In the coming years, a growing number of new data centers will require some form of dedicated power generation to supplement or replace the regional grid. Analyst firm Gartner has noted the rise in demand for on-site power generation at data centers and the surge in power-hungry AI workloads is accelerating this shift.
While many are turning to renewables such as solar and wind, nuclear is increasingly being recognized as essential for reliable, carbon-free baseload power.
Small modular reactors (SMRs) are emerging as a potential long-term solution because they provide a reliable and scalable high-capacity energy source, ensuring that uptime and data integrity is maintained.
Traditional nuclear builds have become synonymous with complexities, overruns, vast budgets and stakeholder opposition. “Famously, in 2015, the proposals for Hinkley Point C were deemed so unrealistic that they were likened to attempting to ‘build a cathedral within a cathedral',” notes David Philp, chief value officer at Bentley Systems EMEA. While they provide immense baseload power, their large scale, long construction timelines and operational inflexibility make them ill-suited to the rapidly evolving needs of the AI industry.
SMRs, however, present a more agile and flexible alternative. “They offer significantly faster deployment times, a much smaller physical footprint, can be located in a wider variety of sites, and are exceptionally well-suited to the dynamic power demands of high-density AI data centers,” says Philp.
Due to their modular nature, with components fabricated in a factory and assembled on-site, construction timelines are significantly reduced – typically a few years, compared to five to ten for large scale nuclear power plants. “And while the licensing process for traditional nuclear plants is notoriously long and complex, the idea with SMRs is for a standardized design that can be approved once and then deployed in multiple locations – subject to site specific regulatory consent orders,” Philp adds.
The case for SMRs
According to Yavuz Arik, partner at consultancy firm Energy Tools, there are many benefits to choosing SMRs. These include low land use per MW, a lifespan of 60-80 years, and zero emissions once constructed.
SMRs also have advantages over other energy sources. For example, “renewables are intermittent and need more land, while gas requires pipelines and isn’t carbon-free,” points out Mile Milisavljevic, Principal, EY-Parthenon at Ernst & Young.
Geothermal power is SMR’s closest ‘competitor,’ offering a similar mix of stability and sustainability. This is only a viable option in locations with accessible geothermal resources however, making SMRs to be the most suitable backbone of data center power grids.
“SMRs have the triple advantage of offering baseload, low-carbon and scalable power. The combination of either renewables and storage or gas and carbon capture storage (CCS) can theoretically tick these three boxers as well, but with an impact on their cost,” says Amaury Boucquey, partner, BCG Nuclear Topic Leader for Western Europe. The levelized cost of energy (LCOE) of SMRs is forecast to be competitive with or even better than such solutions, he adds, but this still remains to be proven as SMRs have not yet reached industrial scale.
How long is the wait?
This does mean there’s still a wait for SMRs to become a viable option for powering data centers. However, many of the largest data center operators would like to implement this technology as soon as possible, and some governments are actively pushing its development.
“There’s a favorable environment towards the deployment of SMRs, both from the hyperscalers and the US government. The head of the US’ Department of Energy recently said they’ll have something to demonstrate by next July,” says Alvin Nguyen, Senior Analyst at Forrester. “With the need for dependable and scalable energy, I don’t foresee views changing anytime soon.”
Related costs are also a barrier, as developing SMRs isn’t cheap, but “with hyperscalers investing hundreds of billions into data centers, cost really isn’t a concern,” Nguyen notes.
One planned deployment is by EDF and American nuclear developer, Holtec International, which will see SMRs developed at the 900-acre decommissioned Cottam coal power station to power advanced data centers.
One planned deployment is by EDF and American nuclear developer, Holtec International, which will see SMRs developed at the 900-acre decommissioned Cottam coal power station to power advanced data centers.
Barriers to adoption
The pace of SMR adoption will not only depend on pilot projects proving their viability, but also how regulatory processes evolve. Understandably, regulations around nuclear technology are tight, and therefore every SMR design will need to be approved and licensed by the relevant authorities.
“Each new reactor design, licensing application and site selection requires approval from regulatory bodies,” says Milisavljevic. “The varying requirements and timelines can significantly delay projects, especially if design changes occur, which trigger new approvals.”
Gaining public trust will also be crucial for securing project approval, which may be challenging while there still remain concerns around waste, safety, security and the environment. And while offering many benefits over traditional nuclear plants, SMRs are still nuclear reactors and therefore come with a specific, stringent set of constraints.
This means they won’t be suitable for all locations, as their use will depend on a site’s proximity to industry or population centers, as well as its geography. “You’ll want land safe from seismic movement,” points out Arik.
Hyperscalers are the test bench
For SMRs to really take off in the next decade, the success of the first SMR projects will be paramount. This will be measured by first-of-a-kind (FOAK) project performance, providing assurance on the ability to build such projects within costs and within schedule, says Ben Vannier, managing director and senior partner at Boston Consulting Group and a global topic leader on nuclear.
He believes we’ll need to see a focus on standardization and lesson sharing to ensure success, because “if we get many one-offs, SMR will be a one-off”. However, if SMR technology’s competitiveness gets confirmed over the next five years, BCG predicts 10-30GW of SMR capacity installed by 2040 – the equivalent of 50 operating SMRs.
With their growing need for data center power, hyperscalers will be the ones leading the charge for SMRs says Nguyen, and will act as the test bench for this technology before wider adoption begins.
