After A Crisis Of Confidence, Data Center Developers Again Put Their Faith In Small Nuclear Reactors

Data centers powered by small nuclear reactors are back on the radar as a key part of the solution to the industry’s mounting power woes. 

In recent months, the reports of increasingly dire power constraints facing data center developers have been accompanied by growing hype around powering data centers with small nuclear reactors.

Also known as microreactors, an informal distinction based on size, these reactors range in output from less than a megawatt to 300 MW. They are closer in scale to the power plant on a Navy submarine than a traditional utility-owned nuclear power station.

But excitement around small-scale nuclear turned to skepticism and disillusionment for some in November when a project that was set to be the first commercial SMR built in the U.S. fell apart amid skyrocketing costs. Many industry leaders, even those who had been among the most enthusiastic boosters of the technology, began to publicly walk back their expectations that nuclear data centers could be near-term answers to the industry's power challenges.

Yet just seven months later, small nuclear reactors are back at the center of the data center energy conversation. Industry giants are signing long-term power agreements with modular reactor startups, and developers and end users are pouring money into long-term real estate strategies centered around co-developing modular nuclear plants.

As the power crisis deepens, data center leaders tell Bisnow that while small-scale nuclear might not be a perfect solution, it might be the only one they have. 

“It’s very feasible for sophisticated, well-capitalized colocation providers or hyperscalers to integrate their own small modular reactors directly on or near data center facilities,” Flexential Chief Innovation Officer Jason Carolan said. “In some cases, it may be the only choice.”

Small reactors aren’t a new technology. The first nuclear-powered warship launched in 1955. But it is only within the past two decades that a handful of companies began making serious strides toward designs that could be manufactured cheaply enough to provide electricity at competitive rates. 

In early 2023, the idea of a data center powered by a small nuclear reactor was starting to look less like a long-term moonshot and more like a real near-term solution to the data center industry’s power problems. For the first time, U.S. regulators approved a small modular reactor for commercial use, a design from SMR developer NuScale.  

NuScale claimed to be on track for what would be the first commercial SMR deployment in the U.S., a power plant for a conglomerate of Utah utilities scheduled to be completed by 2029. The company later announced it had partnered with developer Standard Power on what was to be the first SMR-powered data center campus. By all appearances, NuScale was leading the charge in bringing nuclear data centers to fruition in the immediate future. 

But in November, NuScale’s Utah deal collapsed amid rising costs and investor questions about the viability of its data center partnership. It was a high-profile setback that caused many in the data center industry to temper expectations about not only NuScale but also the general viability of commercial SMRs.

With no other nuclear projects remotely as far along in the development and regulatory approval process, industry experts told Bisnow at the time that the news was a “reality check” that small nuclear power solutions were a lot further away than they had believed. 

“With emerging technologies, there’s a danger of believing your own hype instead of taking a realistic view, and I kind of bought into it,” Compass Datacenters executive Tony Grayson, one of the data center industry’s leading voices on nuclear power, told Bisnow in November. “We need to take a reset and be realistic on the timelines.” 

Others came to more dire conclusions about the viability of small-scale nuclear generation. University of British Columbia professor and nuclear industry commentator M.V. Ramana argued in a Utility Dive editorial that the project’s implosion was evidence that SMRs will never be a cost-efficient energy option.  

Despite this wave of public skepticism about small nuclear reactors within the data center industry and beyond, the months since have seen a surge in data center providers and operators making investments and steering resources toward exploring nuclear power solutions for data centers.

Headlines about nuclear data center campuses began appearing this year in local and national publications, from officials in Surry County, Virginia, voting in February to support a developer’s proposal for an SMR-powered data center campus to Bill Gates-backed TerraPower starting work last week on the site of a planned reactor in Wyoming that would power a Microsoft facility. 

Much of the attention has focused on California-based microreactor firm Oklo. The firm received capital backing from OpenAI founder Sam Altman, who has pitched the technology as a key element in addressing the massive energy needs of computing for artificial intelligence. 

