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The SMR Gamble: Betting on Nuclear to Fuel the Data Center Boom

“Who’s going to insure these plants?” “That’s a huge unknown. “

Mar 3, 2025, by Sonal Patel  Power Mag

Data center power demand is accelerating, pushing the grid to its limits and prompting tech giants to bet on next-generation nuclear reactors. But given steep costs, regulatory hurdles, and uncertain scalability, is nuclear the future of data center energy—or just another high-stakes gamble?

At the end of January, Chinese artificial intelligence (AI) startup DeepSeek unveiled two large language models (LLMs)—DeepSeek-R1 and DeepSeek-R1-zero. Unlike previous generations of AI models, DeepSeek’s breakthrough reduced the compute cost of AI inference by a factor of 10, allowing it to achieve OpenAI GPT-4.5-level performance while consuming only a fraction of the power.

The news upended future electricity demand assumptions, rattling both the energy and tech sectors. Investment markets reacted swiftly, driving down expectations—and share prices—for power generation, small modular reactor (SMR) developers, uranium suppliers, gas companies, and major tech firms.

Yet, amid the chaos, optimism abounded. Analysts pointed to Jevons paradox, the economic principle that efficiency gains can increase consumption, rather than reduce it. “Our model shows a ~90% drop in the unit cost of compute over a six-year period, and our recent survey of corporate AI adoption suggests increases in the magnitude of AI use cases,” said Morgan Stanley Research. The U.S. remains the dominant market for AI-driven data center expansion, with 40 GW of new projects under development, aligning with a projected 57 GW of AI-related compute demand by 2028. Already, that load is transforming the energy landscape. A recent POWER analysis shows that U.S. data center electricity consumption could reach between 214 TWh and 675 TWh annually by 2030, up from 176 TWh in 2023 (Figure 1 on original)………………………………

Emerging Business Challenges

Still, beyond regulations, the actual business of running co-located nuclear plants remains uncertain. While recent discussions highlight tech companies as potential investors in advanced nuclear facilities, data center sources confirmed most aren’t attracted to the prospect of owning and operating nuclear plants.

“Data center operators are not in the business of running power plants,” said Walsh. “They want reliability and cost certainty, but they don’t want to deal with regulatory oversight, fuel procurement, or reactor maintenance.”………………………

From an operational standpoint, co-located facilities can pose new risks, as Nina Sadighi, professional engineer and founder of Eradeh Power Consulting told POWER. “Who’s going to insure these plants?” she asked. “That’s a huge unknown. Right now, insurance providers are hesitant because of the regulatory and operational complexity. The traditional nuclear liability structures are built around large reactors with established operational histories, and when you introduce something novel like SMRs or microreactors, you’re dealing with a very different risk profile.”

Sadighi, though generally optimistic about nuclear’s suitability for data centers, also pointed to potential workforce-related challenges that hinge on timely deployment. “If we train nuclear workers now, but deployment gets delayed, those workers won’t wait around,” she said. “The nuclear workforce pipeline is not like a tech workforce, where people can pivot between roles quickly. These are specialized skills that require years of training, and if there’s uncertainty about job stability, we risk losing them to other industries entirely,” she said. Sadighi also raised concerns about the stringent operational protocols that add to labor inefficiencies.

Finally, while the data center industry isn’t solely bent on economics—and told POWER sustainability with a long-term vision is a bigger priority—scaling up will require significant investment. That has sparked all kinds of debate. Lux Research estimates first-of-a-kind (FOAK) SMRs could cost nearly three times more than natural gas ($331/MWh versus $124/MWh) and more than 10 times more when factoring in cost overruns and delays. The firm projects SMRs won’t be cost-competitive before 2035. “Cheap nuclear just isn’t in the cards in the next two decades,” it says.

The fundamental debate is rooted in several uncertainties—which is not uncommon for emerging sectors, experts also generally pointed out. “Tax credits—especially the clean electricity production tax credits and investment tax credits—will be vital to the commercial viability of these projects, especially considering the FOAK risk,” said Teplinsky. “DOE [U.S. Department of Energy] loan guarantees and direct financing from the Federal Financing Bank at low rates are also essential to companies’ ability to secure debt and reduce cost of capital. Grant funding to support commercial demonstrations and high-assay low-enriched uranium support are also key.” ………………..
https://www.powermag.com/the-smr-gamble-betting-on-nuclear-to-fuel-the-data-center-boom/

March 5, 2025 - Posted by Christina Macpherson | Small Modular Nuclear Reactors, USA