Marcet today is meaningfully different from where it was five years ago?

Luke (23:55.97)
Yeah, I think there’s been meaningful progress. And I think the question’s changing from could the technology or can the technology work to can the first projects be delivered and the next ones be delivered at a lower cost and and kind of that end of a kind concept. And so we should still be clear about what is not proven. the costs, the schedule, the construction performance, and the repeatability definitely have to be demonstrated.

I mentioned Project Janus with the the military earlier. They’re actually financing and kind of structuring an interesting EPC model that the commercial sector may be able to learn from. And so as there’s more of these demonstration projects and first adoptions and and deployments of SMRs, I think figuring out the business model and the EPC model for who bears the risks.

how these can be financed, who’s gonna ultimately operate them, can you operate them at a much lower cost than the traditional or conventional fleet? Those are really the the key questions now as we’re moving forward. So we’ve seen really significant progress in a number of of one off examples. I think getting the order book filled and then delivering on the execution side will be important to move from the SMRs five years out to now we’re

Talking about them is a a integral part of the generation mix.

Marc (25:28.662)
That’s really important point, Luke. The relevant milestone isn’t just another press release saying, you know, someone intends to deploy nuclear someday. It’s when those projects start moving through permitting financing, component qualification, procurement, site preparation, and construction. And we’ve seen developers and technology companies crossing some of those hurdles.

with G Atachi, X Energy and and TerraPower to name a few. How much does repeatability matter to that SMR business case?

Luke (26:05.442)
Yeah, it repeatability is the heart of the SMR business case. And so smaller by itself doesn’t guarantee cheaper or faster. And in many cases, it’s kind of a hindrance. I mean, the industry metrics often benchMarc on per megawatt hour. And so when you have a smaller denominator with SMRs, you’re you’re kind of hamstringing yourself from the get-go. So the value becomes

really comes from using the same design manufacturing and and doing that in more controlled settings where you can reuse engineering and learn from one unit to the next. I think that’s really what’s kind of the paradigm shift from the existing fleet, which is a varied mix of designs and there’s two or three OEMs that are kind of prevalent, but each plant is kind of a a custom designed

unique project if you will. And so it’s hard to, especially for the larger fleets from a maintenance perspective, they can’t take a a Boeing Southwest type approach where you stock common components. I think there’s there’s situations obviously where that is the case, but by and large, these are individually designed and engineered large-scale reactors. And so the benefit of scale with SMR and standardization is really, really important. So

in concept, the first unit’s gonna carry much of the development and first of kind costs. And then the business case is really going to depend on the second, the fifth, the tenth units taking less time, having fewer surprises, and becoming more efficient and more repeatable in process. So if every site asks for a custom plant, much of the advantage then goes away.

Marc (27:52.246)
That’s huge, the standardization and and there’s such a temptation to keep tweaking the design. So we gotta resist that if we wanna truly have modular construction. let’s go smaller. So one concept you’ve talked about is you know, power in a box micro reactors or extra small modular reactors that could be manufactured in a more repeatable way and deployed close to the customer. that sounds

A lot different, of course, from the nuclear industry we’ve grown up with and known for the last fifty years. What what’s the potential use case for those technologies?

Luke (28:30.894)
Yeah, so the best early uses may be places that value really compact, dependable power and can’t wait years for the grid or for interconnection. So remote industrial applications, defense sites, mining operations, and then some data center or industrial campuses. So the comparison I use is that this kind of the XMR or scalable.

Power in a box concept is that you can add modules as the load grows instead of building a large SMR or a gigawatt all at once. And so that’s a very different business model from a traditional nuclear station, which has a high upfront capital cost and could open applications that nuclear is not historically served before, like remote communities. So it’s still early. Licensing, security, the

How you’re going to handle fuel and refueling, the maintenance staffing, emergency zoning, and economics still all have to be proven, but we do see with concepts like the Bloom Energy fuel cell design, different power source, but similar in concept, that those have really been valuable to to meet some of the speed to power challenges.

Marc (29:54.168)
Loop, we can’t really have a conversation about nuclear without talking about regulation. There’s the conventional narrative we’re all familiar with that says the biggest obstacle to new nuclear in the US is the NRC, the Nuclear Regulatory Commission. But you’ve argued that framing is really becoming too simplistic. Is the NRC still the bottleneck?

