The energy demand for data centers is expected to surge over the next five years, with US consumption alone likely to rise from 17GW in 2022 to 35GW by 2030. AI-specific data centers are due to be the primary driver of this growth, each requiring upwards of 80MW of power capacity compared to the 32MW needed for standardized centers.

However, with most of the major operators setting lofty net zero targets for their businesses, the balance of securing more power whilst adhering to emission reduction has become a significant concern.

As a result, data center operators are increasingly exploring the possibility of new energy sources, with nuclear energy emerging as a potential solution.

Why nuclear power?

Data center firms have continuously invested in low-carbon energy over recent years. Amazon Web Services (AWS) has been the largest corporate purchaser of renewable energy globally since 2020, while the likes of Microsoft, Google, and Meta have all invested in gigawatts of renewable power.

However, renewable energy is often intermittent and dependent on location, making its viability as the primary power source for data centers questionable. Nuclear power has emerged as a potential solution to these challenges, offering a consistent, reliable power source that is not reliant on specific geographical placement to secure power.

James Walker, CEO of microreactor company Nano Nuclear, says data centers “are becoming increasingly energy hungry and can't keep relying solely on the grid.”

Walker says they need to generate their own power. “However, many zero-carbon energy systems are location-dependent, leaving nuclear energy a viable option,” he adds. “Even if they were to use coal or gas plants, those are also location-dependent. Nuclear power is the best solution because it isn't tied to specific locations and provides the most consistent energy output."

This reliability has already pushed the hyperscalers towards nuclear solutions. In March 2024, AWS signed an agreement with Talen Energy to acquire a 960MW data center powered by the Susquehanna nuclear power plant in Pennsylvania, demonstrating the industry's growing confidence in nuclear power.

An Amazon spokesperson commenting on the deal said that its intention was "to supplement our wind and solar energy projects, which depend on weather conditions to generate energy. Our agreement with Talen Energy for carbon-free energy is one project in that effort."

The hyperscaler's plans to grow the size of the campus suffered a blow earlier this month when an interconnection request, which would have seen an additional 180MW of power dedicated to the site, was rejected by the Federal Energy Regulatory Commission (FERC). Energy companies had complained that the proposal unfairly benefited both AWS and Talen.

Elsewhere in Pennsylvania, Microsoft revealed in September that it was backing the revival of the dormant Three Mile Island nuclear plant, signing a PPA which will see it take the full 837MW output of the facility to power its data centers in the state, as well as Chicago, Virginia, and Ohio.

This renewed interest has led traditional power producers across the US to look to extend the life of or restart their nuclear assets. Firms such as Vistra announced in their Q3 earnings that interest from the data center sector in acquiring nuclear power supply is increasing, demonstrating the growing interest.

In addition, NextEra CEO John Ketchum reported that the US utility is contemplating restarting the Duane Arnold nuclear plant in Iowa thanks to strong interest from data centers.

"Given all of the demand that we're seeing from data centers, and the compression of supply and available sites ready to go, it's creating even more of a premium on other industries outside of data centers to try to lock up low-cost renewable generation," said Ketchum.

Interest has not been constrained to the US market. Taiwan, home to the chip fabrication behemoth TSMC, has indicated that it is “very open” to the deployment of nuclear energy to cope with the surging demand for power from chipmakers in the country precipitated by the growth of AI.

These moves are demonstrative of an approach that believes there isn't a one-size-fits-all solution when transitioning to carbon-free energy. All viable means are explored and tested to determine what is most applicable for each data center site. Following the FERC ruling, seeing how utilities and data centers traverse the shaky regulatory environment will be interesting. However, despite concerns, most companies are bullish on the sector's growth and believe nuclear is here to stay as a key power source for data centers going forward.

Is large-scale nuclear a solution?

Nuclear power is well-suited to the needs of data centers because it provides the consistent power they require to stay online.

