Why Businesses and the Government Are Turning to Nuclear Reactors for Our Increasing Energy Demands
The energy landscape in the U.S. is undergoing a seismic shift, owing in part to the exponential growth of generative artificial intelligence (AI) applications and data centers, according to McKinsey & Company. This rise in energy demand is further exacerbated by the country’s increasing seasonal cooling and heating needs due to extreme weather. To offset the rising consumption, Fortune 500 companies, as well as the federal and local governments, are now looking to advanced nuclear reactor technologies to bridge the widening gap between demand and power generation.
In its 2024–2025 “Winter Energy Market and Electric Reliability Assessment,” the Federal Energy Regulatory Commission (FERC) expects electricity demand to be higher this winter compared to last winter as the grid takes on more responsibilities, among them, powering space heating, transportation, new manufacturing plants, and data centers. Similarly, in its annual report, the North American Electric Reliability Corporation (NERC) found that meeting this growing winter demand is becoming increasingly difficult and complex.
Data centers, notorious for their massive energy consumption, are obvious culprits. They require a continuous and reliable power supply to operate efficiently. This surge in demand has led organizations like PJM Interconnection, a regional transmission organization, to issue urgent calls for the development of more generation capacity to bridge the gap. The need for uninterrupted power supplies is critical for data centers, which cannot afford even the slightest disruption.
The annual electricity consumption by data centers alone is projected to surpass 280 TWh by this winter, according to S&P Global. Information technology specialists say this surge in energy demand has caused local grid constraints around the country, prompted essential changes in infrastructure, and thus inspired urgent calls for innovative solutions to ensure a reliable and sustainable energy supply.
One solution gaining traction among Fortune 500 corporations, government agencies, and several states is the use of traditional nuclear power reactors and advanced nuclear reactor technologies, such as small modular reactors (SMRs) and microreactors. Advanced nuclear reactor technologies are poised to be readily deployable, cost effective, and operate with a more simplified set of operating controls and safety measures compared to traditional power reactors. Nuclear power is also emissions-free. In an era where reducing carbon emissions is a priority for environmental, social, and governance goals, nuclear power offers attractiveness as a “clean energy” source.
Recent business deals in the private sector underscore the growing prominence of nuclear power to meet the energy demands of data centers. As one financial analyst recently observed, however, that utilities are unlikely to take major risk in the “nuclear revival.” Expectation is the majority of substantive developments will be backed by non-utility entities. Utility risk appetite remains notably non-existent. Given that, one approach that might be successful is the build-own-transfer (BOT) structure because it protects utility stakeholders (rate payers, equity investors, creditors, and employees).
An alternative approach for which hyperscalers have gotten comfortable is a project finance approach where an “offtaker” uses a contract for differences to lock in price firm enough to attract financing for merchant-power from nuclear plants. In other words, something akin to the zero emissions credit (ZEC) structure, but with hyperscalers, not states as buyers.
In this regard, for example, a multinational technology company recently committed to a 20-year power-purchase agreement with a leading producer of carbon-free energy, sourcing electricity from the producer’s nuclear facility on the East Coast. Similarly, a leading search engine corporation has teamed up with another nuclear energy company to develop advanced nuclear power for expected initial deployment by 2030. In early 2024, a major technology company entered into an agreement with an energy provider to secure a substantial amount of power from a nuclear plant in Pennsylvania. That company has also announced a collaboration with another energy firm to develop several gigawatts of nuclear power projects using advanced nuclear reactors by 2039.
As with the private sector, federal and state governments are looking to nuclear technologies as a solution to meet certain energy needs. In November, Texas Gov. Greg Abbott and the Public Utility Commission of Texas announced the release of the Texas Advanced Nuclear Reactor Working Group’s final report, which outlines the state’s plan to develop a world-leading advanced nuclear power industry. It would include the development of a Texas Nuclear Energy Fund to fund advanced nuclear power projects in Texas. Gov. Abbott’s initiative aims to enhance electric reliability and energy security, promote economic development, and create new opportunities for the growing Texas workforce. A key advantage of nuclear power is its ability to provide a continuous and stable supply of electricity. By utilizing multiple nuclear units, businesses can ensure a more reliable power supply. For instance, Unit 1 can serve as the primary power source, while Unit 2 acts as a backup. This arrangement allows for maintenance outages to be scheduled without disrupting the power supply, thereby reducing the risk of forced outages to a minimum.
By repurposing nuclear power plants that are no longer economically viable in today’s wholesale markets, businesses can benefit from the underutilized capacity to meet their energy needs. This approach not only provides a reliable power supply but also alleviates the burden on the grid, freeing up limited generation capacity for other uses.
Beyond the benefits, there are inherent risks and considerations involving nuclear power, including possible outages due to maintenance or unforeseen events. Power plants, including nuclear facilities, require regular maintenance and are not immune to forced outages. Relying solely on co-located nuclear power plants may not guarantee an uninterrupted power supply. To truly ensure a constant stream of power, end-users must also have access to the transmission grid, which offers the widest possible supply of electricity.
Ensuring fair and reliable cost allocation and compensation for existing retail and wholesale customers is crucial. The state has a significant interest in protecting the customers served by the electric distribution utility. To that end, for example, PJM has asked FERC to establish a uniform approach to promote certainty and clarity for entities pursuing co-located load configurations.
The growing energy demands of data centers and other sectors have prompted a renewed interest in nuclear power as a reliable and sustainable solution. While co-locating data centers with nuclear power plants offers several advantages, it is not without its challenges. Ensuring a continuous and reliable power supply requires a comprehensive approach that includes access to the transmission grid and careful consideration of regulatory and cost allocation issues. As businesses, federal government, and state governments explore the potential of nuclear power, addressing these challenges will be key to meeting the energy demands of the future. —Kenneth Irvin is a co-leader of Sidley’s global Energy and Infrastructure practice group, based in the firm’s Washington, D.C., office, Nicole Noëlliste is a senior managing associate in Sidley’s Environmental practice group, based in the firm’s Washington, D.C., office, and Michelle Jiang is an associate in Sidley’s Mergers and Acquisitions practice group, based in the firm’s New York office.
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