Luke (30:18.156)
Maybe this is a hot take, but I would say no. we would not call the NRC the the singular bottleneck anymore. licensing is definitely critical and they’ve stated it’s going to remain rigorous. I mean the NRC is kind of the gold standard for nuclear regulation across the globe. but they’ve evolved their processes and are are really developing to engage earlier with operators.

do more performance-based regulation and are actually employing new technology and AI and their reviews in a meaningful way. And so a well-prepared application, early alignment can definitely improve the schedule without lowering the safety and kind of the the PRA and other risk assessment activities that are done through the NRC. And so

In many cases with these projects, the tougher issues are really outside of the licensing process. So the capital raise, the engineering resources, and we’ve talked about the supply chain and workforce construction capability, and then really whether the owner is ready to to lead and manage the project.

Marc (31:35.854)
Yeah, I think that’s worth emphasizing. Regulatory acceleration doesn’t mean eliminating technical review or lowering the safety standard. It’s really accelerating the process and better alignment of the framework with the technologies being proposed. It’s not all, you know, large light water reactors anymore. if licensing becomes less of a singular constraint, you know, what re what’s next? What replaces it?

Luke (32:03.95)
So the constraint really becomes execution. So a design can be able to be licensed and still not able to be financed or built. Capital has to arrive at the right time. Engineering must be far enough along to order equipment. I think we had some design and engineering lessons learned with the Vogel three four projects that that many have learned from.

suppliers need to have open manufacturing capabilities or new concepts that DOE and others are looking at to potentially have some key components on layaway. and so the owner needs the people and the controls to manage the work. And so at an operating plant, major work also has to fit within the outage windows. And so you can see that there’s a lot of different pieces to this puzzle.

And you can’t simply decide on a Tuesday night that a large modification is going to go into the next outage. And so all these pieces have to move together. If one falls behind, it can really set the schedule for the entire project or a sequence of projects based on how there’s just really long leads to execute many of the activities when it comes to nuclear uprates and new builds.

Marc (33:29.236)
Luke, it sounds like your argument is essentially the nuclear industry’s challenge is moving from, you know, planning and momentum development and alignment of stakeholders into real execution. We we know how to do those first few things. We certainly know how to announce, you know, accomplishments and projects, but now we have to finance them, engineer them, procure them, build staff, fuel, and ultimately operate them.

Where do you see the biggest execution risk?

Luke (34:02.126)
Yeah, the biggest risk is the handoffs between strong technical organizations. So between licensing to engineering, from engineering to procurement, procurement to construction, and then construction back to operations. And so for as an example, a late state late design change can affect equipment that may already be on order. a supplier delay can push work out of an outage and cost far more.

than the component itself. Or in many cases we’ve seen recently that traditional nuclear suppliers are having to go to second and third tier subsuppliers to meet the growing demand, and the quality’s not what it needs to be. And so that can also result in impacts to schedule. The owner cannot outsource responsibility for putting the whole project together. I think we’ve seen many instances of that, like who actually bears the construction risk.

so clear decisions, strong fundamentals, so project controls, visibility into risk are going to be essential. and that’s really what’s gonna separate an announcement of new megawatts to delivered megawatts to the grid.

Marc (35:17.694)
Let’s dive into the workforce first. If we’re simultaneously trying to maintain the existing fleet, extend plant lives, execute uprates, restart plants, and build an entirely new generation of reactors, do we actually have enough experienced nuclear people to do all of that? What what does the workforce constraint look like and where do you see it as most acute?

Luke (35:44.3)
Yeah, I think as you’re describing all those activities, I’m kind of picturing you you’re layering all this on to the same workforce and staff in many cases all at once. And so the need is broad. engineers, project managers, we’ve talked about licensing a number of times, but the operators, the maintenance and craft teams, and then the the labor to to build and execute these major modifications, the uprates.

and the the new build. And so we’re asking the workforce for a lot to maintain the existing fleet. And when we’ve talked with operators, that seems to be the the most kind of bedrock assumption is we’ve got to continue to operate the existing fleet at a high level of reliability and safety that the industry’s become known for. we’ve got to extend the lives of the existing plants. Most of all the long term generation

forecasts and and analysis really kind of assumes that the existing plants are going to operate for a lot longer. That’s going to require life extension projects, capital replacement, in some cases some digital controls uprates. And then to execute the uprates and the restarts, all that is happening kind of in a similar at the same sites in many cases and with a lot of the same workforce. So

We’ve seen utilities and operators really try to segment out the upgrade and new build work into separate organizations or rely on skilled third parties to help them manage those activities. But that challenge is going to compound over the next few years when activity really ramps up and re resources continue to get more and more scarce. So we see some of the challenges specifically in the workforce. You ask the question around

where it’s most acute, the hardest capability we see to replace is really judgment built over operating experience and years within the plant. Had a discussion actually earlier this morning on training and knowledge transfer need to start well before these projects commence to get the operating history and and some of that know-how from your senior engineers, from your senior maintenance craft.