Although Oklo’s stock plummeted after going public via a special-purpose acquisition company in May, the firm in April inked an agreement to provide hundreds of megawatts of power to colocation giant Equinix. It was the first small modular reactor deal signed by a colocation data center company.

In late May, Oklo signed another data center agreement, this time for 100 MW with developer Wyoming Hyperscale. 

Last month, Altman called Oklo’s pair of data center partnerships “the tip of an iceberg” for demand from data centers for small-scale nuclear power solutions. 

One competing microreactor firm told Bisnow it is in late-stage discussions with a range of data center operators on terms for power purchase agreements. Ryan Duncan, head of government relations at Last Energy, said data center operators aren’t just showing vague interest — they are looking to engage around specific contract terms, locations and timelines.  

“These conversations are happening all the time,” Duncan said. “Our commercial team is constantly meeting with both the big names and the small names because there’s so much interest in nuclear for data centers right now.

“I honestly think you're going to see these coming online in the next few years here in the U.S.”

Predictions among industry leaders vary about when the first data center powered by small nuclear reactors will be built, but all expect to see such projects emerge within a decade in the U.S. Speaking at Bisnow’s DICE East event last month, Oracle Director of Build Engineering Services Joshua Buzzell said he expects a wave of small-scale nuclear in Europe by 2030. 

“You’ll see gigawatts by the end of the decade in Europe. I’m confident in that,” he said. “It is a very clear line of sight, and there's a lot of movement in that space.”

Data center providers are confident enough in the viability of microreactors and SMRs that they are starting to execute real estate strategies with the technology in mind.

Even if these reactors aren’t game-ready yet, Flexential’s Carolan said firms have to start doing due diligence and begin permitting processes for land deals being executed with on-site nuclear or partnership with an SMR or microreactor developer to maximize speed to market the second the reactor can be delivered. 

“It likely won’t be until 2030 or later that SMRs are repeatable and scalable,” Carolan said in an email to Bisnow. “But securing the plans, permits, ground space (which is critical here — these changes the form factors of data center builds) and operational expertise needs to start now.”

If developers are showing a sudden willingness to bet on a technology with unproven commercial viability, the reason lies in part in the fact that the extent of the industry’s massive energy needs are only now coming into focus. 

Power providers and major customers like data center firms are just understanding the extent to which Big Tech’s generative AI arms race has pushed already-stressed infrastructure to the brink, as data centers’ share of U.S. energy consumption is expected to go from just more than 2% in 2023 to 6% in 2028.

Due to these grid constraints, building large-scale data centers increasingly means finding creative approaches, producing power on-site or co-developing power generation projects. As they scramble to find solutions to generate power on-site or behind the meter, even the most forward-looking data center developers typically have a limited menu of power generation possibilities: natural gas, hydrogen, renewables like wind and solar, and nuclear. 

While small reactors may have trouble competing on price today due to the sky-high cost of building and operating the reactors, in most other ways it is the power source that makes the most sense at scale for on-site or behind-the-meter development projects for the data center industry, Carolan said.  

Renewables like wind or solar can’t be located on-site, and when located remotely, their inconsistent power generation makes them incompatible with most data centers without batteries or other forms of energy storage. Hydrogen faces supply chain constraints that make deploying it at the scale the data center industry needs unrealistic. 

The power solution the industry is widely turning to now is natural gas. Companies like Microsoft are deploying utility-scale gas turbines at their data center campuses, with plans to generate power for significant periods. 

But while natural gas is the easiest option today, it has limitations that prevent it from being a long-term option in many locations. It is only available where natural gas pipelines and other infrastructure already exist, and much of that infrastructure needs to be upgraded or is inappropriate for industrial applications, according to Carolan. It is also a fossil fuel, which is likely not a long-term option for an industry under pressure to reduce its carbon footprint.

“Nuclear is the only emission-free ... platform that can scale to match demand in many markets in many of the time frames necessary to meet increased demand, without further development and rollout of renewables and battery storage,” Carolan said. “I could see SMRs being deployed within regions with data center concentration, or even supporting a single built-to-suit situation for a single tenant or data center platform.”