OVER THE NEXT DECADE, THE world faces two significant interrelated challenges. Developing countries must increase electricity generation to provide their citizens with access to affordable, reliable energy.
Access to energy is necessary for economic development and prosperity, fundamental for economic growth and critical to enabling societies to achieve basic levels of health, education, and social development. Although only one of the United Nation’s seventeen Sustainable Development Goals (SDG 7) focuses specifically on energy access, it is widely recognised that without such access many of the other goals will not be met. The United Nations recently warned that, “Without urgent action, the world will fall short of achievement of SDG 7 and consequently other SDGs.”
Second, all nations have an urgent need to rapidly and dramatically reduce carbon emissions. The Intergovernmental Panel on Climate Change’s (IPCC’s) most recent report predicts catastrophic environmental and economic impacts unless the increase in global temperatures is limited to less than 1.5degC. SDG 13 attempts to address this crisis. While achieving this goal is possible, “doing so [will] require unprecedented changes.”
These demands present developing nations with a dilemma, as increasing traditional (ie fossil) generation to meet energy needs further contributes to climate change and developing countries are often the most vulnerable to the effects of global warming. As a result, some developing nations are looking to nuclear power to meet growing demand.
Nuclear power offers the benefits of traditional generation by providing reliable baseload power while producing virtually no carbon emissions. Many countries in developing regions have shown interest in civil nuclear power programmes, but, construction of a traditional large nuclear power plant is an ill-fit for many of them.
Large nuclear plant development can be precluded by lack of human capital, geography (eg lack of cooling water), or low GDP. The long lead times are also a hindrance, as political changes make it uncertain whether a project will be completed. Finally, many developing nations lack a sufficient grid to make a large plant feasible, as no single plant should exceed 10% of the grid’s capacity. An International Atomic Energy Agency (IAEA) study found that, based on then-projected 2015 grid size, nineteen of the fifty-four countries studied would not be able to accommodate a plant above 300MW.
The 10% rule also assumes that all generation is connected to a single grid, but many nations have fragmented grids. Small and medium-sized or modular reactors (SMRs) could solve these problems. These reactor designs could be quickly deployed, require much less human capital to build and operate (some of which could be provided by the supplier), and could be sized to match local grid constraints. Many SMRs are designed to operate for many years between refuelling, be walkaway safe, and are highly proliferation resistant — factors which could help overcome public perception and opposition to nuclear power. Further, SMRs could be used in conjunction with other systems to address non-energy needs, such as providing thermal energy for desalination plants, industrial process heat, or for district heating systems. These non- electric functions are not available from most conventional renewable resources and could help developing nations meet other Sustainable Development Goals, such as SDG 6 (clean water and sanitation), SDG 9 (industry, innovation, and infrastructure) or SDG 11 (sustainable cities and communities).
Finally, it is possible that SMRs could replace ageing fossil plants, eliminating sources of carbon. Recently the UN’S multi-stakeholder SDG 7 Technical Advisory Group, when discussing “ways forward to reach climate goals,” noted that, “Nuclear is also an option in pathways that assume public acceptance and resolution of the proliferation challenges.” For these reasons, SMRs should be fully considered in any plan to address SDG 7 and SDG 13.
One problem facing energy projects in developing countries is lack of financing. Among the reasons SDG 7 is at risk of not being met is that, “Financial flows including public and private investments in energy, are…falling short of what is needed.” Developing nations often turn to development finance institutions, such as the World Bank, which try to serve humanitarian ends by providing financing, advisory and technical support to development projects in poorer regions. The World Bank’s mission is to, “End extreme poverty by reducing the share of the global population that lives in extreme poverty to 3% by 2030” and “promote shared prosperity by increasing the incomes of the poorest 40% of people in every country.”
These institutions are heavily involved in financing energy projects and have increasingly moved away from financing projects with high carbon footprints. The Asian Development Bank, for example, has recognised nuclear energy’s “sustainable and operational benefits,” and the UN said it is willing to consider nuclear energy as a means to meet SDG 7. However, despite this recognition most major institutions will not finance nuclear projects. Common reasons given are a lack of institutional expertise, that nuclear projects are not an area of comparative advantage for the institution, and political and financial risk given the scale and nature of nuclear power projects. While some have criticised this stance on nuclear power, large nuclear plant financing does present risk to such institutions.
For example, a key risk facing potential lenders for nuclear projects is that the long lead time requires capital outlay over many years, during which time construction delays or changing political attitudes can derail a project. The long construction time means even small delays are still significant from a financing standpoint and the long time frame also makes the economics of the project highly sensitive to interest rates. Large plants also have higher up-front capital costs than other energy projects, so by the time the plant is completed a significant share of the costs are sunk. If a project is abandoned due to changing political views or construction overruns, it is too late for the investor to reverse the investment decision and avoid a significant loss.
These risks are much less applicable to SMRs, and development financiers should revisit their stance and consider financing for SMRs. As discussed earlier, the design of these reactors should allow them to more readily achieve public acceptance, addressing political concerns. SMRs also obviate the need for organisations like the World Bank to develop significant nuclear safety, nonproliferation, and technical expertise, because the reactor designs largely mitigate these concerns by being walkaway safe, proliferation resistant and using standardised designs.
Moreover, SMRs resolve the concerns related to large, long-term capital outlays. The shorter construction time means capital does not have to be committed for so long, reducing the risk that overruns or changing political attitudes would cause a project to be abandoned. Because of the shorter overall project schedule, construction delays would also typically be shorter. For a multi-unit SMR, a delay would often only apply to the first unit, with less impact on the overall project and less capital would be sunk in a non- complete reactor at any given time.
Finally, helping bring this technology to market fits well within the ambit of development finance institutions. The World Bank, for example, has stated that, “The long-term shift to a sustainable energy future depends on deep technological innovation and rapid diffusion of new energy technologies” and has expressed a willingness to provide financing if a project “has a high cost and carries high risks but offers strategic potential for the future.” Few technologies offer the future strategic potential of SMRs.
It is becoming increasingly clear that traditional reasons for refusing to finance nuclear projects do not apply to SMRs. These reactor designs are fundamentally different from large plants, and in the context of developing economies can play a crucial role in allowing the attainment of SDG 7, SDG 13, and other development goals. However, public financing is critical for developing world energy projects. For this revolutionary technology to be brought online, development finance institutions must reconsider their anti-nuclear stance and provide financing for SMRs alongside other low-carbon sources.
Author information: Elina Teplinsky, Pillsbury Winthrop Shaw Pittman LLP; Sid Fowler, Pillsbury Winthrop Shaw Pittman LLP