Luke (38:12.12)
teams and we think AI can help a lot with that. There’s several nuclear utilities who’ve done some pretty exciting things from knowledge transfer and retention using AI tools, but it it’s not going to replace everything. And I think the the digital tools and AI can really help experienced folks find information quicker, help with the the design and drawing review and and really kind of get context around the existing plant.

much, much more efficiently. It can help prepare the work and make better use of some of their time, but it’s not going to ex replace the nuclear experience, accountability, or the ability to really implement these projects. And so it will help with the preparation, the sequencing, the scheduling, but the turning of the wrench and the operation of the plant still is going to require a significant amount of know-how.

Marc (39:10.03)
Those are really terrific points on one of the major challenges, Luke. And then of course we have supply chain. The the existing fleet and the new projects are gonna be competing for some of the same qualified suppliers, specialty components, engineering capacity, craft labor. How early do owners need to start securing that supply chain capability and and the long lead components?

Luke (39:36.994)
Yeah, yesterday. I think it’s maybe the short answer. but earlier than most owners and operators are used to. So if only a few qualified suppliers can produce a critical component, you’ve got to be able to get your manufacturing slots set in the schedule. And so some of the fleets we’ve we’ve heard have done a decent job of that. But owners also need some better visibility into supplier capacity.

what qualification needs they have, what constraints are around raw materials, engineering and then transportation. one of the things we’ve seen here is that large suppliers and kind of heavy industry suppliers to oil and gas and to refining operations are now looking to get into nuclear supply, but they need to get an an in stamp and get a qualification program set up. So

We think there’s some ways that the traditional nuclear supply base can be expanded, but many of those activities require some preparation and some education, frankly, for other industries that may have not worked in nuclear in the past. So we see DOE and others trying to do events to bring folks together that historically may not have worked across industry, but some of the the Navy and defense

nuclear supply we think may be able to play a role in the commercial supply equation as well.

Marc (41:11.522)
Luke, that reinforces something you’ve said in our capacity expansion work. This has to be managed as an integrated delivery system. Capital engineering, licensing, procurement, construction, workforce, and at operating plants, outage planning all have to come together. The the NRC can approve your license or you approve a project. That doesn’t mean you can build it.

You know, I know we’ve covered a lot of ground, but there’s there’s so much to touch on here. I I wanna go into another constraint that probably gets much less attention outside the industry, which is fuel. If we’re serious about really expanding our nuclear capacity, we obviously have to be able to fuel all those reactors. And as recently as twenty twenty four, Russian imports were still twenty to twenty five percent of the enriched uranium

Used by US reactors. With restrictions on those imports, the US has to be able to replace more than three million separative work units of enrichment capacity just to sustain the existing fleet. And that’s before we even account for new reactors. How concerned should the industry be about the nuclear fuel supply chain?

Luke (42:29.388)
Yeah, it definitely deserves more attention. The existing fleet is already adjusting to restrictions on the the Russian enriched supply before we really add any new reactors, like you said, Marc. And so some new designs require the HALU fuel and supply there is very limited compared with the number of projects that are kind of speculing it out or even discussing it. And so federal investment in domestic nuclear fuel supply is encouraging.

But enrichment and fabrication really does take time to build and qualify. So this is an area where if you’re looking at a renewed US manufacturing base, we see there’s some some pretty specific needs. if a reactor development moves faster than fuel production, the fuel can really set the pace for deployment of the full project.

Marc (43:24.59)
Advanced reactors make that issue even more complicated because many of those designs require HALU. What X Energy’s doing is interesting. They also have TriSoX building, you know, or essentially manufacturing HALU fuel as as part of their plan to try to shore up that fuel uncertainty. Commercial scale production outside Russia and China is still really limited relative to projected demand.

So we’re effectively trying to build a fuel supply chain at the same time we’re trying to build the reactors that will depend on that fuel supply chain. So how should utilities and developers incorporate fuel strategy into their capacity planning from the beginning?

