3 Developments That May Usher In A Nuclear Energy Revival
Law360 - August 17 2023
Nuclear energy is experiencing a resurgence. As the world grapples with how best to address climate change, nuclear has found a seat at the table as a viable, zero-carbon energy source.
While the appetite in the U.S. for nuclear energy over the past half century may best be described as tepid, or even resistant, recent advances in nuclear energy technology — such as small modular reactors, or SMRs — may hold the key to broader adoption of nuclear power generation.1
Three events over the past year have brought American focus back to the industry: (1) the 2022 enactment of the Inflation Reduction Act; (2) the U.S. Nuclear Regulatory Commission’s approval of NuScale Power Inc.’s SMR design; and (3) five members of the G7 agreeing to create new nuclear fuel supply chains.
This article examines these developments and their implications for the nuclear energy industry in the U.S.
The Inflation Reduction Act
The Inflation Reduction Act was signed into law on Aug. 16, 2022, and, among other significant benefits for domestic renewable energy, provides certain tax benefits targeted at the nuclear energy industry.
The full suite of nuclear energy tax credits also includes the existing credit under Internal Revenue Code Section 45J, which applies to advanced nuclear power facilities.2
While on the whole the act provides much-needed funding and tax credits designed to make nuclear cost-equivalent with other forms of power generation, there is one notable pitfall — the Section 45X advanced manufacturing production credit does not include uranium or plutonium, the two primary elements used as nuclear fuel.
Section 45J Credit
The Section 45J credit — for advanced nuclear power facilities used for the production of electricity — applies for an eight-year period beginning on the date the facility was originally placed in service.
An advanced nuclear power facility means any advanced nuclear facility that is owned by the taxpayer and uses nuclear energy to produce electricity, and which was placed in service before Jan. 1, 2021.
The advanced nuclear facility specifically encompasses any nuclear facility where the reactor design was approved after Dec. 31, 1993, by the NRC. The Section 45J credit was not extended or adjusted by the Inflation Reduction Act and currently, the potential credit period cannot extend beyond Jan. 1, 2029.
Section 45U Credit
The Inflation Reduction Act creates a nuclear energy-specific production tax credit under the new Section 45U, the zero-emissions nuclear power production credit. This credit is for electricity produced by the taxpayer at a qualified nuclear power facility and is sold by the taxpayer to an unrelated person.
The base credit amount is 0.3 cents/kilowatt-hour, adjusted for inflation, and is increased by five times the base credit upon satisfaction of the prevailing wage requirements during the repair or alteration of the qualified nuclear power facility.
Such a facility must be owned by the taxpayer and produce electricity from nuclear energy, not be considered an advanced nuclear power facility for which a credit is allowed under section 45J of the code, and must be placed in service before Aug. 16, 2022.
Although the qualified nuclear power facility needs to be placed in service prior to Aug. 16, 2022, this credit is available to taxpayers for any electricity produced from such qualified nuclear power facility source after Dec. 31. The Section 45U credit expires on Dec. 31, 2032.
Sections 45Y and 48E Tech-Neutral Credits
For zero-emissions nuclear projects that begin construction after Jan. 1, 2025, and before Jan. 1, 2033, the Inflation Reduction Act established a technology-neutral clean electricity production tax credit, or CEPTC, and clean energy investment tax credit, or CEITC, under Sections 45Y and 48E of the IRC, respectively.
Either of these credits may be utilized by a qualified nuclear energy-producing facility. The CEPTC is a 10-year production credit that provides a base credit of 0.3 cents/kWh, adjusted for inflation. The CEITC is a one-time investment tax credit that provides a base credit of 6% of the eligible basis in the qualified investment of a nuclear power facility.
Both the CEPTC and CEITC are increased by five times the base credit amount upon satisfaction of the prevailing wage and apprenticeship requirements during the construction and applicable repair or alteration of the facility, which creates a 1.5 cents/kWh credit for the CEPTC and 30% of the eligible basis for the CEITC.
Additionally, both the CEPTC and CEITC, without regard to the satisfaction of the prevailing wage and apprenticeship requirements, are eligible for bonus adders of 10% for projects meeting certain domestic content requirements and 10% for projects located in an energy community, as defined in the IRC and determined by applicable U.S. Department of the Treasury and Internal Revenue Service guidance.
For each qualifying nuclear project, taxpayers are only eligible to receive either the Section 45U credit or the applicable CEPTC or CEITC, but are not eligible to receive both for a single project.
Section 45V Credit
If a qualified nuclear power facility uses electricity to power a qualified clean hydrogen facility, the owner of the qualified hydrogen facility may be eligible to receive the Section 45V clean hydrogen production credit.
Since the qualified hydrogen facility needs to be unrelated to the qualified nuclear power facility, the 45V credit may be taken in addition to the 45U credit — albeit by different taxpayers.
Inflation Reduction Act Funding
Inflation Reduction Act investment in nuclear energy is not limited to tax credits; rather, the act appropriates funding for a number of general programs benefiting the nuclear energy industry as well as nuclear energy-specific objectives.
First, the act provides an additional $40 billion of loan authority to the U.S. Department of Energy’s Loan Programs Office for loan guarantees under Section 1703 of the Energy Policy Act, including nuclear energy projects.3 The simultaneous increase in loan authority and expansion of eligible projects to include nuclear energy projects could be a boon for research and development in the industry.
Second, the act invests $700 million to help create a domestic pipeline for high-assay, low-enriched uranium, a necessary fuel source for advanced reactors.
Finally, the act allocates $150 million to U.S. national laboratories to improve overall research and development infrastructure.
