Breaking down the nuclear investment landscape (Part 2)

I spent last week zigzagging between Europe, Texas, Oklahoma and Arizona. As always, a lot of the discussions were about nuclear energy and the opportunities for SMRs to power AI data centers, industry and more with clean baseload power. With more than 50 American SMR companies today and growing SPAC appetite across the sector (ONE Nuclear was the latest SPAC announced last week), another big conversation was about the potential for market consolidation – and which companies would emerge as the future SMR leaders in public and private markets. That led me to reflect on the different sub-segments, use cases and business models across the SMR market, and how they, in addition to technology differentiation and execution, might influence the market’s future winners.

Last week I wrote about the nuclear energy market and some of the small modular reactor (SMR) technologies that we’re excited about. This week, I’m diving a bit deeper into the SMR market to break down the different sub-sectors, use cases and business models, that we believe will be drivers of future market consolidation (in addition to the different technologies). I’m finding that many people I speak to think about SMRs as a single market, where each company competes against one another. In reality, however, SMRs are a massive market with sub-segments of use cases, customers and business models that are both complementary and competitive, not to mention different regional target markets. At SSV, we think about the SMR market (and corresponding nuclear energy picks and shovels) as one that offers the potential for multiple investment bets across sub-segments, where numerous winners will emerge. We’ll talk about that today, but first some more nuclear market context.

Market opportunity - electricity and industrial heat

SMRs can generate electricity, heat or both. The IEA’s Global Energy Review in 2025 estimates that global electricity demand will grow from 29,000 TWh today to nearly 67,000 TWh by 2050, a 130% increase. This values the global electricity market at more than $2.6 trillion by 2030 with a CAGR of 4.3%. Nuclear is expected to be a key part of the built-out – the IAEA estimates nuclear new-build spend will grow from $30B in 2020 to $85B in 2040, roughly a 5% CAGR. Within this SMRs are the highest-growth segment.

We talk a lot about the growth of AI data centers as the main driver of electricity and SMR demand. But the industrial heat sector is an equally important part of the massive SMR investment opportunity. Heat accounts for almost half of final energy consumption and 38% of energy-related CO2 emissions. The industrial sector alone uses 166 EJ of energy per year (37% of final energy), the majority of which is processed heat rather than electricity. Industrial heat demand is projected to grow 16% between 2023 and 2028, driving significant industrial demand for both electricity and heat. Bloomberg NEF estimates that the electrification of industrial and space heating will emerge as a half a trillion dollar annual investment opportunity by 2030, particularly as the electrification and decarbonization of heat-intensive industry accelerates.

“Energy-intensive” industries, such as steel, cement, glass, chemicals, refineries and many other verticals use very high heat for their industrial processes. Additionally, many districts, neighborhoods and campuses need heat for homes, buildings and more. A significant amount of industrial and district heating today is generated by fossil fuels, so SMRs that generate heat, as well as electricity, offer an alternative. Advanced reactors (gas, lead, sodium and salt) in particular can generate both electricity and industrial heat due to their high temperatures, providing the potential to serve a huge combined market. So the first segmentation of the market is electricity vs. heat vs. both – and the corresponding target customer use cases.

Customer sub-segments

Last week, we discussed the SMR market as encompassing reactors that generate electricity from 1 MWe to 300 MWe, while nuclear reactors that generate more than 300 MWe are generally considered part of the infrastructure or power plant market. Within the SMR market, however, that’s a meaningful range of output - and therefore target customers. Certain SMR companies operate in a market sub-segment called MMRs (micro modular reactors) and are focused on generating small, scalable and distributed power (eg. 1-5 MWe) and/or heat. These companies often provide distributed and remote primary power and/or backup power with use cases across the military, space and transport sectors, as well as across distributed infrastructure and industrial locations that are comparably smaller in scale (to name a few). These companies often compete with generators and other relatively small onsite primary and backup power generation systems (eg. diesel, gas, renewables etc). Assuming MMR companies can develop a scalable manufacturing and installation process (post testing, approvals and licensing), they can offer shorter commissioning and deployment cycles, with the potential for comparably fast growth, market share gains and deployment across a range of sites. Remember however that no matter how scalable the business model looks and the pitch sounds, this is still nuclear power and it still needs to go through significant regulatory approvals and testing.

