Gravel2Gavel Construction & Real Estate Law blog — May 30, 2025
The rapid increase in electricity demand from data centres has become a major challenge to the U.S. energy sector. This demand is largely driven by the deployments of large learning models and generative artificial Intelligence (AI). These workloads require large-volume, high-uptime computational infrastructure, and correspondingly large, reliable power supplies.
Combined with broader electrification across transportation, buildings and industry, this surge is pushing generation planning as well as grid capacity toward and beyond their limits across many national and international jurisdictions. This new environment requires rapid, large-scale plans for utilities and grid operators. Many of them have been dealing with predictable or flat load growth over the past decades. Too little construction increases the risk of blackouts. Ratepayers will be stuck with stranded assets if you build too much, or in the wrong place or sequence. Traditional generation sources are limited. The current long lead time for turbines has delayed natural gas-fired project, and carbon capture at the moment is an expensive way to achieve zero-emission energy. The cost of solar and wind power, coupled with lithium-ion batteries, is attractive in the short-term, but the long-term costs are prohibitive for data centers due to the life expectancy of the panels, turbines, and especially the batteries, as well as the amount of land needed for such a large-scale renewable deployment. Advanced geothermal is promising for some quantity of generation or heat content focused in certain geographies and geologies.
The challenge with any mix of existing generation sources is that the demand for power occasioned by data centers is dwarfing the capabilities of gas, renewables/storage and geothermal for baseline operation. “It’s crazy because
the […] state of Oregon is about 6 gigawatts (GW),” says one Amazon manager, “and you have these large hyperscalers [entire] ‘Can I get 6 GW too?'”[asking,]Enter Reliable and Carbon-Free Nuclear Energy
Nuclear power in the United States has long served as a cornerstone of the country’s low-carbon energy mix. By 2025, 94 commercial reactors will be operating in 28 states. They will provide nearly 20% of the country’s electricity, and almost half its carbon-free generation. These reactors are incredibly reliable, with capacity factors that average 94%. They outperform most other sources of generation. In this context, several closed nuclear plants are being actively pursued to restart, reversing a trend that had been prematurely closing due to market pressures. The Palisades nuclear plant in Michigan, which was shut down in 2022, and acquired by Holtec International, is now on track to be the first U.S. Commercial Nuclear Plant to restart after closure with support from the U.S. Department of Energy’s Loan Programs Office. The plant could be back in service as soon as 2025. This is not the TMI-2 reactor that was involved in the 1979 incident. This restart effort is not enough to meet the speed and scale of demand generated by AI. Even if all U.S. nuclear reactors that are currently being considered for restart were brought back online successfully, their combined capacity would only represent a fraction of the projected demand growth. Many existing nuclear units are also seeking to increase their power output, potentially adding several thousand megawatts of electricity to the grid. However, this will not be enough to meet AI-based demands. To close the gap, companies are pursuing new nuclear construction that focuses not only on large-scale plants, but also on Small Modular Reactors. To understand the attraction of SMRs for this application, it is useful first to step back and understand what these reactors are and how they are distinctive in two dimensions–different from prior nuclear builds and suited for the data-center context.
SMRs have the capability to have significant portions of the plants built in a factory environment, where economies of scale can be captured and weather-related impacts are avoided. While large nuclear power plants today can have up to 30-35% of fabricated content, SMRs will likely have 50-60%. The modules are smaller and can be shipped in either a single rail or truck container, or a small number of containers to allow for easy assembly on site. The more modules built in a given factory with the same workforce, the better the cost and schedule expectations.
SMRs are generally considered to be reactors between 50 and 300 megawatts of electricity output or MWe, though there are examples, such as the Rolls Royce 440 MWe design, that are larger. Microreactors are those that are smaller than 50 MWe. The range of designs encompass (a) compact versions of the “Gen III+” widely deployed technology based on light water cooling (either pressurized water reactors (PWR) or boiling water reactors (BWR)), as well as (b) new “Gen IV” designs using non-water cooling and moderating materials (including molten salt, sodium and lead, among others) at higher temperatures for greater efficiency.
Here is the
Pillsbury Guide to Advanced Reactor Designs
, so you can see a subset of the dozens of modular designs being evolved in the regulatory and commercial domains.
SMRs are especially compelling for the data-center use case. They offer:
Baseload reliability critical for high-throughput AI workloads;A small physical footprint compared to land-intensive VRE;Flexibility for siting near data centers to minimize latency and interconnection issues. This is because the U.S. Nuclear Regulatory Commission, which normally requires an Emergency Planning Zone (EPZ) of at least 10 miles, supports SMRs having a smaller EPZ that extends only to the plant’s site boundary (as little as 1,000 yards from the plant);
Support for “behind-the-meter” installations that allow developers to bypass increasingly lengthy grid interconnection timelines. (FERC proceedings will determine how co-located facilities share grid costs. )
- New Nuclear Economic and Regulatory Outlook
- Can the promise of new reactor deployments be realized to meet the energy demand occasioned by the data center and other drivers for electrification?
