Nuclear has re-invented itself as a compelling pathway to achieving net-zero.
It is said that everything is cyclical—where there are periods of expansions and contractions. Could this be true of nuclear energy? Can the benefits outweigh the fears and flip the switch from decommissioning to accelerated growth?
In the late 1960s, federal nuclear energy programs shifted their focus to developing reactor technologies, and the nuclear power industry in the U.S. grew rapidly as a way of producing massive amounts of carbon-free electricity. In the 1970s, global oil pricing shocks prompted massive investments to the nuclear sector to diversify the energy mix. This “Industrial Age” of nuclear was accompanied by stable, decarbonized generation, large-capacity projects, and economies of scale, yet, questionable total cost competitiveness, safety, and waste.
Now, 50 years later, some of those plants of the total capacity of 27.5 GW are reaching the end of their useful lives, while public controversy and regulatory scrutiny threaten to further accelerate their retirement, especially after the Fukushima disaster. In some European countries nuclear was considered “the industry in exit” and not much happened in the U.S. either.
Things have changed recently due to the energy transition, which presents a new and compelling pathway for nuclear. To reach U.S. net-zero targets, the U.S. Department of Energy (DoE) projects the need for about an additional 550 GW to 770 GW of clean, firm capacity. With few viable options for clean baseload generation, the DoE estimates 200 GW or more of demand for new nuclear, both big box and small modular reactors (SMRs). Given the growth of intermittent renewables and rise in electricity demand, nuclear energy could be the critical means to “keeping the lights on” by providing secure, reliable, and standalone 24/7 carbon-free energy.
But can the nuclear industry deliver on these targets? Is it investable? It still has many unresolved challenges: a quickly diminishing talent pool and high upfront costs, which are affordable only by governments with low cost of capital, and delivery delays, and are only made worse by a high inflationary environment and supply chain disruption. New technologies, such as SMRs/advanced nuclear show promise, but their commercialization horizon is beyond 2028–2030. Are there opportunities in the nuclear industry 2.0?
EY-Parthenon projects three potential nuclear scenarios. They are:
- Baseline—Improved new-build timing and quality; moderate adoption of nuclear by developing nations; medium retention of fossil fuels; no occurrence of major accidents. In this scenario, we will see gradual development of big nuclear to fuel industrial growth of underpowered nations, SMRs uptake by mid-2030s, and planned decommissioning of nuclear power plants (NPPs) with expired service lives.
- Nuclear stagnation—No major innovation breakthrough; continued delays and cost overruns; decay of critical capabilities; developing nations and private sector turn away; renewables + battery storage share of generation mix increases; oil prices decrease; negative public sentiment grows. This scenario will result in rapid growth in decommissioning until 2040.
- Nuclear resurgence—Labor shortages, on-time/on-budget delivery, and contracting issues are addressed; widespread innovation looming; little progress with commercial feasibility of other low-carbon baseload power. This scenario will be marked by rapid SMR/advanced nuclear adoption by early 2030s and no significant decommissioning in the next decade due to lifetime extension and growing importance of nuclear in the energy transition.
Regardless of the scenario, SMRs/advanced nuclear and decommissioning represent new value pools for different extremes of the nuclear industry value chain.
On one end of the spectrum, SMR value proposition addresses chronical nuclear issues. Beyond clean, firm generation, SMRs are advantageous to large-scale nuclear due to their ability to support decentralization, security of supply, and affordability.
It is estimated by the Energy Information Administration (EIA) that by 2040 the levelized cost of electricity (LCOE) of advanced nuclear will fall to around $90/MWh, while several SMR developers forecast Generation III+ SMR LCOE to hit $50–$60/MWh—putting it at the low end of the cost range for new reactors. Such cost reduction (40%–50% first-of-a-kind [FOAK] to nth-of-a-kind [NOAK] costs) is driven by advanced manufacturing and digital methods; supply chain development; and rigorous engineering, procurement, and construction (EPC) management making SMRs a “product rather than a project.” SMRs could also benefit from additional revenue streams, such as industrial steam, district heating, direct air capture, hydrogen production, and desalination.
