The chancellor’s ambitious plans aim to position the UK as a leader in nuclear innovation, led by small, factory-built reactors ready to provide affordable, low-carbon energy wherever it is needed

The UK could be the global centre of a new nuclear industry in mini-reactors that are trucked into a town near you to provide your hot water, or shipped to any country that wants to plug them into their electricity grid from the dock.

The chancellor, George Osborne, revealed on Wednesday that at least £250m will be spent by 2020 on an “ambitious” programme to “position the UK as a global leader in innovative nuclear technologies”.

There will be a competition to identify the best value design of mini reactors - called small modular reactors (SMRs) - and paving the way “towards building one of the world’s first SMRs in the UK in the 2020s”. There is no shortage of contenders, with companies from the US to China and Poland all wooing the UK with their proposals.

With a crucial UN climate change summit in Paris imminent, the question of how to keep the lights on affordably, while cutting emissions, is pressing.

SMRs aim to capture the advantages of nuclear power – always-on, low-carbon energy – while avoiding the problems, principally the vast cost and time taken to build huge plants. Current plants, such as the planned French-Chinese Hinkley Point project in Somerset, have to be built on-site, a task likened to “building a cathedral within a cathedral”.

Instead, SMRs, would be turned out by the dozen in a factory, then transported to sites and plugged in, making them – in theory – cheaper. Companies around the world, including in Russia, South Korea and Argentina, are now trying to turn that theory into practice and many are looking at the nuclear-friendly UK as the place to make it happen.

“There’s a lot of terrific things about the UK market that makes it the right place to deploy new nuclear technology,” said Tom Mundy, head of programme development at US company NuScale, one of the frontrunners. “It’s got a government committed to reducing carbon and seeing nuclear as one of the solutions, and it has got a substantial and pre-eminent legacy of nuclear operations – a trained and capable workforce and a nuclear supply chain.”

The UK has commissioned five studies since July, costing £4.5m, to explore the potential of SMRs and energy secretary Amber Rudd told MPs earlier this month: “We are fully enthused about SMRs. We are doing as much as we can in terms of supporting the technology. SMRs would be an excellent way forward.”

A government-funded report from the UK’s National Nuclear Laboratory (NNL) in December 2014 suggested there was potentially a “very significant” global market for hundreds of SMRs (65-85 gigawatts) by 2035, with dozens of the SMRs (7GW) sited in the UK. This market would be worth £250-£400bn, the NNL estimated, saying it represented an economic opportunity for UK plc.

SMRs are reactors that produce less than 300MW (0.3GW) of electricity, much smaller than the 1,000MW (1GW) of many existing nuclear plants. An additional advantage is that SMRs can vary their output quickly, meaning they could be used to balance intermittent wind and solar energy, unlike big nuclear plants.

Small reactors have been operated for more than 50 years, particularly on military submarines and ships. But, Mundy said: “The application they are designed for is completely different from civil nuclear electricity.”

Small reactors have also run a remote site at Bilibino in Siberia since 1976, with the excess steam supplying a district heating system, while a US base in Antarctica was powered by a tiny reactor in the 1960s. But no true SMRs, rolling off a factory assembly line, have yet been built.

Determining the best companies for SMR designs means looking for scale and experience, says Giorgio Locatelli, at the University of Leeds. He points to US nuclear giant Westinghouse, NuScale, Korea – which has signed an agreement with Saudi Arabia – and the China National Nuclear Corporation (CNNC). “The Chinese government has a pile of money to invest,” Locatelli said.

Danrong Song, CNNC’s chief designer for SMRs, attended an SMR conference in London in October and pitched a “technical plan and proposal for cooperation with UK industry” – the company is already cooperating with Rolls Royce. This plan would see the first CNNC SMR produced in the UK, with subsequent SMRs being sold around the world, he said, mirroring the plan to build a large Chinese nuclear plant at Bradwell in Essex.

Song said China itself could provide a big market: “A lot of air pollution in China is caused by fossil fuel plants, so with SMRs we can reduce that.” Large nuclear plants needed a lot of cooling water and were therefore mainly built on the coast, he said, limiting their use. “But inland, you can build SMRs and use air cooling,” Song said.

CNNC’s design, the ACP100+, would produce 120MW of electricity, be refuelled every two years and could even be put on a ship, said Song. CNNC signed an agreement with Lloyd’s Register in October to develop marine nuclear regulations.

Such ships could be floating power plants, said Kristiina Soderholm, at Finnish energy company Fortum, which runs several nuclear plants. She said an SMR could be put on a barge, taken to a country, plugged into grid from the port and then, when its fuel was used up, sail back again. “For newcomer countries [to nuclear], that could be a very attractive way to do it,” she said. It has happened before: in the late 1960s a former US military nuclear-powered ship moored by the Panama canal and provided onshore electricity.

