PaperlayerView exact revision on arXiv

Source-linked AI summary

The consequences of high SMR operating costs in electricity markets

Pradyumna Rao, Daniel T. Kaffine, Bri-Mathias Hodge

arXiv:2609.08929v1eess.SYcs.SYecon.GNq-fin.EC

TL;DR

The paper asks whether SMRs can be viable private investments as power markets evolve and demand for firm generation grows. It models flexible SMR dispatch across energy, capacity, and policy settings, finding that high operating costs undermine feasibility at advertised benchmarks. It concludes that marginal-cost reductions may be more valuable than investment-cost reductions.

  • Problem

    The paper asks whether SMR concepts are economically viable for private investment, using manufacturer-advertised cost estimates whose validity remains disputed.

    Source: §1 · p. 3

  • Method

    A flexible-operations model dispatches six SMR concepts using hourly electricity prices and evaluates capacity-price and production-tax-credit effects.

    Source: §2.1 · p. 5, §2.4 · p. 7, §3.3 · p. 10

  • Results

    Operational cost escalation drives poor SMR project performance in ISO markets with and without policy support, as intra-hour operating losses overshadow upfront investment-cost advantages.

    Source: §4 · p. 14

  • Takeaways & Limitations

    At $12/MWh marginal costs, investment-cost benchmarks can be relaxed by an average of 30%, indicating larger dividends from marginal-cost improvements than investment-cost reductions.

    Source: §4 · p. 14

    The analysis focuses on six selected leading SMR concepts, which the authors report performed best in their analysis.

    Source: §2.1 · p. 5

Abstract

from arXiv · show

As US power markets contend with growing demand for firm generation, the nuclear industry has offered Small Modular Reactors (SMRs). However, how these concepts would fare in a rapidly evolving power grid is unclear, given the paucity of operational examples. Current literature, informed by substantial cost escalations for traditional nuclear plants, focuses on the investment costs SMRs need to achieve for private investment feasibility. However, this work finds that the operating and marginal costs of SMRs are more critical to economic feasibility in market environments. This work dispatches SMRs using a flexible operations model, considering revenue from two main electric markets, capacity and wholesale energy markets, with and without policy support. Manufacturer advertised costs for investment and operating costs are used, with fuel costs calculated from manufacturer provided design parameters. Results indicate that SMRs are uneconomical primarily because investment cost reductions are offset by increased marginal costs. As such, an environment of prices and subsidies beyond historic norms are necessary to attract private investment at manufacturer advertised cost benchmarks. Current SMRs are as profitable as advanced estimates of the AP1000 traditional nuclear reactor, and if investment costs escalate at the average rate for nuclear projects, they are similar to Vogtle 3 & 4. In projected future power markets, reductions in marginal cost may be more beneficial than those in investment costs.

1. Introduction

The paper argues that SMR feasibility depends more on operating and marginal costs than on investment costs, despite growing demand for firm, carbon-free generation. It evaluates flexible SMR operations across electricity-market revenues and policy scenarios, finding that manufacturer-advertised costs generally require prices and subsidies beyond historic highs for private investment.

1. Introduction

  • Growing demand for firm, carbon-free power motivates renewed nuclear interest, while cost escalation and other concerns accompany the proposed modular alternative of SMRs.SMRs are classified as reactors below 300 MWe and are touted as simpler, safer, and cheaper than gigawatt-scale reactors.Source: §1 · p. 2
  • The paper dispatches SMRs on hourly prices to capture temporal and operational effects that static capacity-factor and constant-price assumptions miss.The model extends manufacturer cost parameters with technical design constraints and refueling outages, and considers future price scenarios and SMR operating characteristics.Source: §1 · p. 3
  • Building on prior work on nuclear operating costs and SMR NPVs, the paper identifies marginal costs as central and evaluates capacity revenues, policy incentives, and breakeven cost tradeoffs.It also calculates SMR fuel costs from manufacturer-provided design parameters.Source: §1 · p. 3
  • High operating costs offset SMRs’ lower upfront costs, making marginal costs more important than investment costs for economic feasibility.The paper attributes poor performance partly to design tradeoffs involving novel fuels without established supply chains and resulting intra-hour operating losses.Source: §1 · p. 3
  • At manufacturer-advertised costs, wholesale-only SMRs cannot repay within their technical lifetimes; supplementary capacity revenues require average lifetime prices above PJM’s historic high 2025/26 auction price.The paper also finds that support beyond current ITC and PTC levels is needed, with capacity revenues more impactful than the PTC.Source: §1 · pp. 3–4
  • Under high wholesale and capacity prices supplemented by high PTC rates, current SMR estimates are as profitable as NOAK and advanced AP1000 estimates; cost escalation makes them similar to Vogtle 3 & 4.The passage questions the benefits of advanced nuclear given traditional plants’ economies of scale.Source: §1 · p. 4

2. Data and Methodology

The analysis combines manufacturer-advertised SMR cost data, operational assumptions, and historical and future electricity-price scenarios. It models flexible dispatch and evaluates policy support and investment performance.

