Small modular reactor potential lies in industry, not grid power
A roadmap for SMR deployment in the U.S. finds high profit margins in hydrogen production for ammonia and refining, but success hinges on a tax credit.
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Key takeaways
- Small modular reactors, SMRs for short, could profitably integrate into the U.S. industrial sector, but they fail to compete with wholesale electricity prices in the power sector.
- SMR success hinges on the Hydrogen Production Tax Credit. If used for heat processing and hydrogen production, SMRs could reduce U.S. industrial carbon emissions by 8% in the first wave of construction and 14% in the second wave.
- The study is a collaboration between University of Michigan Engineering and the U-M School of Environment and Sustainability.
A technoeconomic assessment of small modular reactor development across the United States suggests stakeholders should shift focus from the power sector to industry, according to a University of Michigan Engineering and School of Environment and Sustainability study published in Nature Communications. The research was funded by Idaho National Laboratory.
Known as SMRs for short, the compact nuclear reactors are built off-site in factories and assembled on-site, providing flexible energy and hydrogen generation at a lower capital investment. Dozens of reactor designs are in progress, but none have been built for commercial use, and pathways for early scale-up remain uncertain.
The research team explored potential pathways and formulated a roadmap for commercially viable SMR deployment in the U.S. across electricity, industrial heat and hydrogen applications using site-specific needs. The roadmap evaluates economic performance, decarbonization potential and sensitivity to ballooning capital costs.
The Hydrogen Production Tax Credit, part of the Inflation Reduction Act of 2022, is crucial to SMR success. With the credit in place, producing hydrogen for use in ammonia, steel and refining is the most profitable path forward for SMRs. This would help the U.S. industrial sector gain independence from foreign oil and gas imports and build protection against fossil fuel price volatility—all while creating skilled jobs and reducing carbon emissions.
“This work can advise investors, companies and business leaders on where to deploy SMRs to maximize profits. It can also inform the federal government on effective policy tools for supporting increased deployment of nuclear energy,” said Brendan Kochunas, an associate professor of nuclear engineering and radiological sciences at U-M and co-author of the study.
The Hydrogen Production Tax Credit
The research team built an optimization model to find the number and type of SMRs needed to economically meet energy demands for 34 ammonia plants, 9 steel plants, 47 refineries and 955 industrial facilities that use process heat. A second model optimized cost-effective SMR dispatch in a wholesale electricity market.
“There’s a lot of momentum around increased deployment of nuclear energy and small modular reactors, but this study provides the first comprehensive analysis of where it actually makes business sense to build and operate them,” said Kochunas.
Running these models with and without the Hydrogen Production Tax Credit, which pays up to $3 per kilogram of clean hydrogen produced, revealed how this incentive could enable much broader deployment of SMRs, and sharper reductions in carbon emissions.
With the tax credit active, SMRs could produce 91 gigawatt-electric (GWe) during the first wave of construction while turning a profit, compared to just 4 GWe without it. In a second wave, when mass production could further reduce construction costs by about 20%, the tax credit would yield 171.9 GWe capacity, but deployment without the credit would only reach 7.8 GWe. For scale, 171.9 GWe is 1.8 times the current U.S. nuclear capacity.
“Our findings offer actionable insights for policy-makers to both restart nuclear infrastructure deployment in the U.S. and decarbonize one of the highest emitting industrial sectors,” said Marisol Garrouste, a doctoral graduate of nuclear engineering and radiological sciences at U-M, current Research Engineer at Électricité de France and lead author of the study.
High profit margins for ammonia and refining
Using SMRs to produce hydrogen—by supplying the high heat and electricity needed to split water molecules—proved the most lucrative. Process hydrogen for ammonia projected 300% profit margins while most refining sites had margins above 50% and steel around 20%.
Of the facilities that use process heat, only a handful had positive profit margins, and most were less than 10%. Ammonia and refining’s high margins make them the most resilient to cost increases that could run a project over budget.
SMRs do not seem able to outcompete renewables or large light water reactors, like the AP1000, when it comes to existing wholesale electricity market prices in the power sector. This limits the path forward for SMRs without subsidies or major construction cost reductions.
The U.S. industrial sector emitted 1,360 million metric tons of CO2 in 2020. If SMRs were incorporated into the sectors listed above, the researchers project they could reduce U.S. industrial carbon emissions by 8% in the first wave and 14% in the second wave of construction.
“It is common for new technologies to find early success in niche markets. By incentivizing SMR deployment for industrial applications, the tax credit would not only accelerate decarbonization in a hard-to-abate sector, but provide a proof of concept and ideally bring down the cost of SMRs such that they are more competitive in the power sector in the future,” said Jessica Lovering, a sponsored affiliate of nuclear engineering and radiological sciences at U-M and a postdoctoral researcher at Uppsala University in Sweden.
Michael Craig and Max Vanatta of the University of Michigan School of Environment and Sustainability also contributed to this study. This research was supported by the Idaho National Laboratory (contract no. F067620).