Aaron Binkley, vice president of ESG at Digital Realty, sees a clear synergy between nuclear power and the energy consumption profile of data centers. "The hope and promise of nuclear energy is abundant carbon-free 24/7 generation that matches pretty closely the load profile of a data center," Binkley says

Additionally, nuclear energy addresses three critical concerns for data centers: cost efficiency, emissions reduction, and energy security. Though building nuclear power plants is expensive and time-consuming, large-scale sites become cost-effective once operational. Extending the life of existing nuclear plants can help maintain the energy supply, especially in Western countries.

The International Energy Agency (IEA) estimates that extending these plants will cost between $500 to $1,100 per kW by 2030, resulting in electricity costs below $40 per MWh, making nuclear energy competitive with solar and wind in many areas.

"Providing a direct, always on, clean power supply makes sense for these growing needs," says Patrick O'Brien, director of government affairs and communications at Holtec International, which provides nuclear energy equipment and services.

The problem would come if they don't look to deploy to small modular reactors (SMRs) and try to acquire power from the grid, further stretching that system. From a developer perspective, the ability to procure clean power at a fixed cost could benefit both sides' needs for construction/ operation costs stability and ensuring the power needs for the significant investment made on both sides from a cost perspective.

As a result, especially within Europe and the US, where there has been limited investment in large-scale nuclear over recent years, SMRs have emerged as a promising business case for data centers' growing energy demand.

The rise of SMRs

While traditional nuclear plants are a good fit for large-scale energy needs, SMRs are emerging as an enticing alternative, particularly for data centers. SMRs offer a more flexible and scalable solution, with an average capacity of 300MW, ideal for single data centers or small clusters.

James Walker of Nano Nuclear points out: "SMRs can be placed almost anywhere and offer an exceptional capacity factor, a key measure of energy consistency, which surpasses even that of gas or coal. Given these advantages, it's no surprise that tech companies have identified nuclear power as the preferred solution."

One key advantage of SMRs is their innovative design, which doesn't rely on regular water for neutron moderation and cooling. Instead, they use high temperature gas or molten salt, enhancing safety and efficiency. Moreover, SMRs require much less space and do not need the 10-mile emergency planning zone that traditional nuclear plants do. This makes them theoretically more acceptable to communities, as they raise fewer safety concerns and may require less regulatory oversight, though as the technology is still in its infancy this has yet to be put to the test.

Clayton Scott, chief commercial officer at SMR company NuScale, says: "SMR technology offers a cost-competitive, safe, and scalable solution compared to renewable energy sources and traditional nuclear power.”

The development of SMRs hinges on robust partnerships and supply chain capabilities. Scott notes: "When manufacturing our modules, our relationships with our long-term supply chain partners, many of which are strategic investors, are a significant source of strength. These partnerships are crucial for delivering high-quality, cost-competitive components, and we remain committed to developing a global supply chain to meet the growing demand for NuScale's technology."

This approach ensures the reliability and cost-effectiveness of SMR technology and enables data center operators to deploy SMRs rapidly and efficiently.

Holtec’s O'Brien highlights the potential for SMRs to meet diverse energy needs: "I think SMRs will play a key role,” he says. “The small footprint of a constant clean power generator will allow many industries to consider a new power source for their needs that can provide them with a growth opportunity. Additionally, the ability to deploy in any region and condition will allow developing areas of the world to have stable, clean power like never before."

The SMR sector has been buoyed recently by several announcements by data center hyperscalers who have committed to deploying their solutions at their sites.

From April to October, several major hyperscalers signed SMR deals, including PPAs signed by Equinix and Prometheus, with Sam Altman-backed Oklo.

Google also got into the act, acquiring 500MW of energy from Karios Power across six reactors.

AWS made the biggest commitment by signing three separate deals across the sector. It signed supply agreements with Energy Northwest and Dominion in Washington and Virginia. In addition, it directly invested in X-energy, an SMR developer, to support the construction of more than 5GW of new nuclear energy projects by 2039. The SMRs will, in turn, be deployed as part of AWS's deal with Energy Northwest.