Luke (44:09.282)
Yeah, fuels should be part of the technology selection from day one, not a purchasing or procurement decision handled later. But kind of coming back to the fuel supply, which enrichment and fabrication sources are truly credible? and then we would recommend aligning contracting inventory and supplier diversity with with the project schedule. So a reactor schedule is not credible with the fuel schedule behind it.

is incredible. And I think there’s definitely some work to do here. we’ve seen some of the early SMR projects using the the GE Hitachi design with the BWR X and and really being able to leverage that because it can use the existing fuel supply chain.

Marc (44:58.84)
Yeah, that’s definitely a a near-term advantage. I know there are operational and safety advantages of the other fuel types, but you gotta be able to manufacture it. Let’s let’s hit two more broad topics. One is kind of, you know, who pays for all this? And the other one is, you know, what what should utilities be doing right now? We’ll get to that. On who pays, let’s let’s talk capital. The industries historically struggled with the size and concentration of capital required for

new nuclear construction, but capital’s clearly coming back into the sector. Nuclear technology companies have substantial equity investment. even before, you know, some of these companies go public. We’ve got federal loan support, you know, utility capital where applicable, technology company PPAs or power purchase agreements, and even private investors are are in the picture.

Is a new financing model for nuclear starting to emerge?

Luke (46:00.974)
I think it depends on where you’re at. And what I mean by that is whether you’re in a merchant Marcet or you’re in a regulated utility structure. So there’s definitely a broader mix of capital emerging because the projects and customers for new nuclear megawatts are are different. And so we’ve meant you mentioned the PPAs a couple times. That’s one structure. but you may have a regulated utility investment.

federal loan support through the EDF programs, incentives like the PTC, the ITC, and and really the the DOE is looking to find ways that nuclear can benefit from some of those existing programs. Developer equity, vendor participation, and long-term customer co customer commitments in the the same project. And so

The central issue really is who’s carrying the risk. And it’s difficult for one utility, one customer or one investor to absorb all of the first of kind technology and construction risk. So that’s why we see some of these projects having multiple entities that are carrying different elements of that risk.

the projects are becoming more financeable when the parties that can best manage a risk are also the ones carrying it.

Marc (47:31.254)
That’s great point, Luke. And maybe this connects back to the two clock framework and upgrade at an operating nuclear plant as one risk profile, restarting a plant has another, building the first unit of a new reactor technology as another, and and deploying the tenth unit of a standardized design should have another. Should the financing model change as technology and execution risk are hired?

Luke (47:56.334)
It should. The the first unit of a new design is going to carry risks that the tenth unit shouldn’t. And so early projects need more sponsor equity, potentially govern government support, customer commitment, or vendor risk sharing because there’s less evidence on cost and schedule. And naturally, as the design is standardized and the projects demonstrate more clear performance.

We think the financing should become more clear and and conventional and less expensive. So I mentioned the asymmetric risk up front. That’s because we haven’t built nuclear at scale across the industry in quite some time. So the finance community is not used to it. And so the goal is not permanent support for every unit. I think it’s to get through the first projects to ensure that the order book is sufficiently full.

and then build a record that the private capital and Marcets can underwrite.

Marc (48:58.862)
Great stuff, Luke. Let let’s, as I promised, bring this back to the utility executive. Suppose I’m running a utility today, I’ve I’ve got rapidly increasing load, I’ve got resource adequacy concerns, I’ve got affordability pressure, I’ve already got an enormous capital program, and I’m looking at nuclear as one possible part of the solution. But some of these technologies may not be commercially available at scale for a while.

What should I actually be doing today?

Luke (49:32.022)
First, understand what the existing fleet can produce and what those assets need to operate reliably for the next several decades. I think most companies have understood this point, but it’s important, I think, to start with the operating fleet. Second, screen the potential sites and technologies with real timing, grid connection, water features, fuel availability, and workforce.

constraints in mind. we’ve seen quite a bit of work going into this, a lot of evaluation of existing sites where there’s large scale existing reactors to add SMRs or new nuclear to those existing sites. We think that’s likely going to happen here before too long. Third, talk early with your your regulatory groups and and the regulator suppliers and your large customers.

So we know the customers are coming to these executives and utilities, kind of seeking kind of firm clean power. but the commercial structure and equipment availability can help shape the answer just as much as which OEM or which reactor technology you ultimately select. And then finally, use kind of your gated capital project process, which has served the industry well on reliability-based uprates over the years.

