Tech companies have to pay too much for nuclear power • The Register

Nuclear power contracts signed by hyperscalers show that they are desperate for reliable “clean and green” energy sources to power their ever-expanding data center footprints. However, investment bank Jefferies warns that these tech giants will likely end up paying more than they get.

This week alone, Google and Amazon confirmed further agreements. Google said it has entered into a deal to buy nuclear power from Kairos Power, although the potential supplier has not yet developed the small modular reactors (SMRs) it plans to use to fulfill the contract.

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In a similar agreement, Amazon announced that it would provide half a billion dollars to three companies to develop SMRs for power generation in Virginia and Washington. In this case, energy production is not expected to begin until the 2030s.

And Microsoft is also involved in the nuclear sector, recently entering into a power purchase agreement (PPA) with Constellation Energy to restart the Three Mile Island power plant.

According to Jefferies Research, part of the Jefferies financial services group, the key point, at least in Google's case, is that the company is looking for additional clean power and repurposing non-existent power, and needs power that will be available 24/7.

The report, shared privately with The Registerstates that SMRs are likely to be “significantly more expensive” than existing pressurized water reactor designs that can compete with natural gas or renewable energy, but which take six to 11 years to build – too slow to meet the rapidly growing demands of data centers.

“There are two key concepts here: additionality, meaning new generation to adapt to the new load; and matching clean energy production to each hour of load,” the Jefferies report said. Existing nuclear power plants fail the “additionality” test despite providing 24/7 clean energy, whereas intermittent renewables do not have the reliable capacity factor that data centers require.

Some of Mountain View's new barns are indirectly tied to increased coal and natural gas production, including in Omaha and South Carolina, because the additional electricity demand is not tied to new clean energy sources, the banker's report said.

It's also worth noting that the Chocolate Factory is “not prioritizing rapid time to market” as Kairos Power's first SMR is not expected to come online until 2030, followed by further reactor deployments by 2035. This could be seen as a long-term view from Google the power supply, or it simply reflects the reality that SMRs are simply not ready yet.

“On the positive side, Google's interest in purchasing what is believed to be very expensive nuclear power demonstrates the inherent value of 24/7 clean energy,” the report says, but also adds that the emphasis on new clean power rather than existing clean energy adds something downplays validity of power purchase agreements with existing nuclear energy sources, such as Amazon's with Talen Energy earlier this year.

Looking at existing nuclear capacity in the US, Jefferies estimates there is about 97 GW, split about 60/40 percent between regulated and commercial/unregulated generation, capable of generating an average annual production of 792 TWh. This compares to estimates for the energy requirements of data centers currently at 178 TWh, which will rise to around 600 TWh by 2030.

As for commercial or unregulated nuclear power generation, capacity is only sufficient to meet the expected increase in data center electricity demand through 2026, with a likely deficit in subsequent years. Even if only hyperscale companies are taken into account, their estimated demand of 425 TWh by 2030 will be 25 percent higher than the projected production of commercial nuclear power plants.

The report's authors' analysis assumes that it is unlikely that regulated nuclear power plants will use their production to supply bit barns, but that “there is a real possibility that regulated utilities will introduce new tariffs at higher prices to support nuclear power.” Dedicating production to a data center.”

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According to Jefferies, the tech companies will have to pay more than $85 per MWh for co-located nuclear plants or try to get prices as low as $60 per MWh in regulated states like South Carolina. Google's actions show the company is focused on low-cost carbon electricity when it is available, with new clean energy as a mitigating element, it says.

The report is aimed primarily at investors and therefore looks at the situation from the perspective of what Google's move means for the assumption that selling existing nuclear power to hyperscale customers at prices well above market will generate profits. If Google hypothetically has no interest in existing nuclear energy, Amazon, Microsoft and Oracle still remain potential buyers, they say.

A previous report from Morgan Stanley concluded that there is investment potential in decarbonization efforts as data center operators strive to achieve carbon neutrality goals by 2030. ®