Tech Insights

Inflation-Ridden Supply Chains, Interest Rates Dampen SMR Development

July 13, 2023 by Shannon Cuthrell

Small modular reactor developers face interest rate hikes and soaring commodity prices for steel piping, fabricated steel plates, and other materials needed in advanced nuclear reactors.

Rising costs across the advanced nuclear reactor supply chain have added new uncertainty in the small modular reactor (SMR) market—a nascent but promising field of renewable energy, offering emissions-free nuclear power at a smaller scale than conventional plants. 


A mock-up of a portion of the NuScale’s power module at a site in Oregon

A mock-up of a portion of the NuScale’s power module at a site in Oregon. Image used courtesy of NuScale Power

Rafael Grossi, the director general of the International Atomic Energy Agency (IAEA), said in a recent meeting in Austria that even the most promising projects now need to inform investors and buyers of skyrocketing cost estimates. This has been spurred by interest rate hikes and inflation driving up the cost of steel, copper wire, and other crucial materials. 

Grossi added that avoiding or mitigating cost increases and delays is critical for SMR developers. The IAEA has proposed standardized regulations and industrial processes to streamline the mass production of components and minimize the need for custom engineering. 

The IAEA’s SMR database counts 13 designs under development in the U.S., with dozens more scattered worldwide. Progress may be slowed as American SMR developers feel the effects of volatile commodity prices and increased interest rates. 


NuScale and X-Energy Project Updates

Maryland-based X-energy recently updated the cost estimates for its advanced nuclear reactor project as part of the U.S. Department of Energy (DOE)’s Advanced Reactor Demonstration Program (ARDP). In 2021, X-energy and the DOE agreed to split the $2.5 billion cost of designing and building the company’s Xe-100 reactor. Though the project’s scope has expanded since then, economic and supply issues played a role in the most recent update, announced last month

Raising the projections to $4.75 billion to $5.75 billion, X-energy cited inflationary pressures for construction materials, higher labor costs than anticipated, increased interest rates, supply chain constraints for equipment, design changes, and other factors influencing the scope. 

Similar pressures were cited earlier this year in an updated cost estimate for the U.S.’s first commercial SMR, the 462-megawatt (MW) Carbon Free Power Project (CFPP), aiming to deploy six 77 MW nuclear power modules by 2030. The project partners—Oregon-based startup NuScale Power and Utah Associated Municipal Power Systems (UAMPS)—supplied participating utilities with an updated target power price in January: $89 per megawatt-hour (MWh), up from $58/MWh in 2021. 

UAMPS cited escalating inflation across the energy supply chain and a 2% jump in the interest rate used for cost modeling since July 2020. The new estimate also accounts for two years of rising costs across the Producer Price Indexes of several key components: carbon steel piping (up 106% since 2020), fabricated structural steel (+70%), fabricated steel plates (+54%), all commodities (+45%), copper wires and cables (+32%), and electrical equipment (+25%). 


CFPP power price estimates over time

CFPP power price estimates over time. The 2023 line notes the projected reduction from subsidies in the Inflation Reduction Act. Image used courtesy of the Institute for Energy Economics and Financial Analysis


The total cost of acquisition and construction rose by 75% from $5.3 billion to $9.3 billion. However, that figure falls to $5.1 billion when accounting for federal cost-sharing via a $1.4 billion DOE grant and a subsidy of $30/MWh through the Inflation Reduction Act (together valued at $4.2 billion). The power target price would otherwise top $119/MWh without those contributions, according to the Institute for Energy Economics and Financial Analysis. 

Although commodity prices have recovered slightly in 2023, they remain well above pre-pandemic levels. In a first-quarter earnings call in May, NuScale CEO John Hopkins said the company is working with its suppliers to cut costs as much as possible, adding that the situation is beginning to loosen on the supply side. However, cost reduction remains the focus, with interest rates and inflation continuing to bite. 


Producer Price Index records show the rising cost of materials for advanced nuclear reactors

Producer Price Index records show the rising cost of materials for advanced nuclear reactors since 2015, when UAMPS first announced the CFPP project. (Graph inputs set by the author.) Image used courtesy of the Federal Reserve Bank of St. Louis

UAMPS said in January 2023 that all project elements would be reviewed to identify cost savings without impacting plant operations or safety. Despite the substantial increase in target prices, all but one of the 27 participating UAMPS-member utilities in the project voted to continue development. NuScale and UAMPS plan to submit a Nuclear Regulatory Commission application to construct and operate the plant in January 2024. The partners are also working on a more comprehensive cost estimate. 


What’s Next for the Carbon-Free Power Project?

In its June CFPP update newsletter, UAMPS said the project remains on schedule and recently hit a new milestone in starting the forging production process. 

NuScale recently executed a long-lead material production order with South Korea-based Doosan Enerbility, which will produce forgings in materials needed to manufacture the first power modules. Forging has already commenced, and manufacturing will begin later this year to wind and fabricate the forgings to their final dimensions. 

UAMPS’s newsletter added that NuScale continues to progress on regulatory fronts, and the next project milestone will involve submitting a limited work authorization (LWA) application in late July, setting up the site for non-nuclear construction activities. The first module is expected to start operations by December 2029, with the remainder in service by late-2030.