But to spend in stages. So kind of do enough work now to keep your good options open and then increase commitment as you get some of these major risks resolved or mitigated.

Marc (51:08.184)
Would you characterize that as building options rather than making one giant bet?

Luke (51:15.078)
I think when you’re looking at a portfolio strategy, so near term kind of protecting the the current fleet and and practical upgrade potential, improving the performance of the existing assets, that’s only going to serve you well. And then definitely we’ve seen most operators, if not all, really seriously considering life extension opportunities for subsequent license renewal and then beyond. at the same time, preparing a small number of credible new build options. So

evaluating those sites, technologies, and customers as well, and importantly, this piece is maybe not reviewed as much, the commercial structure and how that’s going to work. The objective is not to place big bets on everything. It’s just to avoid reaching into the next decade with a major capacity need and no executable options. So we see a lot of the fleets and a lot of the vertically integrated utilities who are aggressively pursuing gas right now.

to get power onto the grid very, very quickly, they’re also moving along with their nuclear projects and standing up their new nuclear organizations, firming up the supply, really moving through these steps so that it unlocks the options here in the next few years to begin build out of new nuclear.

Marc (52:36.75)
Great insights, Luke. I I want to finish where we started. We called this episode Back to the Future. Nuclear is obviously not a new technology, part of our electricity system in the US for generations. But some of the things we’ve discussed today, like factory-produced reactors, nuclear power located directly alongside data centers, modular capacity that can potentially be added as load grows.

sound really different from the nuclear industry of the past. If this goes well, what does the US nuclear industry look like in say twenty forty?

Luke (53:15.618)
I’m not a psychic here, but I think we still see the existing fleet as the foundation, but it’s producing more through longer lives, improved capacity factor, benefiting from some of these up up rate projects and the selected restarts. we’ve got the opportunity to have operating SMR and advanced reactor fleets, so kind of combined technologies across

common owners potentially. We’ve done some work on integrated operations for nuclear that we think is especially important for the SMR and advanced reactor fleet. So leveraging a lot of the shared services concepts that have driven efficiency in other industries. And I think we’re talking about repeat builds instead of treating every project and every reactor design as the first one. And so large reactors have

Returned where the system needs the scale and the commercial structure can support it. And on the smaller end, nuclear is serving some customer sided and industrial uses that look different from today’s very central station model. And so most importantly, the industry has revitalized the supply chain, rebuilt some of the people and s and technical skill needed. and

Some of the fuel capacity and process discipline has been instilled in this new generation of the nuclear workforce.

Marc (54:51.726)
Luke, what’s one thing that has to happen between now and then, then being twenty forty for that future to become real?

Luke (55:00.622)
Yeah, I think we’ve got to start and do well on some of these initial projects. And so it seems simple. but some of these first of kind projects really need to move through those gates that we’ve talked about and actually begin to deploy power to the customers that have contracted them. And as we continue to grow and and expand, ensure that all the elements that support repeat project execution

happens and it happens relatively quickly in terms of the the the nuclear timeline and nuclear clock. And so the next projects matter but the the learning between the projects is gonna matter just as much. And so it’s it’s definitely gonna i e evolve around standard design, capable owners improving and and enhancing the qualified supplier base.

a credible fuel plan and manufacturing to support that and then a workforce that can carry that experience forward. So if we turn today’s kind of momentum into repeatable delivery, nuclear can be a major part of the country’s capacity expansion. If we don’t, I think we’re gonna have plenty of announcements and still be waiting on the megawatts.

Marc (56:20.524)
Luke, great discussion, really helpful. A a few things stood out to me. First, the fastest nuclear capacity opportunity is not a new reactor, it separates life extensions, restarts, and you know, potentially completion of existing projects. Second, new nuclears it it’s really becoming more tangible. And third and and maybe most importantly, the challenge is increasingly execution. So perhaps the nuclear resurgence.

I’ll call it. Isn’t a moment. It’s a sequence of these achievements. We get more from the fleet we have. We bring back assets where the economics make sense. We build the capabilities and supply chains. And then deploy the next generation of nuclear at scale. That really is back to the future. Luke, thank you so much for your terrific insights and for joining me.

Luke (57:12.95)
Yeah, thanks Marc. Enjoyed the conversation.

Marc (57:17.058)
Thanks for listening to this episode of the ScottMadden Energy Exchange. If you’d like to continue the conversation, you can find individual contact information in the show notes or reach us at infoscotden.com.