Small Modular Reactors are the Future of Nuclear Energy: Economic Aspects

Which energy source should replace coal as the basis for generating electricity?

This article is a summary of the scientific paper: Mignacca B., and Locatelli G., “Economics and Finance of Small Modular Reactors: A systematic review and research agenda.” Renewable and Sustainable Energy Reviews 118 (2020): 109519.  The paper is freely available

.  Mr B. Bignacca and Prof. G. Locatelli were not involved in preparing the summary published on this website.

(Image courtesy of Rolls Royce.)
(Image courtesy of Rolls Royce.)

Many coal-fired power plants are expected to phase out in the near future. This raises an important question: which energy source should replace coal as the basis for generating electricity? This article will present a nuclear power solution to help combat climate change, and expand on how nuclear power can be a primary source of energy generation.

Currently, traditional large reactors (LR) have several issues related to their complex construction and installation, safety regulations, decommissioning, and other high cost risks. However, small modular reactors could be a solution that can overcome these issues.

According to the International Atomic Energy Agency (IAEA), small modular reactors (SMR) are a smaller version of a nuclear fission reactor designed to generate up to 300 MW of electric power. The main purpose of SMRs is to heighten nuclear materials security, containment efficiency and to simplify the on-site construction process. SMRs are a way of overcoming some of the financial difficulties that commonly occur with larger nuclear reactors. Their smaller size also makes the safety regulations for heat dissipation redundant.

Nuclear experts are developing SMRs which can be assembled in a factory and transported for installation in a plant. They also carry a simplified design and passive safety systems which reduce the operating and maintenance costs, as well as the number of active safety systems. The result from these upgraded SMRs would be improved construction safety and reduced capital costs. Since the interest in SMRs is increasing, its economic competitiveness is a hot topic. 

This article highlights that size is not the only significant factor in determining the competitiveness of SMRs, but also other aspects such as modularization, modularity, construction time, and co-sitting economies. 

SMRs, Economics and Finance – Basic terms 

The most important aspects for economic analysis of SMRs are the life-cycle costs and the indicators of economic and financial performance. Life-Cycle Costs: 

When it comes to the nuclear sector, the life-cycle costs are usually grouped into four types:

  • Capital costs cover the biggest percentage of life-cycle costs (50-75% [1]). Capital costs include the base construction cost, the applicable owner’s cost (land, site works, project management, administration and associated buildings), contingency and first core costs.  
  • Fuel costs cover all nuclear fuel cycle aspects, starting with uranium ore mining and ending in the high-level waste disposal. It also covers all related research activities. For SMRs, fuel costs are relatively small when compared to other costs.  
  • Decommissioning costs cover all decommissioning phases, including the planning, the shutdown, decontamination, dismantling and waste management, and ending with the remediation of the site.  
  • Operation and maintenance costs cover all non-fuel costs, including the staff, repair and interim replacements, services and nuclear insurance, taxes, equipment, fees and other miscellaneous costs not covered by other sources. 

Indicators of Economic and Financial Performance 

Levelized cost of electricity for a power plant is one of the main performance indicators for policymakers. This can be defined as the total price of the generated electrical energy. This indicator accounts for all the life cycle costs (considering the economic life of the plant and the total costs of construction, operation and maintenance, and fuel) and is expressed in units of electricity cost per kilowatt-hour [$/kWh]. 

Other important indicators analyzed to study nuclear power plant profitability are Net Present Value (NPV) and Internal Rate of Return (IRR). The NPV is analyzed in capital budgeting and investment planning and represents the difference between the present value of cash inflows and outflows during the evaluated period. The IRR is a discount rate that brings the NPV of all cash flows from a project to zero. The IRR is also used in capital budgeting to estimate the profitability of the project.  

Evaluating SMR Competitiveness 

When comparing SMRs to large reactors, several factors are considered: the construction time, design, adaptability, availability, capacity and cost uncertainties. A comparison of these aspects for SMRs and LRs is provided below.

Modularization and Modularity 

Modularization and modularity are two aspects with differences in which SMR’s unique benefits are evident. Modularity allows a plant construction to be built by assembling equal smaller capacity reactors. Modularity provides benefits such as allows co-siting economies, faster learning, better adaptability and cogeneration for the load following of nuclear plants. 

Modularization is a mechanism designed for cost reduction, in which an SMR power plant is divided into smaller modules. It represents the factory fabrication of modules, transportation and their installation on-site. The modules can provide cost reductions by getting produced offsite in a controlled environment. 

Modularization provides several advantages and disadvantages. One of the biggest advantages is reducing the construction schedule and maintenance costs. This is achieved by producing the SMRs in a factory, where it is easier to reduce mistakes in construction and avoid reworks.

Simultaneously, the construction process is much safer, as the workers in the factory handle a smaller number of components. Modularization allows for system testing and functional check-up activities during the production and assembly process, increasing the efficiency in construction, operation and decommissioning. This is done by applying design simplification and standardization. Time variability, testing and maintenance are also simplified and reduced.  

The SMR allows a factory-based workforce and factory testing and commissioning. (Image courtesy of Rolls Royce.)

The SMR allows a factory-based workforce and factory testing and commissioning. (Image courtesy of Rolls Royce.)

One of the modularization disadvantages is the expected higher transportation cost. For SMRs and similar smaller plants, modularized components can be transported via truck or rail, meaning delays are less likely. It is important to keep in mind that to recover the cost of setting up a supply chain for modular components, a minimum number of SMRs must be sold at a fixed selling price. In addition to this, plant layout simplification and design are required for successful applications of modularization. 

