SMRs are attracting growing attention from governments, investors, and financiers as a means to power the energy transition, offering the promise of shorter construction times, scalability, and reduced financial risk compared to traditional nuclear reactors.

By Tom Bartlett, Beatrice Lo, JP Sweny, Simon Tysoe, Sam Burleton, and Tom Glynne-Jones

Nuclear power is attracting growing interest in the energy and investment sectors, driven by the rising global demand for low-carbon energy and the growth of artificial intelligence (AI). While the development of traditional nuclear reactors at scale involves particular challenges due to regulatory and permitting issues, long build times, and capital intensity of these projects, small modular reactors (SMRs) are receiving increased government support as well as attention from investors and financiers, attracted by the scalability and potentially lower financial risk.

Powering the Energy Transition

Rising global electricity consumption, driven by population growth, electrification, and increased demand for AI and other compute-intensive workloads that are powered by data centres, has led to heightened demand for secure and reliable sources of power production.

The transition towards low-carbon energy generation creates a growing interest in nuclear power as a low emissions source that provides stable generation to meet baseload supply requirements and manage intermittency issues associated with many renewable power sources. These advantages have been recognised — the Global Stocktake issued at the conclusion of COP28 explicitly acknowledged, for the first time, a role for nuclear power in meeting carbon neutrality targets. A total of 31 countries have now committed to triple global nuclear energy capacity by 2050. Leading financial institutions have also recently pledged to increase support for the development of nuclear power — indicating that greater investment may be available to the sector.

Although the development and financing of large-scale nuclear reactors has historically been challenging, macroeconomic circumstances alongside technical developments have inspired renewed interest in a number of countries to develop such plants. In addition, the advancement of SMR technology, with its shorter construction times and reduced footprint, is seen as a promising, cost-effective solution to expand the deployment of nuclear power at scale. This outlook has been demonstrated by several recent high-profile investments in SMR projects by Big Tech, attracting the attention of financiers and other investors, as well as increased political support. A number of further projects have secured debt financing or letters of intent from international export credit agencies.

In the UK, certain shortlisted bidders are undergoing detailed assessment and approval processes as part of the UK’s SMR programme. The UK government also announced that an AI Energy Council will be established to advise on the energy demands of AI, including, explicitly, the potential role of SMRs. Other countries, such as the US, Saudi Arabia, Italy, and Poland, are developing (or considering) SMR programmes. This growing interest is further demonstrated by the UN-backed International Atomic Energy Agency, which issued SMR-specific guidance in 2024.

Small Modular Reactors — What Are They?
SMRs are advanced nuclear reactors that are smaller in size and output than traditional nuclear plants. SMRs typically have a capacity of up to 300 megawatt electric (MWe) —about one-third of the generating capacity of traditional nuclear power reactors. Globally, over 80 designs and concepts for SMRs are currently at various stages of development and construction.

Key features which make SMRs attractive for investment include:
Size and scale: By design, SMRs occupy a fraction of the physical footprint of a traditional nuclear reactor, enabling a shorter construction period and greater cost effectiveness. This feature opens up a greater number of suitable sites on which reactors may be situated, overcoming a key obstacle to many conventional nuclear power plants.
Modular design: SMRs are typically designed to be largely prefabricated prior to installation and commissioning on site. In theory, this design will enable developers to establish efficient manufacturing processes and supply chains, delivering a shorter timeframe from project inception to operation at a lower per-unit cost. Further, many designs allow for additional reactors to be added at existing sites at a later date, providing flexibility to boost future capacity.

These features allow SMRs to be deployed strategically. For example, data centres or energy-intensive industrial sites may directly procure nuclear power to satisfy their energy demands — providing reliable supply that is less carbon-intensive than traditional hydrocarbon plants. Additionally, the modular design and simplified construction and installation process is attractive for projects being developed in remote areas where the grid capacity is limited and/or the costs of grid connection and electrification can be high. At a larger scale, fleets of SMRs may be rolled out to increase grid supply in a flexible way — including on brownfield land of decommissioned plants or at a larger number of smaller sites.

