Energy Outlook 2025: Nuclear Energy

Despite challenges in financing and regulation, the future of nuclear power looks promising. Governments and the private sector are working together to overcome obstacles and ensure a sustainable energy future. Furthermore, tech companies globally are investing in nuclear power to source their data centres.

A nuclear renaissance

There is excitement in the air about nuclear energy, perhaps not seen since the 1970s. Realisation is dawning in developed countries that there is no way to energy security and global net zero without it. At the United Nations COP28 conference, twentytwo of the world's developed countries pledged to triple global nuclear energy output by 2030. In 2024 in the UK, the Labour government pledged in its manifesto to support new power stations - for example, by continuing to invest in Sizewell C and taking a majority stake in the project.

There are currently around 400 reactors around the world generating 10% of the world’s electricity. There are 32 countries generating nuclear power and another 30 are either in development or in the feasibility stage, with support of the International Atomic Energy Agency. Bangladesh is about to become a nuclear nation, having almost finished constructing its first power plant. Another is Ghana, which reached the IAEA's second milestone and aims to commence commercial generation by 2035. Like all technologies, experience of how to improve safety and efficiency has been gathered in countries such as the UK and France, which rolled out their first and second wave fleets of reactors over seven decades. The IAEA will continue to share that collective experience overseas and give new and emerging economies, access to civil nuclear power.

Big nuclear versus SMRs

The term Small Modular Reactor (SMR) has now become well known across the energy sector. SMRs offer a promising alternative to large scale projects for electricity generation, which continue to increase in cost per megawatt hour relative to wind and solar. The term SMR is a broad church. Some are intended to be the size of a single shipping container with an output of only a few megawatts whereas others can be as powerful as 400mW, such as SMR under development by Rolls Royce. The advantage to SMRs lies in the 'M', the fact that these reactors are intended to be modular and cluster relative to demand in the location they are installed.

With the fanfare of SMRs, is the time of the nuclear megaproject over? We don't think so. The UK government identified eight sites as suitable for major plants in the latest National Policy Statement (EN-6), although some are very much edge cases. Our team recently closed the land transaction to allow development of one of those sites, Sizewell C, which is expected to reach final investment decision in 2025. The blueprint for such sites has been set by our team (both freehold and long lease) so there is a clear understanding of how to deliver the land. SMRs are rightly gathering attention although nobody is shipping SMRs on a commercial scale yet. We believe both large scale nuclear and SMRs will play a long-term role in the energy mix of developed nations. Big Tech will likely be the driving force to SMR deployment at scale over the coming five years.

Other countries also pursuing the development of SMRs as part of their nuclear energy strategy include France, with one of their most prominent projects being Nuward, led by EDF (Electricité de France). The goal of Nuward is to develop a commercially viable SMR that can be deployed both domestically and internationally by the early 2030s. The French government sees SMRs as a crucial part of the future energy mix, providing a low-carbon, reliable source of power to complement the country’s existing nuclear fleet. Read more about the nuclear market in France here.

Funding of nuclear projects

One of the main obstacles to the nuclear renaissance is the funding gap. In September 2024, the executives of some of the world's largest investment banks including Citi, Barclays, BNP Paribas and Goldman Sachs met in New York in support of the nuclear sector. The meeting came in the wake of an announcement that Three Mile Island power plant in Pennsylvania, USA will re-open in a joint venture between Constellation and Microsoft. Microsoft signed a 20-year contract to purchase power to serve the energy demand of its data centres.

This vote of confidence by big investment banks and big tech is encouraging for future large scale projects. However, it does not solve the problems of future pricing risk and cost-overruns that currently deter private investment. To close the gap, we expect countries to look to share the risk in projects between public and private money. Policies, such as the UK 'contracts for difference' model (CfD), have gone some of the way by giving a generator a guaranteed price per unit of electricity supplied. However, the CfD model does not alleviate the need for developers to pay interest over a long and costly construction period before the first watt is generated. This has held up the development of previously earmarked sites such as Wylfa. The 'regulated asset base' (RAB) funding model was introduced in the UK as an alternative to CfD under the Nuclear Energy (Financing) Act 2022, which enables risk sharing between developers and consumers. This innovative model should facilitate large projects that otherwise would not go ahead as developers can make a return on investment during the build phase.

