Are the stars finally aligning for the ‘new golden age’ of nuclear? | Nils Pratley

A new US-UK agreement seeks to accelerate nuclear power development by streamlining regulatory approvals, aiming to reduce project licensing times to two years. This coincides with Centrica's partnership with X-Energy to develop up to 12 advanced modular reactors (AMRs) in the UK, signaling a strategic shift towards diversifying reactor sizes beyond traditional mega-projects. While these initiatives aim to expedite nuclear deployment and enhance energy security, the economic viability of smaller reactors and the imperative for significant cost reduction across the sector remain critical challenges, despite a growing strategic need for stable, low-carbon power.

Analysis

A recent US-UK agreement aims to accelerate nuclear power development by establishing mutual recognition of regulatory and safety regimes, potentially reducing project licensing times from over three years to just two. This policy shift is underscored by a tangible corporate action: a development agreement between Centrica, a FTSE 100 company, and US-based X-Energy to build up to 12 advanced modular reactors (AMRs) in Hartlepool, targeting completion by the mid-2030s. The introduction of these 80-megawatt AMRs signifies a strategic pivot in the UK's energy policy, embracing a portfolio of reactor sizes that includes smaller units alongside the 470-megawatt small modular reactors (SMRs) from Rolls-Royce and mega-projects like the 3,200-megawatt Sizewell C. However, significant economic hurdles persist. The viability of smaller-scale reactors remains unproven, while mega-plants carry immense costs, with Sizewell C estimated at £38bn and projected to add significant costs to corporate energy bills. The UK's construction costs are substantially higher than international benchmarks, with South Korea building at approximately one-sixth of the price. Despite these cost challenges, the strategic case for nuclear is strengthening due to the recognized need for stable, low-carbon power to complement intermittent renewables and replace gas-fired generation.

Key Decisions for Investors

• Investors should monitor Centrica as a first-mover in the UK's emerging advanced modular reactor (AMR) market, while remaining cautious given that the economics of this smaller-scale technology are entirely unproven and present a significant long-term risk.
• The primary hurdle for the sector remains execution and cost control, so any investment thesis should be contingent on evidence of tangible cost reductions that bring UK projects closer to international benchmarks, such as those in France or South Korea.
• Given the improving strategic backdrop for nuclear power as a source of firm, low-carbon energy, long-term investors could consider exposure to the nuclear value chain, but must weigh the potential against significant project delays and the lengthy timeline, with new capacity not expected until the mid-2030s.