2.1. Data Collection

  • Manufacturer-advertised investment costs were combined with ARIS operational data and calculated fuel costs for six selected SMR concepts.Fuel-cost calculations used manufacturer design parameters and a 92.3% capacity factor.Source: §2.1 · pp. 4–5

2.2. Price Profiles

  • Three Cambium future scenarios and three average ISO historical-price scenarios were selected, with capacity prices varied at and beyond historical levels.Capacity-market revenues were modeled as monthly payments and discounted over time.Source: Table 3 · p. 5, §2.2 · p. 5

2.3. Policy and Research Estimates

  • Investment and production tax credits were modeled, alongside future cost estimates for AP1000 and NREL ATB reactor scenarios.Investment credits reduce modeled investment costs, while production credits apply hourly for 10 years.Source: §2.3 · pp. 5–6, Table 4 · p. 6

2.4. Flexible Operations Model

  • The flexible price-taker model dispatches at maximum power when prices cover marginal operating costs and ramps down to 40% output when they do not.Refueling is scheduled one module at a time when the price signal is in the lower quartile of the generator's refueling range.Source: §2.4 · p. 6
  • Performance is evaluated using NPV and discounted payback, with a 4% discount rate and construction costs distributed across the build period with 10% construction interest.NPV uses net operating cash flow, fixed O&M, and plant lifetime; discounted payback is the earliest year cumulative discounted operating cash flows meet the stated condition.Source: §2.4 · p. 7

3. Results

SMRs’ high operating and marginal costs limit payback across energy markets and policy scenarios, offsetting their lower investment costs. Marginal-cost improvements offer greater feasibility gains, while investment-cost escalation makes their performance resemble traditional nuclear builds.

3.1. Investment Viability in Competitive Energy Markets

  • Almost all concepts exceed their technical lifetimes on energy-only revenues, and 12 of 22 still miss 20-year payback at ERCOT’s $19.46/kW-month capacity-price benchmark.Some concepts remain beyond their technical lifetimes even at $100/MWh energy and $100/kW-month capacity prices.Source: §3.1 · p. 7, §3.2 · pp. 9–10

3.3. Impacts of Policy Support

  • At IRA PTC levels, 18 of 22 considered SMRs would not achieve 20-year payback, leaving most concepts unattractive to private investment.ITCs must cover more than 75% of investment costs for sub-20-year payback, yet full construction-cost coverage still fails to bring some SMRs below their technical lifetimes. With capacity revenues as well as PTCs, average lifetime capacity prices influence feasibility more than the PTC.Source: §3.3 · p. 10

3.4. Breakeven investment and marginal costs tradeoffs

  • Reducing marginal costs from $25/MWh to $12/MWh relaxes investment-cost ceilings by 30% on average across price scenarios.The tradeoff curves are steeper for 20-year than 40-year payback targets, underscoring the stronger role of marginal-cost improvements at shorter targets.Source: Figure 6 · p. 11, §3.4 · p. 12
  • Under high prices and policy support, the investment-cost ceiling is $7,813/kWe; estimated reductions from NuScale’s early $20,139/kWe benchmark range from around 60% at best to potentially over 80%.The required reductions depend on whether marginal costs also improve and on the price and policy environment.Source: §3.4 · p. 12

3.5. Investment cost escalation and comparison with traditional nuclear

  • $25/MWh higher average lifetime electricity prices are needed for sub-20-year payback after a 117% investment-cost increase, leaving almost all SMRs outside the feasibility standard.Even optimistic concepts such as Aurora-15 and BWRX-300 are near the edge of feasibility under escalated costs.Source: §3.5 · p. 12, Figure 7 · p. 13
  • With historical-rate investment-cost escalation, most SMRs resemble moderate and conservative Vogtle 3 & 4 and projected AP1000 builds; at advertised costs, they resemble advanced AP1000 estimates.Figure 8 compares payback periods across AP1000 cost scenarios; the prose also reports similarity to advanced/NOAK AP1000 estimates at manufacturer costs.Source: §3.5 · p. 12, Figure 8 · p. 13

4. Conclusion and Policy Implications

The conclusion identifies high operating and marginal costs as the main barrier to SMR project performance, despite lower upfront investment costs. It argues that marginal-cost reductions may yield greater feasibility gains, while current advertised-cost performance is comparable to advanced AP1000 estimates and escalated-cost performance to Vogtle 3 & 4.

4. Conclusion and Policy Implications

  • Operational-cost escalation drives poor SMR performance in ISO markets with and without policy support, as intra-hour operating losses outweigh upfront investment advantages.The paper attributes the tradeoff partly to design choices intended to reduce upfront investment costs, including novel fuels without established supply chains.Source: §4 · p. 14
  • SMRs require ISO prices and public subsidies beyond historic highs to attract investment at advertised costs, and almost all concepts miss payback within their technical lifetimes.A $95/MWh PTC would allow most SMRs to achieve payback below 20 years, with or without capacity revenues.Source: §4 · p. 14
  • If marginal costs fall to traditional-nuclear baseload levels of $12/MWh, investment-cost benchmarks can relax by an average of 30%, with a maximum of $7,813/kWe under high prices and PTC rates.The cited ceiling assumes high wholesale and capacity prices supplemented with high PTC rates.Source: §4 · p. 14
  • At manufacturer estimates, SMRs are as profitable as advanced AP1000 estimates; with historical-average investment-cost escalation, they resemble Vogtle 3 & 4.The comparison raises questions about the transition’s benefits given traditional plants’ economies of scale.Source: §4 · p. 14
  • Future work should assess nuclear’s operational value to grids and performance under global, proposed US, and future-grid market structures.Source: §4 · p. 14

CRediT authorship contribution statement

The statement assigns conceptualization to all three authors, with distinct additional responsibilities for each.

A. Additional Reactor Data

The additional reactor data appendix lists manufacturer-advertised cost data and supplemental operational data for SMR concepts.

  • Table 7 lists manufacturer-advertised cost data, supplements the concepts, and uses Lazard 2024 assumptions for missing variable costs.Fixed costs are converted to $/MWh for comparison.Source: Table 7 · p. 15
  • Table 8 lists additional operational data for SMR concepts.Source: Table 8 · p. 15
Loading 2609.08929v1…