Nuclear’s Emerging Role in Project Finance: A Cross-Technology Perspective
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Nuclear’s Emerging Role in Project Finance: A Cross-Technology Perspective
Advanced nuclear is moving from the periphery to an increasingly visible role alongside renewables. Nuclear and pink hydrogen appear to be a winning combination from a practical, economic and environmental perspective. For those structuring and financing clean energy transactions, understanding how these technologies interact is becoming more important than ever. The U.S. Department of Energy’s Regional Clean Hydrogen Hubs (H2Hubs) program explicitly endorses, and has enhanced the value of, nuclear-powered hydrogen production. A hybrid PPA that provides for, say, a 50% nuclear baseload paired with 50% solar or wind, introduces more effective costs to build, operate and maintain the plant and less nuclear waste than a stand-alone nuclear plant, while solving for the intermittent nature of renewable energy. Hybrid PPAs will allow corporates to meet decarbonization targets sooner and more credibly and cost effectively, gain a stronger sustainability narrative, better hedge long-term power costs, and ensure a reliable supply of electricity for AI, data centers and core operations.
As the transition to a decarbonized grid accelerates, advanced nuclear is moving from the periphery to an increasingly visible role alongside renewables, and a collaboration among renewables, nuclear and pink hydrogen appear to be a winning combination from a practical, economic and environmental perspective. For those structuring and financing clean energy transactions, understanding how these technologies interact is becoming more important than ever.
The onset of the popularity of data centers, as well as the pledge of many corporates to go “carbon zero” by a certain date, are driving the demand for immense amounts of 24/7 carbon-free electricity. Advanced nuclear energy fits naturally into this evolving market, and power purchase agreements (PPAs) that govern the sale of nuclear power are increasingly being sought by large corporates. Earlier this month, Talen Energy signed a 1,920MW PPA with Amazon to supply nuclear power from its Susquehanna plant through 2042, and Meta signed a 20-year ~1,121MW PPA with Constellation for output from the Clinton nuclear plant. (The new Vogtle AP1000 reactors placed into service in 2023 and 2024 have utility offtakers.)
While there is currently no public record of blended PPAs in the US that include nuclear alongside renewables, such a model could deliver the holy grail of corporate energy sourcing – 24/7 carbon-free power from a firm and resilient source that costs less to build. Standalone renewables are inherently intermittent and require no fuel. Nuclear (fission) is firm, reliable power that can replace a peaker plant, but is expensive, requires expensive fuel, and carries with it a waste disposal problem. Combining these into one revenue contract mitigates the inherent problems that each of them has – providing a more cost-effective solution with less nuclear waste, and also mitigating curtailment and balancing risks. A PPA that provides for, say, a 50% nuclear baseload paired with 50% solar or wind, introduces more effective costs to build, operate and maintain the plant and less nuclear waste than a stand-alone nuclear plant, while solving for the intermittent nature of renewable energy. Hybrid PPAs will allow corporates to meet decarbonization targets sooner and more credibly and cost effectively, gain a stronger sustainability narrative, better hedge long-term power costs, and ensure a reliable supply of electricity for AI, data centers and core operations.
Hydrogen Hubs: Unlocking Value Through Collaboration
The U.S. Department of Energy’s Regional Clean Hydrogen Hubs (H2Hubs) program explicitly endorses, and has enhanced the value of, nuclear-powered hydrogen production. There are seven regional H2Hubs throughout the US for which DOE has allocated ~$7 billion in design-phase funding, and there are three that have entered final stages of DOE negotiation. As these H2Hubs mature, they are likely to move into offtake contract phases, to be followed by further development and construction, deal structuring, tax credit layering and regulatory compliance. SMRs operating at high capacity factors offer a unique advantage in powering electrolyzers efficiently and continuously, creating “pink” hydrogen, which is hydrogen produced by using electricity from nuclear power to split water into hydrogen and oxygen through electrolysis, resulting in zero carbon fuel (unlike “blue hydrogen” which relies on fossil fuels & carbon capture). This model allows SMRs to create hydrogen when power from the grid is at its cheapest (or when the nuclear facility is running at full speed), store the hydrogen in big tanks, move it to remote areas, use it when the grid is down, and handle demand spikes and grid constraints.