On Oct. 25, 2022, the DOE announced that this $150 million allocation will go toward infrastructure improvements at the DOE’s Idaho National Laboratory where research on advanced nuclear reactors is underway.
Time will tell whether these investments result in advances in American nuclear energy technology. However, given the DOE’s work thus far done on significantly less funding, one can imagine that the Inflation Reduction Act’s influx of cash will prove to be beneficial for the industry for years to come.
NRC Approval of NuScale Small Modular Reactor
On Jan. 19, the NRC certified NuScale’s standard design for an SMR, which became effective on Feb. 21.4
Certification of the NuScale standard design marks the first time the NRC has certified an SMR. This is a significant development for at least three reasons.
First, SMRs promise to expand the possible siting locations for nuclear reactors, both domestically and abroad. SMRs do not have the same siting requirements as conventional light-water and boiling-water reactors because they do not need the same large, cooling pools other reactors require.
One need only look at the map of current nuclear reactor sites in the U.S. to understand that large bodies of surface water are a prerequisite for a nuclear reactor. SMRs may expand possible sites for nuclear reactors to geographic regions previously inaccessible to conventional nuclear reactors.
Second, SMRs, as their name implies, introduce modularity into the nuclear reactor industry. This means that multiple reactors can be coupled together to provide for greater power output if the intended purpose of the reactor so requires.
Third, SMRs produce significantly less nuclear waste than traditional reactor designs. While America is still determining how best to address nuclear waste, a move toward including SMRs could potentially slow the creation of waste while solutions are determined.
As exciting as NuScale’s design approval may be, it is only one of several steps in bringing a nuclear reactor online.
The U.S. currently utilizes two separate licensing regimes for nuclear reactors. Under the two-step licensing process, outlined at Title 10 of the Code of Federal Regulations, Part 50, a developer must first obtain a construction permit, followed by an operating license.5
Developers may begin construction after acquiring a construction permit and before obtaining an operating license, but the operating license must be obtained in order for the construction of the reactor to occur and for it to come online.
The other main licensing framework for nuclear reactors is the combined licensing process, outlined under Title 10 of the Code of Federal Regulations, Part 52. The combined licensing process consists of three unique steps: an early site permit, a standard design certification and an operating license.
The application for the combined license may incorporate by reference a standard design certification. NuScale’s standard design certification may be incorporated by reference should NuScale choose to pursue a Part 52 license.
New Nuclear Fuel Agreement Among G7 Members
On April 16, five G7 countries — the U.S., U.K., Canada, Japan and France — announced their intention to create new supply chains for uranium fuel.6
As noted by the U.K.’s Department for Energy Security and Net Zero, the impetus behind this new collaboration is for the countries “to come together to address dependencies on Russian fuel as the world turns increasingly to nuclear as a source of low-carbon and secure energy.”7
While the vast majority of the world’s uranium used for power production is not mined in Russia, Russia accounts for an outsized share of uranium conversion and enrichment.8
Natural uranium occurs largely as the isotope U-238, which is unsuitable for most nuclear reactors. U-238 must be converted into uranium hexafluoride prior to being enriched to the more dense U-235 isotope, which is the preferred isotope for most reactors.
As of 2020, Russia accounted for roughly 38% of the world’s uranium conversion capacity and 46% of the world’s uranium enrichment capacity.9
However, sanctions on Russia as a result of the war in Ukraine have strained global dependence on Russian uranium conversion and enrichment. This has led countries typically beholden to the Russian market to explore other avenues for obtaining high-grade enriched uranium for civilian use.
Final Thoughts
Nuclear energy has provided roughly 20% of American electricity annually since 1990, and has been a component of the electricity generation ecosystem in the U.S. since the 1950s.10
While there are legitimate concerns over nuclear waste disposal, radiation exposure and costs associated with development and construction of nuclear power plants, nuclear power has provided a consistent, base-load form of power for generations of Americans.
As the U.S. pushes for greener electricity production, the importance of stable, consistent power cannot be understated. Until battery technology becomes cost-effective for storing excess electricity generated by intermittent renewables, there will always be the risk that the lights will not come on when the sun is not shining and wind is not blowing.
Additionally, the push for an electricity-dependent economy will only serve to put greater strain on existing power generation. Nuclear can fill the gaps created by inconsistent renewable energy generation and also serve to create a larger pool of electrons from which America’s ever-growing fleet of electric vehicles may draw.
Technological advances such as SMRs, a greater national policy emphasis on nuclear energy through the Inflation Reduction Act, and other legislation and regulations, and international efforts to create new supply chains for uranium fuel, can expand the possible geographic footprint for nuclear reactor siting, spur innovation in a space that has remained stagnant domestically for decades and ensure reliable fuel supplies for years to come.
While nuclear energy on its own is no panacea, it may prove invaluable in addressing some of the issues inherent in America’s energy transition.
1 The International Atomic Energy Agency defines a small modular reactor as “advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors.” https://www.iaea.org/newscenter/news/what-are-small-modular-reactors-smrs.
2 All “Section” references are to the Internal Revenue Code of 1986, as amended.
3https://www.energy.gov/lpo/inflation-reduction-act-2022.
4 88 CFR 3287.
5 Nuclear Power Plant Licensing Process, United States Nuclear Regulatory Commission (July 2004), https://www.nrc.gov/docs/ML0421/ML042120007.pdf.
9 Id.
10https://www.statista.com/statistics/273208/nuclear-share-of-electricity-generation-in-the-us/; https://www.asme.org/about-asme/engineering-history/landmarks/47-shippingport-nuclear-power-station