- According to a recent study by the Idaho National Laboratory, which facilitates nuclear research, powering a 300 MWe data center entirely with VRE and batteries could cost more than a similarly sized SMR over time. The study acknowledges that wind and solar generation would need to be overbuilt in order to meet demand. Due to the degradation curves for lithium batteries, they will also require more capital investment over the lifetime of a typical facility. Admittedly, the study also assumes that SMRs can be built on budget and in about 4.5 years, as is currently envisioned.
- Other studies hedge their bets on the possible cost, schedule and efficiency performance of SMRs, given the early stage in their development. There are still conceptual advantages to generating a large amount of zero-emission energy
with a high uptime
and a small footprint
. An SMR would be able achieve 57,000 MWh/acre/year with only 38 GW/acre. This is better than gas or VRE or large nuclear. Kairos Power received a construction permit in December 2023 from the NRC and completed the first safety related concrete pour for its Hermes nuclear reactor earlier this month. In April 2025, Ontario Power Generation in Canada received a construction permit for the construction of GE-Hitachi BWRX 300 reactors on the site of their Darlington nuclear plant. TerraPower began site preparation activities for its commercial-scale reactor in Wyoming last year. NuScale’s larger 77 MWe design has now been approved by the NRC as a standard design. Other designs are also well along with the regulatory approval and application processes. The
Pillsbury nuclear-powered data center project tracker can be found here. (Fusion generation in data centers is a worthy topic and will be covered in its own Pillsbury piece.) Please contact the authors for more information and assistance. Please contact the authors for more information and assistance.De-Risking First-Mover InvestmentThe on-again, off-again history of new nuclear construction in the U.S. has led to little stability in construction workforces and an inability to validate cost estimates. Sponsors and lenders are now wary about the economic viability nuclear energy, whether it is large reactors or small modular reactors. Lenders will likely require that the project funding plan include a large and readily-available financing reserve (e.g. cash, letters of credits, or funding available) to cover unplanned expenses. This contingency contributes significantly to the total capital commitment. Even with such project cost buffers, there remains some probability that costs will exceed committed financing.To combat this risk, the Energy Futures Finance Forum–a program within the EFI Foundation–recently published a policy framework for a publicly funded cost stabilization facility (CSF) to address the risk of potential cost overruns to sponsors for early-stage projects, with the intent to mitigate a key hurdle to new nuclear energy projects.Together, EFI and Pillsbury developed a model term sheet for such a CSF. This structure would draw a guarantee loan to support any potential cost overruns for at least three SMR project using the same technology. The CSF can be backed either by a private or public lender, such as the Department of Energy’s LPO. The sponsors should agree on a fair and equitable way to share the repayments of the CSF. In recognition that the first projects may face the greatest challenges, the model term sheet does not specifically allocate the CSF, so the first project could potentially absorb all of the capacity, unless the sponsors choose to specify an allocation.The model term sheet is by its nature only a starting point, and eventual agreements for a CSF of this type may differ in various ways. However, this model can provide the required conceptual approach needed in order to share the risks of cost overruns across multiple projects and over an extended payback period.
Uncertainty Between Congress and the White House on Nuclear Financing
The Trump administration and Energy Secretary Chris Wright have continued to champion new nuclear development. On May 23, 2025 President Trump signed four Executive Orders to accelerate commercialization of nuclear energy in the U.S. with a goal of quadrupling nuclear power capacity by 2050. The House budget bill proposed a shorter eligibility window for federal incentives. Construction would have to begin before 2028 in order to qualify for Production Tax Credits or Investment Tax Credits. This accelerated schedule could disqualify nuclear projects that do not have an order book. If enacted, this would require borrowers–particularly those developing first-of-a-kind projects–to bear the full cost of the loan risk, making LPO-backed financing less affordable and accessible. If these proposals become law, nuclear project developments will be even more dependent on anchor customers such as hyperscalers. These companies may need to provide upfront equity, development funding, or long-term power purchase agreements (PPAs) to catalyze early deployment.The Senate is actively considering modifications to the budget bill. Senators Dave McCormick, R-PA, and Chris Coons, D-DE recently introduced the International Nuclear Energy Financing Act in order to encourage more nuclear financing for projects which would create jobs in the United States. Senator John Barrasso (R-Wyo.) is the Senate Majority Whip and has historically supported nuclear development.For tech companies aiming to scale AI data centers, nuclear offers firm, clean, scalable power. But making this opportunity a reality will take creative approaches to project finance, including new forms of risk-sharing.
Pillsbury’s Energy Transition Group is actively engaging with clients on innovative funding structures for new nuclear. From engaging with the DOE and national laboratories to forming development consortia, we are supporting sponsors, developers, utilities and tech firms navigating this next chapter in energy infrastructure.
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