By Kennedy Maize
Do U.S. electric power suppliers looking to nuclear power to serve AI data centers need a new way to finance new plants? An analysis by the Haynes Boone law firm says the conventional U.S. approach to nuclear finance is likely a dead end.
The analysis offers two European models for nuclear finance – Finland and France – that could be superior approaches for AI “hyperscalers” seeking nuclear to power data centers at gigawatt scale.
“The AI arms race requires monumental data centers with power demands equivalent to large-scale industrial concerns,” says the paper by the firm’s Gilbert Porter, a partner in the New York office, and Jacob Bolinger and Léa Dickinson, associates in the Northern Virginia office.
Several hyperscalers have inked conventional power purchase agreements [PPAs] with existing nuclear generation, such as Amazon’s controversial deal with Talen Energy at the Susquehanna plant in eastern Pennsylvania. The Haynes Boone report notes, “There are limited remaining opportunities, however, for assuming control of existing nuclear capacity.  These organizations and their peers may eventually turn to new plant construction.”
Turning again to Talen, the independent generator and Amazon in June announced they will “also explore building new Small Modular Reactors (“SMRs”) within Talen’s Pennsylvania footprint…”
This may not work out well, the law firm suggests. “Historically,” says the report, “nuclear construction in the U.S. has faced significant cost and schedule overruns; while the promise of SMR construction is to reduce those risks, investors are not yet ready to assume that to be the case.”
The uncertainties of existing and new nuclear “coupled with the large scale of potential cost overruns, has made traditional project finance of nuclear projects infeasible and, to a large extent, traditional corporate finance of nuclear projects a daunting proposition for even the most well-capitalized market participants.”
That conclusion led the analysts to look at Finland and France for alternatives. They report, “Two recent nuclear financing models from Europe supported by traditional industrial participants are equally applicable to the data center context and bear consideration as a tool in addressing some of the project-related risks for nuclear development.”
Finland has used the “Mankala” model, named for “the hydroelectric cooperative and the related Finnish legal case legitimizing the arrangement….” It’s a form of finance where “shareholders form a limited liability company and contribute capital to finance the development and operation of a power plant.”
The shareholders — Finnish industrial customers and power distribution companies — don’t get profits from the project. Instead, “the Mankala company distributes a proportionate share of the electricity generated, at cost, which shareholders are free to use for their own purposes or sell further.”
Finland’s TVO cooperative used the Mankala model for the massive (and massively over budget and behind schedule) 1,600-MW Olkiluoto 3 nuclear plant. The Haynes Boone report noted, “TVO financed Olkiluoto-3 via a hybrid debt and equity model, which involved significant debt and the issuance of a new class of shares (Class B shares entitle holders to electricity from reactor #3, while Class A shares entitle holders to the older reactors #1 and #2 at the Olkiluoto site).
Then there is France, where state-owned Electricité de France in 2000 faced financing a new reactor at Flamanville 3 (a twin to Olkiluoto 3, which ended up with them same over-budget and off-schedule problems as its Finnish compatriot). The Haynes Boone team recounted, “In seeking investors, the French government facilitated the creation of a consortium of roughly two dozen large industrial power users in the country—Exeltium.”
The consortium “did not invest in EDF or the project, but it financed construction of the plant via a discounted future PPA over the next 24 years. Exeltium then entered into a series of individual take-or-pay offtake contracts with its constituent members.”
That means that “when Exeltium receives power, its members must purchase that power at a set price or pay a penalty. Regulators imposed certain changes to the agreement to ensure the market remained competitive, allowing participants to opt out of the purchase arrangement at set intervals, providing an offramp should French power prices drop drastically.”
In the U.S., the report says, “To date, true project finance has not been employed on a nuclear project because lenders will not lend to a project of such uncertain scale.”
The Finnish and French experiences may offer a way to control exploding nuclear costs “by distributing the project risk across numerous, well-capitalized industrial entities. With sufficient control over uncertain capital costs from their equity investors, these entities have been successful in raising non-debt nuclear capital.”
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