Structuring these hybrid projects to optimize the mix of production tax credits (PTC), investment tax credits (ITC), and hydrogen incentives requires an integrated view of both the technologies and the evolving tax landscape.
Tax Equity for SMRs: A New Market
While no traditional tax equity investors have yet closed on financings for SMRs, the opportunity is rapidly emerging. Under the Inflation Reduction Act (IRA), advanced nuclear projects qualify for the Section 45U PTC for zero-emission nuclear power, Section 45Y PTC for clean electricity, and Section 48E ITC for clean electricity. These are structurally identical to the ITC and PTC incentives for solar and wind that tax equity investors have been monetizing for the last two decades, and will very likely use similar documentation.
In addition, SMRs can leverage domestic content and energy community bonus credits, which are tools that tax equity investors already know well from solar and storage markets. These bonus credits materially enhance project economics and can help offset the capital intensity of nuclear development. There are also federal loan guarantees available under the DOE’s Title 17 Clean Energy Financing Program.
The market, however, is still developing. Tax equity investors are approaching SMRs with caution, focusing on the regulatory pathway, construction and insurance risk, and technology readiness. Those with experience financing large projects with debt and tax equity, as well as the DOE loan guaranty programs, will have an advantage as these advanced nuclear projects move to the financing stage.
Looking Ahead
Given the available incentives delivered by the IRA and recent political trends, it makes sense for the market to move toward a more integrated model where renewables, hydrogen, storage and advanced nuclear complement each other to deliver reliable, clean energy and solve global energy needs. Combining these technologies in the future mitigates various risks and delivers a more cost-effective and transportable solution.
Jocelyn Lavallo is a partner in Foley & Lardner’s Energy and Infrastructure Sector, which focuses on the financing, development, acquisition, and sale of energy transition projects. She has deep experience in utility-scale and distributed solar, wind, and battery storage transactions, and advises clients on data center projects, nuclear, and emerging technologies.
Nuclear’s Emerging Role in Project Finance: A Cross-Technology Perspective
Advanced nuclear is moving from the periphery to an increasingly visible role alongside renewables. Nuclear and pink hydrogen appear to be a winning combination from a practical, economic and environmental perspective. For those structuring and financing clean energy transactions, understanding how these technologies interact is becoming more important than ever. The U.S. Department of Energy’s Regional Clean Hydrogen Hubs (H2Hubs) program explicitly endorses, and has enhanced the value of, nuclear-powered hydrogen production. A hybrid PPA that provides for, say, a 50% nuclear baseload paired with 50% solar or wind, introduces more effective costs to build, operate and maintain the plant and less nuclear waste than a stand-alone nuclear plant, while solving for the intermittent nature of renewable energy. Hybrid PPAs will allow corporates to meet decarbonization targets sooner and more credibly and cost effectively, gain a stronger sustainability narrative, better hedge long-term power costs, and ensure a reliable supply of electricity for AI, data centers and core operations.
As the transition to a decarbonized grid accelerates, advanced nuclear is moving from the periphery to an increasingly visible role alongside renewables, and a collaboration among renewables, nuclear and pink hydrogen appear to be a winning combination from a practical, economic and environmental perspective. For those structuring and financing clean energy transactions, understanding how these technologies interact is becoming more important than ever.
The onset of the popularity of data centers, as well as the pledge of many corporates to go “carbon zero” by a certain date, are driving the demand for immense amounts of 24/7 carbon-free electricity. Advanced nuclear energy fits naturally into this evolving market, and power purchase agreements (PPAs) that govern the sale of nuclear power are increasingly being sought by large corporates. Earlier this month, Talen Energy signed a 1,920MW PPA with Amazon to supply nuclear power from its Susquehanna plant through 2042, and Meta signed a 20-year ~1,121MW PPA with Constellation for output from the Clinton nuclear plant. (The new Vogtle AP1000 reactors placed into service in 2023 and 2024 have utility offtakers.)
