While nuclear energy has the dual attraction of zero carbon emissions and being a reliable form of baseload power, it remains cost prohibitive, especially when compared to natural gas and renewable energy options. In addition, the large-scale reactors that are the norm across the U.S. don't fit in with the growing trend toward smaller, decentralized power.

Small, advanced nuclear reactors better fit that mold, but have yet to enter the market. So the key question, say stakeholders, is how to spur that initial investment and establish a commercial domestic market, with a loftier goal of establishing the U.S. as a nuclear power export leader.

"If you put yourself in the shoes of an investor-owned utility and they're looking at a combined cycle gas plant that they could build in 18 months for an installed kilowatt hour cost of 700 or 800 bucks, versus a nuclear project that might take 10 years or more and cost 10 billion or more … That's a very hard sell," Daniel Poneman, former U.S. Deputy Secretary of Energy, and current president and CEO of nuclear developer Centrus, told Utility Dive Tuesday at the 2019 New Nuclear Capital Conference in Washington, D.C.

"So you really are going to need to have that public involvement to persuade the private sector to roll along," he said.

One potential solution floated at the conference was federal power purchase agreements between the Department of Defense (DOD) and the Department of Energy (DOE).

A public-private partnership

"I think that the Department of Defense is a logical first customer for these reactors, especially micro reactors that are under development that can be deployed in remote regions," Sen. Lisa Murkowski, R-Alaska, who chairs the Committee on Energy and Natural Resources, told the New Nuclear Capital audience on Tuesday.

DOD in February launched a request for information on smaller reactors, following the signing of the Nuclear Energy Innovation and Modernization Act in January. Though the U.S. Navy has been operating small nuclear reactors for decades across its submarine and aircaft carrier fleet, the Department is now interested in newer, microreactors, particularly for remote deployment.

Two advantages of the DOD as a customer are their relatively low cost to capital as well as their ability to value nuclear from a non-market perspective, for example, for resiliency and defense considerations, Chris Colbert, Chief Strategy Officer at nuclear developer NuScale told Utility Dive.

Additionally, DOD's ability to purchase in bulk and "underwrite an investment that may not have an immediate commercial appeal," makes it an ideal first customer, said Poneman. And that initial investment is key.

It "really helps to have that, frankly, that initial investment from an investor that is looking at their returns not in quarterly earning statements but in the long-term security payoffs," said Poneman. "Then when they make that initial major investment, it's the cost of the very first one that's always very, very high. And sometimes you find a cost curve that declines really quite steeply as you make more."

Currently, a lot of capital being invested in the nuclear space comes from "eccentric billionaires who want to save the world," Managing Director of Private Equity at Growth Capital Services James Magowan said at the conference. This poses a problem when trying to bring in "real venture capitalists," whose first question is "Who's your customer? Do you have a customer?"

To that end, "the suggestion that the DOD could step up and be a customer is a great one, I think that solves an initial customer problem," he said. But in order to establish a domestic market, more players need to be involved.

The DOD has shown interest in advanced nuclear technology, Murkowski told reporters, making them a "likely candidate" for investment. DOD did not respond to multiple requests for comment.

Building a domestic market

Many in the nuclear industry argue that establishing the U.S. as a nuclear export leader is essential to both national security as well as global decarbonization. While the Pentagon can get things rolling for small-scale nuclear, utilities will be essential to building out the market as buyers.

"I think you see utilities, particularly in Canada, stepping up with the Canadian government to take on that market-making role and we look forward to similar discussions here in the U.S.," Donald Wolf, president and CEO of Advanced Reactor Concepts, a U.S.-based developer, said at the New Nuclear Capital Conference. "Before we, in effect, push these new designs on foreign countries, it really helps to say we built it here first. We've improved it at home, and it's safe for us."

And some developers are moving to establish those markets for small reactors with municipal power systems, which make for more attractive first customers than IOUs, according to Colbert. Municipal power systems have access to a lower weighted cost of capital, around 3%-4%, compared to IOUs' approximately 8%-10%.

NuScale has jointly pursued both DOD and the Utah Associated Municipal Power Association (UAMP) as first customers. But the developer's first plant, a 12 module, 720 MW nuclear generator, is expected to be fully operational by 2027 under UAMP, according to Colbert. And the municipal utility on Wednesday announced it has sales contracts for enough power to begin licensing with the Nuclear Regulatory Commission.

"The challenge [with DOD contracting] has been for the Department of Defense to define what the requirements are, and when they want it, and how they would go about financing that," he said. "So far, that hasn't come together, but it seems like they're moving more toward that way."

A lot of interest in NuScale's reactors, he said, has come from international markets, including Romania, Jordan and Canada, that want to see that the plant is operational before they invest.

"After that, the question is how quickly can I manufacture to scale," said Colbert. NuScale is in conversations with manufacturers BWX Technologies and Doosan Heavy Industries and Construction, to ultimately start manufacturing "2 to 3 GW per year early on," with a wider aim of 35 GW by 2035.

Barriers to nuclear

"Advanced reactors are not just a garden science experiment," said Murkowski. "There's a real private sector interest. There's capital being invested to make [them] a reality," but "developing a first of its kind technology, we all know, is not for the risk averse, it's not for the faint of heart."

With large capital investments, such as nuclear, some of that risk can turn away private investment, said Colbert.

"If you look at nuclear, the market for energy ... is pretty well known," he said. "What's not so well known is how do you get through the nuclear regulatory process, the [Nuclear Regulatory Commission] process."

While safety remains a paramount concern for nuclear power, many in the industry say they no longer view public perception as a major problem.

"How do we tell the masses the progress we're making? ... How do we tell potential investors ... that the risk of a nuclear event that contaminates and causes evacuation needs is gone for your technology?" an audience member asked panelists.

"I don't think that's the biggest challenge facing our industry," responded Clay Sell, CEO of nuclear engineer and design company X-energy. "The closer people look to a nuclear power plant and the more informed they are about nuclear power, the more accepting and understanding they are of the risk and the more they love it. And so that tells me that education wins."

But as the industry's long history has shown, it probably won't be that simple.