SMRs, generating up to 300 MWe, are more appropriate to provide primary baseload power to AI data centers and industry. For many companies this is actually provided by combining a group of SMRs into a “power plant” - this is what we mean when we say that SMRs are scalable and modular. An SMR that generates 50 MWe can provide power for a customer of one size, for example a small manufacturing plant; multiple of these SMRs can then be combined to provide larger amounts of power for a larger customer, for example an AI data center. Assuming execution, we like that SMRs are scalable and can provide power for a range of customer needs including of course the AI data center market. We also think this makes them particularly appropriate for partnerships with infrastructure funds, hyperscalers and industrial customers who may require scalable amounts of power for different projects and phases of projects, many of which can be large.

With this context, we think about the different sized SMRs as serving distinct customer segments and use cases. In some cases there is overlap - for example Oklo plans to produce multiple sized reactors. But in other cases, there is not. As above, a further derivative of this is selling electricity, heat or both to these different segments of customers.

Business models and IP

When we break down the SMR market, we also see significant variation in the business models pursued by different companies (taking into consideration that most things in the SMR industry today are still in development). Like across many energy companies, certain companies plan to pursue energy-as-a-service models on balance sheets, managing project funding through debt and equity, and delivering long-term energy contracts directly for customers. Other companies plan to sell energy through off-balance sheet SPVs that will be funded through a combination of debt and equity (or mezzanine funding) at the project level, likely from infrastructure and/or industrial and energy partners. In the SPV models, companies will generate capex revenue through equipment sales to the SPVs, a share of energy revenue tied to the amount of equity that the topco invests in the SPV, and in some cases, ancillary revenue paid from the SPV to the topco and tied to project development, management and more. This project-based SPV model is similar to many of those that we see across the renewable energy and BESS market, where companies often leverage off balance sheet structures of debt and equity to scale projects faster and optimize equity capital in the topco. In both models, SMR companies expect to generate significant (and likely recurring) revenue from ongoing servicing and maintenance. In both models, we also believe that governments will play an important role as a lender and potential guarantor of private sector debt and infrastructure capital, both on and off-balance sheet. As equity investors, however, we see the different business models as offering different equity capital opportunities, leverage and returns.

In addition to the different financing models pursued in the market, certain companies have additional revenue streams across fuel and technology IP. Access to fuel is a critical part of the nuclear industry (and something we’ll dive into deeper in coming weeks), and so as investors, we have a particular affinity for companies with a fuel advantage - and even more so when it can translate into future revenue streams. Of course, we also have an affinity for companies that have unique and defensible technology IP that delivers a market advantage.

What this all means

I started this article saying that we think there is consolidation to come across the SMR market. The natural question is how that consolidation might play out. Considering the context we discussed last week and this week, we identify five potential dimensions for market consolidation:

• Technology based consolidation: As discussed last week, there are different technology “families” in the SMR market, including the legacy water-based technologies and advanced reactor technologies of metal, gas and salt. The first potential consolidation dimension we see is across each technology type, or alternatively, by companies looking to hedge their technology risks by consolidating across different technology “families”.

• Product consolidation: A second potential way to think about consolidation could be about product or functionality. In this scenario, we’d see companies growing / rolling up a portfolio of electricity or heat output, or alternatively expanding offerings, for example if an SMR company only generates one and sees an opportunity to add the capabilities of the other.

• Customer segment consolidation: Another way to think about the market is from the perspective of the customer. With this lens, we see a potential consolidation dimension across customer segments, for example growing market share in smaller MWe MMRs in order to gain a market share advantage with remote military deployments, or growing market share in larger SMR MWe in order to gain a market share advantage with AI data center customers.

• IP and Business model consolidation: A fourth potential consolidation dimension could be driven by IP and business models - for example combining a portfolio of unique IP to create a fuel advantage and additional licensing revenue, or growing electron output to drive energy-as-a-service recurring revenue.

With SMR activity growing across the US, UK, Europe and Asia, and a market that is intimately tied to government approvals and support in different countries, a final dimension is of course regional markets. We predict that certain SMR players will emerge to be tomorrow’s global champions - consolidating capabilities (and regulatory support) across key regions.

At SSV, we are excited about the potential for the MMR and SMR markets as a whole – and believe there will be many investment, return and exit opportunities ahead across multiple dimensions.

Onward,

Brynne

Managing Partner, Smart Society Ventures

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