The SMR commercial model problem

The nuclear industry has spent the past decade focused on technology.

Reactor designs, safety systems, fuel types, modular construction methods, passive cooling architectures, the engineering conversation around Small Modular Reactors has become increasingly sophisticated and increasingly crowded. While over 80 SMR designs and concepts are currently under development worldwide, the commercial conversation has not kept pace.

How SMRs will actually be financed, contracted, deployed, and scaled remains one of the least resolved questions in the market today. That gap, between technological ambition and commercial architecture, is rapidly becoming the defining challenge of the sector.

The reality is straightforward: an SMR does not become economically transformative simply because it is smaller. It becomes transformative only if it can be deployed repeatedly, predictably, and at industrial scale.

And today, the market structure required to achieve that scale is still largely missing.

Why SMR economics work differently

The economic logic behind SMRs is frequently misunderstood.

Smaller reactors are not inherently cheaper on a per-megawatt basis. In many cases, first-of-a-kind SMRs are expected to be more expensive than large conventional reactors when measured against installed capacity.

What changes the equation is repetition.

The commercial promise of SMRs is built on the same industrial logic that transformed sectors such as commercial aviation and offshore wind: factory manufacturing, standardised designs, serial production, and learning curve effects generated across fleets rather than individual projects.

The OECD Nuclear Energy Agency has repeatedly highlighted this dynamic in its work on SMR deployment pathways. The competitiveness of SMRs depends fundamentally on volume. The difference between a first-of-a-kind unit and a fleet-deployed nth-of-a-kind reactor is not marginal but structural.

This has major implications for deployment strategy.

An SMR developed as a one-off infrastructure project, however technically credible, is unlikely to achieve the economics that justify the model in the first place. The commercial viability of SMRs depends on repeatability, manufacturing continuity, and deployment pipelines large enough to drive cost reductions over time.

The challenge is that current procurement and financing structures are still largely designed around traditional project-by-project nuclear development.

The NuScale lesson

The clearest illustration of this challenge remains the 2023 cancellation of NuScale’s Carbon Free Power Project in the United States.

The project was the most advanced SMR programme in the Western market and the first SMR design to receive approval from the US Nuclear Regulatory Commission. Technically, it represented a major milestone for the industry.

Commercially, it exposed the fragility of the current model.

The project had been structured around a subscriber framework in which a group of municipal utilities would collectively purchase electricity output under long-term agreements. As development costs increased, rising from initial estimates of approximately $5.3 billion to roughly $9.3 billion at the time of cancellation, participating utilities progressively withdrew from the project.

Ultimately, the issue was not reactor performance but cost absorption.

The commercial structure was unable to manage the uncertainty associated with the economics of first-of-a-kind deployment. By the time the project was cancelled, 23 of the original 35 subscriber utilities had exited.

The lesson was significant precisely because NuScale was one of the industry’s most mature programmes. It demonstrated that even a technically credible, regulatory-approved SMR can fail commercially if the deployment model does not adequately distribute FOAK risk.

The structural Catch-22

This reveals the central contradiction at the heart of the SMR market.

SMRs require scale to become economically competitive. But the conditions required to achieve that scale, lower costs, established supply chains, and proven operational performance, only emerge after scale already exists.

Every industrial technology faces some version of this problem. SMRs face it at nuclear scale.

The combination of high capital needs, long development timelines, and highly risk-sensitive customers creates a difficult commercial environment for early deployment. Utilities and governments generally prefer proven technologies with predictable cost structures. Yet the economics of SMRs improve only after repeated deployment has already taken place.

The result is a market where almost every stakeholder believes in the long-term potential, but relatively few are positioned to absorb the commercial premium associated with being first.

Without mechanisms capable of distributing that early-stage risk, deployment stalls precisely when commercial momentum is most important.

The commercial architecture is the real product

This is why the future of SMRs may depend less on reactor innovation alone and more on commercial architecture.

Fleet deployment models are central to this shift. Developers need deployment pipelines that span multiple units and sites, allowing manufacturing investment, supply chain development, and learning-curve efficiencies to compound over time. The economics of serial production cannot emerge from isolated procurement decisions.

At the same time, a new category of customer is beginning to reshape the market.

Large technology companies and hyperscalers are increasingly emerging as long-term nuclear counterparties, seeking stable, low-carbon electricity supply for data centres and digital infrastructure. Microsoft’s agreement linked to the restart of Three Mile Island and Amazon’s nuclear-related energy partnerships, and broader hyperscaler interest in advanced nuclear are important not only because of the electricity demand involved, but because they introduce highly creditworthy, long-duration customers capable of underwriting deployment risk in ways traditional utility procurement often cannot.

Government participation also remains essential.

The UK’s shift from the Contract for Difference model used for Hinkley Point C towards a RAB approach for Sizewell C reflects a broader recognition that financing structures matter as much as technology. By reducing financing costs and sharing construction risk more effectively, the RAB model seeks to address one of the fundamental barriers facing large-scale nuclear investment.

Similar mechanisms adapted to the realities of SMR deployment, including FOAK risk-sharing frameworks, revenue stabilisation mechanisms, and public-private financing partnerships, are likely to play a critical role in enabling early projects and building the foundations for future fleet deployment.

At the same time, supply chains themselves require forward visibility. Qualified manufacturers, specialised components, and skilled labour pools do not appear automatically once orders are signed. They require investment well in advance of demand. Without credible deployment pipelines, industrial capacity will remain constrained regardless of reactor readiness.

In other words, the challenge is no longer simply technological but also industrial and financial.

From engineering challenge to market design challenge

Political momentum around nuclear is clearly accelerating.

At COP28, 31 countries endorsed the goal of tripling nuclear capacity by 2050. SMR programmes are advancing across the United States, Canada, the United Kingdom, Central Europe, and the Gulf.

But political support alone does not create commercially viable deployment models.

The industry risks repeating a familiar pattern: developing technically credible reactors, attracting early-stage enthusiasm, and then struggling at the point where commercial deployment requires stable procurement frameworks, long-term financing structures, and coordinated industrial planning.

The next phase of the SMR market will not be defined solely by reactor performance.
It will be defined by whether the industry can build commercial structures capable of supporting serial deployment at scale.

Because the central challenge facing SMRs is no longer purely an engineering challenge.

It is increasingly a market design challenge.