In North America, SMRs are gaining traction despite uncertainties around technological maturity, FOAK costs, and delivery readiness. For example, Tennessee Valley Authority is investing in SMR technology development and projects. A consortium of power companies is driving the Carbon Free Power Project in Idaho for an SMR power plant to be fully operational by 2030.
Winning the “SMR race” requires the developers to focus on integrated solutions, embedded partner ecosystems, and building a virtuous cycle to support stakeholder credibility and trust. While providing a superior product will heavily influence the early success of SMRs, an integrated solution (such as industrial applications, product extension services, and fuel cycle management) embedded in a partner ecosystem will help create a defensible market position. Additionally, industry participants should consider a six-point cycle of value creation:
- Focus on the core product and market-directed value proposition (such as simple, safe, easy to operate, and reliable design).
- Go to market when the time is right. Develop a compelling value delivery model, engage with the Nuclear Regulatory Commission through the approval process, and set up EPC management practices.
- Gain commercial traction with a focused customer strategy to enable early adoption reference cases.
- Develop a global/local supply chain footprint through localization and supplier development.
- Create an internal culture of excellence and innovation to drive FOAK and NOAK cost reduction.
- Support a credible and reliable brand image to build a strong position in the market and improve stakeholder perception.
On the other end of the spectrum, a down case for nuclear creates significant value creation opportunities for power plant decommissioning. The EY-Parthenon team values the emerging global nuclear decommissioning value pool at $92 billion to $159 billion by 2050, with variability driven by the competitiveness of nuclear versus other forms of energy. The U.S. is the second-largest decommissioning market (after Japan) with an $18 billion addressable market in the baseline scenario. Nuclear fuel cycle (NFC) projects add $8 billion of upside potential.
In the U.S., the customer landscape is very fragmented, with NPP operators mainly distributed across several utilities, each with unique needs. Operators typically prioritize project management expertise and highly value the ability to return savings to customers. Since 1990, the U.S. market has been made up of an oligopoly of just five major decommissioning players and negotiations leverage established partnerships and consortia. U.S. players also benefit from access to Asian markets, particularly to Japan where there is a large preference for the use of U.S. contractors, but also to South Korea and Taiwan.
Although the U.S. has been historically technologically conservative, to capture value both in the U.S. and internationally, innovative technologies to increase speed of decommissioning and dismantling, minimize radioactive waste (RAW), and optimize safety costs will need to be at the core of the offering. Unsurprisingly, U.S. players are investing in those capabilities by acquiring the companies with global engineering know-how and solution providers. Recent deals by Westinghouse are good examples of this move.
Mergers and acquisitions (M&A) are becoming a critical driver for rapid consolidation in the most profitable and technologically advanced business models of nuclear decommissioning. We estimate that the top 10 players could account for more than 90% of the market by 2030 (61% in 2021), driven primarily by players with a presence in growing U.S. and Japanese markets, and a potential new entry. However, this consolidation may be limited by high barriers to entry due to national preferences and local agendas, especially for advanced nuclear nations.
The varied outlooks on nuclear’s role in the energy transition require an agile, portfolio-driven approach. To meet net-zero targets, clean baseload generation needs to be developed, at pace and at scale. SMRs and advanced nuclear promise a viable and compelling solution, while an aging fleet drives potential for nuclear decommissioning.
Regardless of its future, stakeholders should take an agile, portfolio-driven approach to determine the pace of capital deployment and capability development. From “nuclear stagnation” to “nuclear comeback,” and from decommissioning to growth, a wide range of opportunities exist for U.S. stakeholders to create significant value in the nuclear sector, today.
—Anton Poryadin is EY-Parthenon principal with Ernst & Young LLP, Tom Flaherty is EY-Parthenon senior advisor with Ernst & Young LLP; and Jackson Perry is EY-Parthenon senior consultant with Ernst & Young LLP. The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other member firms of the global EY organization.