While there is currently no public record of blended PPAs in the US that include nuclear alongside renewables, such a model could deliver the holy grail of corporate energy sourcing – 24/7 carbon-free power from a firm and resilient source that costs less to build. Standalone renewables are inherently intermittent and require no fuel. Nuclear (fission) is firm, reliable power that can replace a peaker plant, but is expensive, requires expensive fuel, and carries with it a waste disposal problem. Combining these into one revenue contract mitigates the inherent problems that each of them has – providing a more cost-effective solution with less nuclear waste, and also mitigating curtailment and balancing risks. A PPA that provides for, say, a 50% nuclear baseload paired with 50% solar or wind, introduces more effective costs to build, operate and maintain the plant and less nuclear waste than a stand-alone nuclear plant, while solving for the intermittent nature of renewable energy. Hybrid PPAs will allow corporates to meet decarbonization targets sooner and more credibly and cost effectively, gain a stronger sustainability narrative, better hedge long-term power costs, and ensure a reliable supply of electricity for AI, data centers and core operations.
Hydrogen Hubs: Unlocking Value Through Collaboration
The U.S. Department of Energy’s Regional Clean Hydrogen Hubs (H2Hubs) program explicitly endorses, and has enhanced the value of, nuclear-powered hydrogen production. There are seven regional H2Hubs throughout the US for which DOE has allocated ~$7 billion in design-phase funding, and there are three that have entered final stages of DOE negotiation. As these H2Hubs mature, they are likely to move into offtake contract phases, to be followed by further development and construction, deal structuring, tax credit layering and regulatory compliance. SMRs operating at high capacity factors offer a unique advantage in powering electrolyzers efficiently and continuously, creating “pink” hydrogen, which is hydrogen produced by using electricity from nuclear power to split water into hydrogen and oxygen through electrolysis, resulting in zero carbon fuel (unlike “blue hydrogen” which relies on fossil fuels & carbon capture). This model allows SMRs to create hydrogen when power from the grid is at its cheapest (or when the nuclear facility is running at full speed), store the hydrogen in big tanks, move it to remote areas, use it when the grid is down, and handle demand spikes and grid constraints.
Structuring these hybrid projects to optimize the mix of production tax credits (PTC), investment tax credits (ITC), and hydrogen incentives requires an integrated view of both the technologies and the evolving tax landscape.
Tax Equity for SMRs: A New Market
While no traditional tax equity investors have yet closed on financings for SMRs, the opportunity is rapidly emerging. Under the Inflation Reduction Act (IRA), advanced nuclear projects qualify for the Section 45U PTC for zero-emission nuclear power, Section 45Y PTC for clean electricity, and Section 48E ITC for clean electricity. These are structurally identical to the ITC and PTC incentives for solar and wind that tax equity investors have been monetizing for the last two decades, and will very likely use similar documentation.
In addition, SMRs can leverage domestic content and energy community bonus credits, which are tools that tax equity investors already know well from solar and storage markets. These bonus credits materially enhance project economics and can help offset the capital intensity of nuclear development. There are also federal loan guarantees available under the DOE’s Title 17 Clean Energy Financing Program.
The market, however, is still developing. Tax equity investors are approaching SMRs with caution, focusing on the regulatory pathway, construction and insurance risk, and technology readiness. Those with experience financing large projects with debt and tax equity, as well as the DOE loan guaranty programs, will have an advantage as these advanced nuclear projects move to the financing stage.
Looking Ahead
Given the available incentives delivered by the IRA and recent political trends, it makes sense for the market to move toward a more integrated model where renewables, hydrogen, storage and advanced nuclear complement each other to deliver reliable, clean energy and solve global energy needs. Combining these technologies in the future mitigates various risks and delivers a more cost-effective and transportable solution.
Jocelyn Lavallo is a partner in Foley & Lardner’s Energy and Infrastructure Sector, which focuses on the financing, development, acquisition, and sale of energy transition projects. She has deep experience in utility-scale and distributed solar, wind, and battery storage transactions, and advises clients on data center projects, nuclear, and emerging technologies.