Inflation Reduction Act, Retiring Coal Plants Create Opportunities for Advanced Nuclear Plants

October 16, 2022

by Peter Maloney
APPA News
October 16, 2022

The retirement of aging coal-fired plants combined with the recently passed Inflation Reduction Act has created an opportunity for public power utilities looking to secure long-term, reliable supplies of clean energy, according to advanced nuclear firm NuScale Power.

“The Inflation Reduction Act is the first transformative climate piece of legislation ever in the U.S. to treat nuclear energy as a clean energy source,” Chris Colbert, Chief Financial Officer at NuScale Power, said.

The Inflation Reduction Act of 2022 (IRA) provides production tax credits (PTC) for existing nuclear power plants but, more importantly, for new nuclear power plants and specifically for advanced reactors and small modular reactors – the type NuScale Power is working on. The IRA amends the definition of a qualified facility eligible for a “clean PTC” to mean any plant placed into service after Dec. 31, 2024, that produces zero greenhouse gas emissions.

The IRA also amends the Internal Revenue Service (IRS) rules on qualifying for a clean energy investment tax credit (ITC) by changing the language in the code to allow investments for advanced reactors to qualify for the credit. The change provides a tax credit of 30 percent of the cost of building a zero-emission advanced nuclear power plant that is placed in service after 2025.

“If you design and plan to put in a small modular reactor at the site of a retired coal plant, there is a further 10 percent ITC available, and if you use domestic content there is another 10 percent ITC added on,” Colbert said. “That can add up to a 50 percent reduction in costs.”

In September, the Department of Energy (DOE) released a study that found that hundreds of coal power plant sites across the country could be converted to nuclear power plant sites.

Of the 157 retired coal plant sites and 237 operating coal plants surveyed, the DOE study found that 80 percent were good candidates to host advanced reactors that are smaller than 1 gigawatt (GW).

Converting retired coal plant sites to nuclear power has the potential to add 64.8 GW of clean energy to the power system, and converting operating coal plant sites to nuclear power could add 198.5 GW to the grid, the DOE found.

Between 2015 and 2020, an average of 11 GW of coal-fired capacity retired every year, according to the DOE. The pace of retirements slowed in 2021, to 4.6 GW, but is expected to pick up this year with 12.6 GW of coal retirements scheduled. Additionally, plant owners and operators say they plan to retire 59 GW of the coal-fired capacity by 2035.

Each NuScale small modular reactor (SMR) is designed to generate 77 megawatts (MW) of electricity. Up to 12 SMRs can be combined to make a 924-MW VOYGR™-12 power plant. In addition to their compact design, which makes them scalable and cost competitive, SMRs have enhanced safety features. NuScale’s Power Modules are designed to safely shut down and self cool indefinitely without the need for an external power source. And the factory-fabricated design of a NuScale SMR allows them to be built and assembled in the United States.

Converting the site of a coal plant to nuclear power could also increase employment and economic activity in affected communities, according to the DOE report. And replacing a large coal plant with a nuclear power plant of equivalent size could increase jobs in the region by more than 650 permanent positions, leading to additional annual economic activity of $275 million, implying a 92 percent increase in local tax revenue compared with the tax revenues from the operating coal power, the DOE study found. A case study included in the report was based on a NuScale design example.

For public power utilities, the employment and tax concerns could be a particularly important consideration when deciding what to do with a coal plant or how to meet growing electricity demand while pursuing goals to move toward a clean energy or zero emissions economy.

“The question is, what are you replacing it with,” Colbert said. “By converting to nuclear power, you can do it in a way that does not throw hundreds of people out of work. Those workers would basically be doing the same thing they were doing before, but they would be paid a little more. And the community would be able to keep things going as they were. Nuclear power can mean continued employment, as well as a clean, affordable and reliable energy supply.”

The benefits of SMRs fit well with the needs of public power utilities, Colbert said. Instead of having to take a share in a large nuclear power plant, public power utilities can take a stake in a nuclear plant configured with the number SMRs to match their demand while having the comfort of knowing that more units could be added, if needed, in the future.

The Inflation Reduction Act also grants other benefits to public power utilities by providing a refundable direct pay credit that allows them to take advantage of tax credits that have been available to for-profit utilities for years.

The overwhelming majority of renewable energy projects have been financed using tax credits, either a PTC or an ITC. The Congressional Joint Committee on Taxation estimated that the value of energy-related tax incentives in 2022 alone would be $25 billion. Because they cannot directly benefit from tax credits, public power utilities have been left out of many of those projects.

Even before the legislation was signed, several public power utilities were considering adding an SMR plant to their generation portfolio through the deployment of NuScale’s technology.

Furthest along in embracing SMRs, however, is Utah Associated Municipal Power Systems (UAMPS), which is working toward the deployment of a NuScale VOYGR-6 SMR power plant as part of its Carbon Free Power Project at the DOE’s Idaho National Laboratory in Idaho Falls.

The prospects of the Carbon Free Power Project were bolstered in August 2020 when NuScale announced that the Nuclear Regulatory Commission (NRC) had completed the last and final phase of the Design Certification Application process for the design of its SMR technology, a crucial first step in the nuclear permitting process.

NuScale is now looking forward to reaching another milestone in the regulatory process.

In July, the NRC directed its staff to issue a final rule certifying NuScale’s SMR design.

The rulemaking would amend NRC regulations to incorporate NuScale’s SMR standard plant design, which would allow applicants intending to build and operate an SMR plant to reference the design certification rule.

“If approved, the certification would be published in the Federal Register and have the effect of law,” Colbert said.

The rulemaking is on the docket for the NRC to make a decision in November.

The timing is important.

“Many people are still wrapping their heads around the impact of the IRA,” Colbert said.

Meanwhile, the clock is ticking.

The Biden administration has set a goal for the country to reach 100 percent carbon dioxide pollution-free electricity by 2035. And the support provided by the IRA has an expiration date. The expanded ITC benefits go away in 2032 or when 75 percent decarbonization is reached.

“It is a great opportunity – the expanded ITC and the potential availability of former coal plant sites – but folks are going to need to get ahead of this if they want to ensure a secure supply of affordable, reliable electric power,” Colbert said.