For Ivan Pavlovic, energy and transition specialist at Natixis, this is a marriage of convenience. He argues: "There’s an alignment of stars with data center operators and SMR developers, as data centers require constant, low-carbon electricity, and SMRs can provide reliable baseload power."

As a result, SMR firms are looking at data centers as a first mover, spurring more bespoke solutions for the sector. An example of this is start-up Deep Atomic, which in October announced an SMR concept directly tailored to the data center sector.

"We’re differentiated in size…many competitors are at the upper end of SMRs, and too large, we think, for a behind-the-grid island power solution for data centers," said a company spokesperson. As a result, it seems that SMRs have found a bedfellow in the data center sector, which could gestate its growth.

Concerns persist over scalability and whether SMRs are financially viable for widespread use across the data center sector. As a result, substantial financial backing is crucial to avoid the pitfalls of project financing. Currently, no bank will support SMRs, as they require proven, reliable technology with established off-take agreements to mitigate project cash flow risks. Therefore, the role of data centers is paramount in supporting the scaling of these technologies to provide cash flow generation certainty, which is crucial for project finance eligibility without government support mechanisms.

Challenges and opportunities

Despite the promise of SMRs, several challenges remain. Like ‘traditional’ nuclear, the sector faces potential delays and cost overruns, which could undermine its competitiveness with renewable energy sources. Additionally, the diversity of SMR designs currently under development creates uncertainty over which technologies will succeed.

Digital Realty’s Binkley highlights this issue, and says: "On the SMR side, different reactor technologies are being promoted. I think there's a bit of a market acceptance curve there, too, to say, ‘hey, is this as good as it's being promised?’"

The sector also suffers from an eroded nuclear supply chain after a hiatus in nuclear construction during the 1980s and 1990s, necessitating the rebuilding of capabilities and the formation of strategic partnerships for early SMR projects.

Public acceptance is another critical factor. Nuclear power's association with disasters like Chornobyl and Fukushima fuels fears over the technology. However, companies like Nano Nuclear claim to be safe and say they are addressing conceptual concerns by forming closer partnerships with stakeholders. "Our approach is not just about providing solutions but also about forming closer partnerships to understand the specific needs of our clients. This enables us to tailor our technology to meet the unique requirements of various industries," says Walker.

Governments also play a role in the success of nuclear solutions for data centers. Policies that streamline the regulatory environment support constructing new nuclear plants and extending existing ones, which is crucial. However, concerns remain over the lead time of the regulatory process, with Binkley believing that "some of the timelines that are out there probably are a bit aggressive in terms of how long that will take."

Both Nano Nuclear and NuScale are facing charges from short seller Hunterbrook Media that their timelines are unrealistic and that their products may not be able to live up to lofty claims. NuScale canceled a project in 2023 over a lack of demand. Neither company, nor competitors like Oklo and Rolls Royce, have deployed a working SMR.

A look to the future

As data centers' energy needs continue to rise, nuclear power, especially SMRs, presents a compelling option - if they can prove themselves to be working. While traditional nuclear plants provide cost-effective and low-carbon energy, they face challenges like high initial costs, strict regulations, and public concerns.

SMRs offer a potential alternative with lower fees, quicker development, and improved safety features, making their promised version perfect for data centers that need reliable and scalable power. "Nuclear power can be deployed anywhere,” Walker summarizes. “It isn't dependent on location and has the most consistent energy output. This reliability is why tech companies have gravitated towards nuclear solutions."

For small nuclear energy to become a key power source for data centers, a concerted effort is needed from policymakers, industry stakeholders, and the public to overcome the economic, regulatory, and social challenges. First, however, it needs to overcome the doubts about whether SMR companies can actually deliver projects on time and on budget - something that would be a first in the nuclear sector.