Financing and Bankability of Nuclear Projects and SMRs

The risk profile of traditional nuclear power projects has long proved to be challenging to finance on a limited recourse basis without robust government support. SMRs address many common issues, which should increase SMRs’ commercial appeal:

  • Scale and Flexibility: The smaller footprint, simpler construction process, and diverse civil and industrial applications introduce a greater variety of potential site locations and business cases for projects. For investors, the lower overall capital cost of SMRs combined with modularity — which lends itself to tranched funding models — also serve to reduce capital at risk.
  • Construction Risk: This key risk has previously hindered traditional private third-party commercial financing of conventional nuclear projects. A number of projects have encountered high-profile cost overruns and delayed commercial operations. The modular design of SMRs promises to greatly simplify and shorten the construction phase and thereby reduce the magnitude of this risk for lenders.
  • Market Risk: The capital intensity of conventional nuclear projects typically demands long-term debt that requires careful allocation of market risk between developers, lenders, and offtakers. Lessons learned from periods of high price volatility in recent years have attracted greater focus on this risk. SMRs offer two key benefits in this area. First, the accelerated timeframe to reach commercial operations may enable developers to obtain shorter tenors of debt to finance SMRs than would be possible for conventional reactor projects. Second, a core use case of SMRs to generate power for specific predetermined offtakers may insulate these projects from market risk if offtakers are willing to accept fixed-price (or other risk-sharing) offtake terms.
  • Raw Supply: Existing conventional nuclear reactors typically require refuelling on an annual basis or after every two years. This maintenance necessarily requires outages, incurs costs (including the procurement of fuel and operation and management of the process), and generates waste that must be processed and disposed of. Many SMR concepts provide for longer refuelling cycles — often in the region of three to seven years — which reduce downtime and a project’s exposure to associated costs. Some designs even promise to remove the need for refuelling entirely during a reactor’s service life (of up to 30 years).
  • ESG: With the recent revision by the European Union of its taxonomy rules to designate nuclear activities as “environmentally sustainable” — and the ongoing consultation regarding an equivalent designation under UK rules — a number of corporates have updated their ESG frameworks to include eligible nuclear projects. Green and transition debt has also been successfully raised in several jurisdictions with nuclear use of proceeds.
  • Regulatory: Government and regulators also play a role in creating and maintaining environments that accommodate the deployment of SMR projects and nuclear energy more generally — particularly in relation to regulatory and political risks. Clarity and consistency are essential to supporting participants throughout the life cycle of development and operation. We are seeing increasing regulatory innovation — such as the successful implementation of contracts-for-difference, first introduced in the UK and subsequently adopted in a number of jurisdictions, and regulated asset-base funding models — to create conditions that facilitate deployment and financing of nuclear technology.

Conclusion

A number of countries have announced plans to develop new large-scale nuclear plants, or restart existing plants, including in a number of European and Asian jurisdictions, in which options to reach net zero within committed timelines are narrowing.

In parallel to this development, SMRs — in light of their bankability advantages compared to conventional nuclear projects — stand to benefit from the increased focus on nuclear as a viable and necessary part of the net zero transition story. We expect the financing of SMR projects on a traditional project finance or asset-based non-recourse / limited recourse basis to be commercially viable. Alternative financing structures, including direct lending and bonds, are also being examined by banks for these projects.

Nonetheless, SMRs remain an emerging technology. To deliver projects at the scale demanded by ambitious targets, further work remains for market participants to evaluate and manage the risks of these projects and to adjust to a developing regulatory landscape. Developers, too, must continue to make compelling cases for investment, while policymakers and regulators need to shape conditions that facilitate delivery.

While the recent developments create a promising outlook for nuclear, further challenges must be overcome to unlock the sector’s full potential and contribute significantly to a sustainable energy future.