Nuclear’s Renaissance Is Powering Infrastructure Investment

Nuclear energy investment is seeing a major boost, driven largely by government incentives, policy changes and societal pressures. In addition to the Inflation Reduction Act (IRA) and other infrastructure bills that are channeling billions of dollars into clean energy investments (including nuclear), in April, the House passed the Atomic Energy Advancement Act 365-to-36. The bill would instruct the Nuclear Regulatory Commission to improve and streamline its processes for “licensing, registration and deployment of nuclear energy technologies.”

Strong bipartisan support for the bill is a clear sign of the growing acceptance of and demand for nuclear power, particularly as a source of clean energy. But experts say inadequate nuclear infrastructure stands in the way of meeting that demand.

“The grid remains the predominant bottleneck for energy expansion,” says Jason Cheng, CEO and managing partner of energy-focused private equity firm Kerogen Capital. In fact, last year BloombergNEF estimated that it would require $21 trillion in power grid infrastructure investment to enable the shift to clean energy required to reach global net zero.

As the U.S. and other governments step up to invest, private investment in nuclear power, other clean energy sources and the attendant infrastructure is also expected to rise. S&P Global Market Intelligence predicts private equity investment in clean energy and renewables, including nuclear energy, will increase in 2024.

Jay Yu, chairman and president of Nano Nuclear Energy, points to Brookfield Renewable Partners and Cameco’s acquisition of nuclear power company Westinghouse Electric for $8.2 billion late last year as the starting gun for investors. “That deal I would say was the cornerstone of this nuclear renaissance when it hit the capital markets,” he says. “I think it really opened up the whole sector to the idea that some of these larger companies are not scared to enter this space.”

Nuclear Tailwinds

One of the biggest drivers of investment in nuclear energy and the necessary infrastructure upgrades to support it has been the aforementioned government support. On top of the substantial incentives laid out in the IRA and other bills, the FY2025 White House budget is requesting roughly $1.6 billion in funding for the Department of Energy’s Office of Nuclear Energy, an amount that includes nearly $700 million in research and development, signaling that nuclear will remain a high priority.

“Sentiment has to start at the top—it has to start with governments and countries that want to make the change,” says Yu. “And now that we’re seeing initiatives like this, I believe the tailwinds are going to be much stronger now.”

As a private equity investor, we’re drawn to nuclear because it’s a source of green baseload power. Nuclear has become a growth industry as governments are increasingly recognizing that green baseload is the future of energy.

Jason Cheng

Kerogen Capital

Further, last December at COP28, the United Nations climate change conference, more than 20 countries, including the United States, pledged to triple nuclear energy capacity by 2050—a reflection of nuclear’s potential as a green energy source to support decarbonization goals.

“As a private equity investor, we’re drawn to nuclear because it’s a source of green baseload power,” says Cheng. “Nuclear has become a growth industry as governments are increasingly recognizing that green baseload is the future of energy.”

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Public support of environmental goals, such as the Net Zero 2050 movement, has grown as well, with a majority of Americans supporting carbon neutrality by then. Attitudes toward nuclear power specifically are also growing more positive, with 1.5 times more people supporting nuclear energy than opposing it globally.

However, negative sentiment remains a challenge in the sector, with nuclear accidents like those at Fukushima or Three Mile Island still looming large in the public memory. “Nuclear has always had a PR problem,” says James Walker, head of nuclear reactor development of Nano Nuclear Energy. “But I would say it’s becoming less so as industry and governments realize that nuclear is really the only solution to replace fossil fuels in a consistent manner with zero carbon emission energy.”

What’s Attracting Investors Now

Nuclear support services companies have emerged as one space attracting nuclear and energy infrastructure investors. The services these companies provide include technical research into nuclear power, engineering consulting services and regulatory consulting services. One such deal was Bernhard Capital-backed Allied Powers’ acquisition of Dominion Engineering , a provider of equipment, engineering and technology services to the nuclear power sector, in late 2023.

According to Cheng, the two major areas of nuclear energy investment activity are early-stage technology investment from venture capital firms and later-stage commercial project financing. While the former tends to focus on new technologies including molten salt, thorium or gas-cooled fast reactors, there are also investments in fusion technologies using stellarators, tokomaks, laser inertia and magnetic confinement.

The latter is focusing on small modular reactors, or SMRs, with North American and many European nations launching SMR construction projects. “SMRs have the potential to address many of the historic concerns with nuclear,” Cheng observes. “They offer an improved safety profile, as well as a means to reduce cost and construction time over the long run.”

What Will Attract Investors Next

With interest and investment in nuclear energy high, opportunities in the infrastructure that will be needed to support it should be right behind. Walker notes that nuclear infrastructure has atrophied over the years as the U.S. was able to source uranium from Russia and allowed domestic facilities to degrade. “The government has identified the problem that there is this big infrastructure deficit or capability deficit,” Walker says. “If you look at the big funding opportunities now, they’re mostly concentrating on that infrastructure because on the reactor side, there are already a lot of competing technologies.”

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With so much focus on the reactor technologies, investment going forward is likely to focus on the supporting infrastructure needed to supply materials. There is great potential for investments in mining infrastructure and projects in the U.S. as well, says Walker, as historically-low uranium prices have begun to rise due to the interest in nuclear.

Another area of infrastructure investment that will draw attention is the transportation framework needed to move nuclear resources around the country. “The anticipated fuel type for most SMRs and micro reactors is high-assay low-enriched uranium (HALEU), and there’s currently no real commercial way to transport that around the country,” says Walker. “It needs its own transportation company built up around that transportation technology.”

Improvements to the energy grid will also be necessary in coming years to accommodate new sources of nuclear energy. “The most common reason for delayed development timelines in most new energy projects today is the wait for grid connectivity,” says Cheng. “The IRA in the U.S. and other infrastructure bills contain an estimated $29 billion allocated for energy grid improvements. This is an area of opportunity.”

Hilary Collins is ACG’s Associate Editor.

Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.