The degree of applied of modularization processes determines its effect on SMR capital costs. Research shows that for evident construction cost reduction, a 60 percent degree of modularization is required[3].  According to Wrigley, et. al.[4] there are seven steps to follow in a
modularization design process: 

  1.  Assess project applicability.
  2.  Define the build strategy, supply chain, transport, and logistic requirements. 
  3.  Define the configurations of the modules breaking down the system and classifying modules. 
  4.  Optimize breakdown of the systems to optimize cost and buildability. 
  5.  Define the interfaces. 
  6.  Define the design tools (e.g. CAD, BIM).  
  7.  Define the equipment layout. 
Construction of Hinkley Point C nuclear power plant (LR) with capacity of 3260 MW. (Image courtesy of EDF.)

Construction of Hinkley Point C nuclear power plant (LR) with capacity of 3260 MW. (Image courtesy of EDF.)

Incremental Capacity Addition and the Possibility of a Gradual Shutdown 

When compared in terms of incremental capacity addition, an SMR has an advantage over an LR because an initial SMR generates revenue while a second SMR is under construction. This allows investing in the revenue generated by the initial SMR in the up-front investment and reducing the need for loans. In addition to this, SMR economics can be improved when the electricity prices decrease because it has the possibility of a gradual shutdown of some modules. 

Co-sitting Economies 

In terms of placing several units on the same site, the LR is at a disadvantage when faced with an SMR. Expected capital cost savings per SMR unit can amount to 10-15% when it comes to installing any additional unit. This is achieved within fixed indivisible costs, such as insurance, licenses, human resources and etc. 

Cogeneration and Load Following 

LRs are less suitable for cogeneration than SMRs, because all SMRs can run at the full nominal power while providing maximum conversion efficiency. 

Construction Time 

Long construction time is a major issue in the nuclear industry. Research also shows that by applying a maximum effective modularization, the SMR construction time is reduced from six years to three or four years. On average, LRs construction time is 6 years or more, the SMR (first of its kind) four to five years and the SMR (next generation) is three to four years.[2]   


In terms of the design, SMRs tend to be cost-saving when compared to LRs. The modular approach applied in SMRs results in simplifying the plant, and ultimately leads to a reduced number and type of components. For example, comparing the design of “IRIS” SMR and GEN III + reactor, many components are eliminated in an SMR, such as the pressurizer, steam generator pressure vessels and high-pressure injection emergency core cooling system. This can provide up to 17 percent of capital cost savings. The IRIS-50 is a 50 MW integral reactor, with a high-pressure containment design.

Adaptability to Market Conditions 

Due to their shorter construction time, SMRs are more adaptable to market conditions than LRs. The investment in an SMR can be split in line as the market evolves and in some cases, can even be avoided. 


When it comes to the fuel cycle, SMRs can provide an extension from 1.5 to two years up to three to 3.5 years, which amounts to 2–5 percent capital cost-saving and a 3 percent operational and maintenance annual cost saving.[5] Additionally, some SMR units can operate separately while other ones are refuelled.  

Licensing Time 

The licensing time for both SMR and LRs are the same. However, after completing the licensing process for the first SMR, the process for any subsequent SMR is shortened due to its identical design. 

Capacity Factor 

The capacity factor is the ratio of the actual generated energy output and the maximum possible energy output for the entire year. The maximum possible output represents the energy amount generated if the generator continuously operates at full nameplate capacity over the analyzed period. It is one of the most relevant factors of LR and SMR economics, mainly influenced by refuelling, maintenance, load following and unplanned shutdowns. This results in a high capacity factor that increases the planned economics.  


SMR technology is presented as a promising solution for the future of nuclear technology and as a dominant energy source. The SMR’s unique characteristics such as size and modular construction, as well as its wide utilization, have caused increased public interest. The main specifics of SMRs are lower capacity level, small size, the modularity of reactor design, increased safety margin, reduced financial risk, and increased flexibility for various applications. 

SMRs share the same key challenges with the LRs—that is, financial and economic issues. This is because fully modular SMR has not yet been built, and real data is still not available. On the other hand, several studies on the topic SMR economics and finance have been published.[6] 


[1] Carelli MD, Ingersoll DT. Handbook of small modular nuclear reactors. Woodhead Publishing, Elsevier; 2014. p. 1–536. 

[2] Vegel B, Quinn JC. Economic evaluation of small modular nuclear reactors and the complications of regulatory fee structures. Energy Policy 2017;104:395–403. 

[3] Lloyd CA, Roulstone ARM, Middleton C. The impact of modularization strategies on small modular reactor cost. In: International congress on Advances in nuclear power plants 2010. Charlotte, NC, USA: ICAPP; 2018. 2018. 

[4] Wrigley P, Wood P, Stewart P, Hall R, Robertson D. Design for plant modularization: nuclear and SMR. In: 26th international conference on nuclear engineering, ICONE26; 2018. London, United Kingdom. 

[5] Carelli, M.D., Mycoff, C.W., Garrone, P., Locatelli, G., Mancini, M., Ricotti, M.E., Trianni, A. and Trucco, P., 2008, May. Competitiveness of small-medium, new generation reactors: a comparative study on capital and O&M costs. In 16th International Conference on Nuclear Engineering (pp. 499-506). American Society of Mechanical Engineers Digital Collection.

[6] Mignacca B., and Locatelli G., “Economics and Finance of Small Modular Reactors: A systematic review and research agenda.” Renewable and Sustainable Energy Reviews 118 (2020): 109519.