Incentivising the energy ecosystem to invest in new nuclear

Nuclear energy investment is expected to hit $2.2 trillion by 2050, demonstrating global interest in new nuclear as a key part of the future energy mix. Market-mapping exercises such as FutureWorlds™, alongside techno-economic assessments, have demonstrated the importance of nuclear for industrial decarbonisation, fuel production, and clean energy.

According to our latest research with 120 UK nuclear energy leaders, launching this summer, reveals that nine in ten UK nuclear energy leaders believe private investment will remain out of reach without clear and stable government policy and support. While the UK government has launched new frameworks, existing markets are still designed for conventional generation exported to the transmission network – and don’t recognise nuclear’s ability to bridge multiple energy vectors. New, dedicated mechanisms are needed for nuclear to achieve its commercial potential.

A connectivity challenge

Nuclear offers multiple possible outputs beyond electricity, including heat, which can be used to produce hydrogen and other fuels. However, large, liquid markets for heat and hydrogen don’t yet exist, and their production depends on specific project circumstances, including siting, network demand, and offtake arrangements. It’s a collaboration problem. At the same time, delays and cost hikes have dampened investor enthusiasm for risky new-build nuclear projects. Quantitative analysis can reveal the cost gap for new nuclear technologies relative to alternative combinations of power, heat, and fuel production assets, helping to calculate the investment certainty gap. Investors are unlikely to accept this gap in cost and investment certainty.

What’s needed is policy intervention through new market support mechanisms, regulatory frameworks, and novel approaches that secure investment for first-of-a-kind (FOAK) projects – and beyond.

Co-create dedicated market support mechanisms

Market support mechanisms for nuclear power are essential to proving nuclear’s true value. However, there is no revenue certainty for heat and hydrogen analogous to electricity Contracts for Difference (CFD) or RAB. Today, only hydrogen has an emerging producer business model – but it’s not yet tailored to nuclear enabled hydrogen, nor integrated with power or heat cogeneration from nuclear assets. There is no equivalent heat CfD, or cap and floor for industrial heat offtake.

Nuclear market support mechanisms should account for the dual production of power and heat, and all possible market outputs. For example, Sizewell C’s Nuclear regulated asset base (RAB) licence set out a consumer backed, regulated revenue model through construction and operations, supported by a government support package. This materially lowers the weighted average cost of capital (WACC). However, the licence is tailored to large projects, not multivector small modular reactors (SMRs). The missing piece? Alternative use cases need to be integrated into current regulatory or business plans – not just considered a nice-to-have.

Market support mechanisms need to incorporate whole-system acceptability to be truly investable. This includes consideration of EPC and OEM arrangements, equity investors, and lenders. Developers struggle to secure revenue for the full multivector stack, pushing up WACC and discouraging debt and equity financers. The government could widen access to debt financing through direct public funding; involvement as a stakeholder; or via a state-owned entity. Ideally, risk should be distributed across institutions, preventing concentration while lowering barriers to entry for financers. Other risk-sharing considerations include inflation-proof offtake agreements, and compliance updates (backfitting).

Market support mechanisms for other energy sources show the art of the possible. In the UK, a simple feed-in tariff for renewable generators evolved into a two-way Contract for Difference, unlocking investability while cutting consumer costs. Contract mechanisms for bioenergy with carbon capture and storage (CCS) compensate for the production of power as well as negative carbon emissions. Hydrogen production is supported by long-term contracts that bridge the gap to conventional gas and increase competitiveness. These mechanisms have demonstrably reduced the cost of capital for new projects, with the design flexibility to incorporate consideration of multiple revenue streams or purposes. Ultimately, they offer a clear model for nuclear support mechanisms.

Fine-tune the regulatory framework

New nuclear needs a regulatory framework that reflects its ability to provide multiple outputs and awards support based on this wider contribution to the economy and society. Frameworks need to value projects that support energy security and decarbonisation through multi-vector operation, maximising value for money for consumers and reducing single-market risk that may be ultimately underwritten by consumers.

The advanced nuclear framework, while a step in the right direction, represents encouragement rather than enablement. The UK Industrial Energy Transformation Fund does not yet include nuclear power, which is an oversight given its potential to generate much-needed heat for industrial as well as domestic uses. Similarly, the government abandoned plans to introduce a green taxonomy for clean energy technologies because nuclear power was included in the proposal, and was not considered to be ‘green’. The proposal could be revisited – this time, with a more nuanced view on nuclear as a critical enabler for green energy. The EU green taxonomy recognises nuclear, and signals such as this have spurred European nuclear power success.

Take a cluster approach

Nuclear’s investability could be further supported by a cluster approach; focusing on small-scale energy solutions for local areas with lower risk and less stakeholder complexity. These clusters could then be connected, supporting faster, targeted development – just like SMRs themselves. This cluster approach has been applied to carbon capture, usage, and storage (CCUS), representing a positive step.

A more structured, joined-up, cluster infrastructure approach for nuclear could maximise opportunities to use heat and hydrogen from nuclear. Clusters could include hydrogen transport and storage, carbon networks (where relevant), and large electrical connections – all with their own funding certainty and timelines aligned to nuclear FOAK schedules.

Local use cases (such as heat for industrial parks or municipal heat networks) can take advantage of nuclear’s multi-vector opportunity, but requires coordination of siting and location. This approach is already underway in other parts of the world – municipal utilities in the Nordics are considering use of advanced modular reactors and micro-reactors to decarbonise district heat networks with heat, rather than power, as the primary product.

With the right government-backed, industry-based, and investor-targeted mechanisms, nuclear’s paper potential can become practical progress.