Original title: The consequences of high SMR operating costs in electricity markets
Pradyumna Rao, Daniel T. Kaffine, Bri-Mathias Hodge · September 2026
Electric grids need steady, reliable power, so the nuclear industry has proposed Small Modular Reactors, or SMRs. Because few SMRs actually operate today, researchers wanted to test how they would perform economically in modern power markets. Most previous research looked closely at upfront building costs. In this study, researchers modeled SMR dispatch under flexible operations, counting revenue from wholesale energy and capacity markets, both with and without policy support. They used manufacturer advertised numbers for investment and operating costs and calculated fuel costs from design parameters. They found that SMRs are uneconomical. The money saved on upfront investment is cancelled out by higher marginal costs, which are the costs to produce each extra unit of electricity. SMRs need prices and subsidies far beyond historic norms to attract private investment. For future grids, cutting marginal operating costs may help far more than lowering initial construction costs.
You are choosing between a cheap car that uses a lot of gas and an expensive car that is very efficient. The cheap car saves you money upfront, but every time you drive it, you spend more on fuel. Over time, the fuel costs add up and cancel out the initial savings. Here, SMRs are the cheap car: their lower construction costs are offset by higher operating costs.
For utilities and investors betting on small nuclear reactors to replace coal and gas, this study shows that the real obstacle is not the upfront cost but the ongoing expense of running them. Without subsidies far larger than what has been seen before, SMRs cannot compete in electricity markets. That means the clean energy transition may need to look elsewhere for firm power.
The study uses manufacturer-advertised costs rather than actual operational data, since few SMRs exist. It only models capacity and wholesale energy markets, ignoring other potential revenue sources like ancillary services. The findings are based on current US market conditions and may not apply to other regions or future policy environments. Additionally, it does not consider potential cost reductions from learning or technological improvements beyond the advertised benchmarks.
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The consequences of high SMR operating costs in electricity markets — Pradyumna Rao, Daniel T. Kaffine, Bri-Mathias Hodge
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.