In the last twelve months, we have noticed that traditional investment banks and infrastructure fund clients are taking more of an interest in the sector. The return horizon could be too long for most private equity houses and still too risky for many pension funds, although we believe the reluctance to invest from these players too will begin to shift – particularly those from the US and Canada. We see the shift taking place when relatively smaller projects look to raise debt and equity, and when greater syndication opportunities with big names exist. We may also see investments coming in when projects are commissioned and are looking to refinance. Aside from the nuclear liability risk, which will be present for any investments in nuclear, removing the construction overrun risk (in part what the RAB model is looking to address) would go a long way to unlocking this capital.

Nuclear fusion in Europe

The future of nuclear fusion in Europe looks promising, driven by continued state support, scientific knowledge (from reactors like the JET reactor at Culham, UK and the NIF, USA) and increasingly ambitious private investment. A sense of optimism stems from shifting energy and environmental policies, with the increased commitment to decarbonisation and a continued belief that fusion is the holy grail solution for abundant atomic energy, without the headache of nuclear waste.

The UK and Europe are very much at the forefront of the development of this technology. We foresee a significant (but future) role for fusion in Europe’s energy transition and opportunities for advancements gained in material science and magnetic and laser confinement to keep things commercially moving forward even before energy net gain or reactor commercialisation is achieved. The International Community continues to heavily invest in ITER, the world’s largest fusion experiment, with the aim of demonstrating that fusion can be a viable, sustainable energy source. ITER's success should lay the foundation for the first commercial reactors by the 2060—70s.

Policy alignment across EU member states remains essential, as regulatory harmonisation will ensure smooth collaboration and licensing for upcoming projects, as well as dictate a clear regulatory flightpath to commercialisation. The European Commission's increased focus on energy independence, spurred by recent geopolitical events, adds momentum to all forms of low carbon, secure energy. With an emphasis on safety and innovation, the UK and Europe are becoming hubs for fusion technology startups, eager to make breakthroughs in reactor designs and efficiency.

Positive though the outlook is, it's clear that this technology will not be available to meet Europe’s ambitious net-zero and energy security aspirations. The next decade will be critical to close the gap and achieve net power gain. Representing several fusion projects, our firm is committed to navigating the evolving legal landscape to support this transformative energy source.

Nuclear power for data centres

Nuclear power, particularly in the form of SMRs, is emerging as a promising solution to meet the growing energy demands of AI data centres.

Whilst the overall consumption numbers for AI data centres are currently unconfirmed, some estimates put the scale of ChatGPT consumption alone at 226 GWh annually. This is roughly equivalent to charging the entire stock of US electric vehicles. As AI models increase in number and sophistication, this energy demand will continue to grow as hyperscaler data centres will feed this demand for computing power, bringing with them increased energy consumption.

Whilst many major tech firms are looking to renewable PPAs to power these data centres, nuclear presents an alternative and potentially more suited option due to its reliability and flat output curve, whilst being simultaneously carbon free. SMRs encompass nuclear reactors up to 300 MW which can be prefabricated and constructed on site.

Google signed an agreement with Kairos Power in October 2024 to produce a number of SMRs to generate the energy needed for its AI data centres. The first reactor is expected to be operational this decade, with more to follow by 2035. This move highlights the growing trend of tech companies turning to nuclear energy to power data centres. The deal aims to support clean and reliable energy for AI technologies, though it still requires regulatory approval. Kairos Power, which specialises in advanced reactors using molten fluoride salt as a coolant, recently began constructing a demonstration reactor in Tennessee.

Meanwhile, Microsoft have plans underway to renovate an existing nuclear power station in Pennsylvania whilst Amazon are also developing a recently purchased 960 MW nuclear powered data centre from Talen Energy. Amazon have further signed an agreement with Energy Northwest, a consortium of state public utilities, to develop a series of SMRs in Washington state.