Russia, which has long experience of marine nuclear power, has been promising a floating SMR for several years. But the project has been repeatedly delayed, although it is unclear whether the reason is technical or financial.

Westinghouse, part of Toshiba and one of the world’s biggest nuclear companies, is staying on land with its 225MW (electricity) SMR, which it says could be deployed by 2027. “There’s a unique opportunity for the UK to move from being a buyer to a provider, said Jeff Benjamin, head of new build and major programmes. “We hope the build out of our SMR will happen here in the UK … but then use this as a base to export globally.”

Westinghouse made a proposal to the UK in October to put its designs into a new company in which the UK government and industry took a stake and then shared the development costs. “This is what is going to be necessary to move this market forward in the UK,” said Benjamin. “We are not asking the UK government to swallow the elephant all at once.” UK ministers are considering the offer.

One big potential customer in Europe is coal-dependent Poland, seen as the biggest nuclear market in Europe and often chastised internationally for its reluctance to reduce the carbon emissions that drive climate change. “I want to persuade the UK to partner with Poland: it has the skills, we have the need,” Grzegorz Wrochna, director of Poland’s National Centre for Nuclear Research, told the London summit.

Compared to Westinghouse’s SMR, that from NuScale is much smaller – 50MW of electricity. This to maximise the number of places it can be sited, said Mundy, with the 23m-long unit being “the biggest you can get on the road”. If more power is needed, multiple reactors could be be installed side-by-side. The company, backed by a $217m (£143m) cost-sharing deal from the US Department of Energy (DoE), aims to start generating electricity for its first customer in Idaho by 2023, Mundy said.

Other SMR contenders include US-based Generation mPower, also backed by the US DoE, while more novel technology, such as that from Bill Gates-backed Terrapower, are seen as prospects further in the future. The pilot plant closest to completion is CAREM in Argentina and was initially intended for use in submarines.

But for all the activity, the nascent SMR industry faces familiar nuclear challenges: cost, public acceptability, security and waste disposal. The nuclear industry has a long record of broken promises over cost – Hinkley-type reactors being built by EDF in France and Finland are billions over budget and years behind schedule.

Developing SMRs is not going to be cheap either. Design alone will cost £500m, estimates David Orr, head of nuclear business development at UK engineering firm Rolls Royce, which is “actively engaged” in the technology. He said 40-70 SMRs would need to be ordered to make building a factory worthwhile.

Industry figures say the cost of electricity from the first SMRs should be about the same as large nuclear power plants, then get cheaper. But Locatelli said: “We don’t yet know if the cost of electricity from an SMR is going to be cheaper than from big plants, but the risk is lower” because the capital needed is smaller. All the while, the competition from renewable energy gets hotter as it falls in price.

Most new energy projects – from nuclear to fracking to windfarms – face some opposition. But Professor Andrew Sherry, chief scientist at the UK’s NNL said: “Political support for [large nuclear power plants] has been unified and public support is quite strong.” However, SMRs could be much closer to people’s homes, he said, and might be used to provide hot water for central heating as well as electricity.

“Small factory-built nuclear plants could be located closer, say within 20 to 40 miles, to users and provide a combined heat and power function,” said former UK environment secretary Owen Paterson in 2014. Sherry asks: “Would people accept district heating from nuclear?”

Security is also a key issue for nuclear plants. Canada’s Bruce Power runs the biggest operational nuclear site in the world in Ontario, with 6.3GW of capacity across eight reactors. Protecting the site requires armed guards and Frank Saunders, head of nuclear oversight and regulatory affairs at Bruce Power, said the company has “the largest tactical unit outside the military” in the province.

The challenge for SMRs is that security costs soar relative to power output if there are small reactors in many locations to protect. “The security costs are hugely magnified when you go to smaller units,” said Saunders.

While SMRs may need refuelling less frequently – potentially decades – and use uranium more efficiently than earlier generations of reactor, the permanent disposal of nuclear waste remains a vexed issue around the world. No deep geological repository has yet gained final approval.

Despite the challenges, engineer Gordon Waddington, who led the NNL report, is confident SMRs have a future because of the demand for low-carbon electricity. For example, he said: “I am absolutely certain that China will get very good at [SMRs]. They need it and they will get there.”

Waddington said the next two to three years are critical if SMRs are to be deployed widely in the next decade, and the UK has a once-in-a-generation chance to be at the heart of it: “The window of opportunity for the UK is there – but it will not be open forever.”