The rise of AI and its insatiable demand for energy could not have come at a better time for the nuclear industry.
After decades of stagnation in the west, this year has seen a rush of demand for nuclear plants from the so-called hyperscale tech companies, Google, Amazon, Meta and Microsoft, which need vast amounts of low-carbon 24-hour electricity to run their data centres and win what one of the companies internally calls “the AI war”.
Some of the world’s biggest banks also threw their weight behind the industry at a climate event in New York last week in a public show of support for a sector that is selling itself as a key part of the transition to clean energy.
“AI data centres will be built next to energy production sites that can produce gigawatt-scale, low-cost, low-emission electricity continuously. Basically, next to nuclear power plants,” said Yann LeCun, chief AI scientist at Meta, on X.
“There is real appetite. There’s a limit to what we can say, you can read between the lines at every hyperscaler, there’s appetite,” said Chris Rees, energy strategy manager at Meta.
The excitement in the nuclear industry is palpable. While China and South Korea have been busy building nuclear reactors in recent decades, there has been marked decline in the US and Europe.
After a wave of nuclear power stations were built in the 1970s and 1980s, the US has only built three new reactors since the mid 1990s, with the industry suffering from heavy cost overruns.
Accidents at Three Mile Island in 1979, Chernobyl in 1986 and the earthquake and tsunami that hit the Fukushima plant in 2011 have also triggered public antipathy to the technology.
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Last month, Microsoft announced it would revive the mothballed nuclear plant at Three Mile Island, Pennsylvania, while Amazon paid $650mn in March to put a data centre next to the Susquehanna Steam Electric nuclear plant, also in Pennsylvania.
The premium prices that tech companies are willing to pay may also trigger a wave of investment in new nuclear plants, investors said.
“We’re seeing price points in the market that will validate new construction,” said Arthur Hyde of Segra Capital, a hedge fund that has invested in the supply chain of uranium, the metal used in most nuclear power plants.
“You have government commitments to invest in new nuclear, you have financial commitments to support it, and we know the demand picture is there. Those are the commitments you need to green light new nuclear capacity in the US and Europe. For the first time, we’re seeing all those components together.
“I’m quite bullish that we will see new nuclear capacity announcements in the United States over the next 12 months,” he added.
But behind the hype, there remain structural challenges, including the key question of who will be willing to bear the high risk of nuclear projects, which can go years over deadline and billions over budget.
“Tech companies will not want to have anything to do with owning a nuclear asset. If they do, they’ve lost their minds. That’s not what they’re in business to do,” a data centre and nuclear insider at a top-three tech company said.
At a nuclear industry dinner ahead of New York Climate Week, Caroline Golin, the head of energy markets development at Google, warned that tech companies cannot be expected to take all the project risk, according to two people who were present.
Todd Noe, the director for nuclear at Microsoft, said at the World Nuclear Symposium in London last month the most that tech companies are willing to do to support new nuclear plants is to offer long-term contracts at good prices for the power.
That may not be enough. “They are talking to us, they are talking to nuclear technology providers, they are talking to utilities, but they do not want to build, own and operate their own nuclear reactors, they want to be the end users,” said Ahmet Tokpinar, the general manager of the nuclear power business at the US engineering giant Bechtel.
“They are willing to offer long-term power purchase agreements (PPAs), even at a premium. That is great, but it is not helping with the front end development. Whose capital is going to help underwrite the risk?” he said.
PPAs are long-term agreements to buy energy at a pre-determined price, but they do not cover any cost overruns or delays that a project might incur.
Tokpinar added that while he was aware there had been some discussions about tech companies putting equity into projects, he said none of these had progressed.
“For [new power plants] to happen, they need to step in, in a big way. I cannot see anyone else. They have the means to do it, they have the capital to do it. Whether it is something they can justify to their shareholders is beyond me.”
Microsoft, Amazon and Google all declined to comment on their nuclear strategy.
The technology companies and the nuclear power groups are trying to find a formula that will work for them, with the banks advising both.
“I would not be terrifically surprised if the landscape for these radically complex projects requires some changes to the way the PPA works,” said Peter Freed, former director of energy strategy at Meta.
He suggested the ultimate price that tech companies pay for their energy could be set at a later date from the initial deal, to capture any overruns from construction. “You demonstrate that there’s demand available and then the price does not fix until you get further along,” he said.
“The debate is, this needs a new market structure that does not currently exist,” said one financier at the climate event in New York, adding: “The low-hanging fruit for all these hyperscalers is to look at existing reactors.”
But he warned that if tech companies start pulling large quantities of low carbon nuclear power away from the grid, they face a political backlash.
“Pennsylvania’s clean energy is 88 per cent nuclear. You start taking the nuclear plants away and their ability to hit net zero targets becomes really compromised,” he noted.
Tony Grayson, general manager at Compass Quantum and a former US Navy nuclear submarine captain who went on to help build Oracle’s data centre business, said tech companies could provide subsidies for new projects, stepping into the role that governments have traditionally played. They could also offer low-priced power to local communities to overcome objections to new nuclear projects.
But he warned the nuclear industry against excessive hype, noting that projects tend to be measured in decades and that technology can change rapidly and radically.
“In datacentres you make your money on speed to market. Nuclear is not speed to market,” he said. “I am a huge believer in nuclear power, but we just need to take a deep breath and realise this stuff is not going to happen anytime soon.”
