AI-driven electricity demand powering hybrid financing for advanced nuclear startups

[SINGAPORE] Before Oklo went public through a special purpose acquisition company merger in May 2024, the startup had little more than a design for an advanced nuclear fission reactor.

It had no operating reactor, no revenue, and had yet to secure regulatory approval to build a commercial unit.

Backed by Sam Altman – whose company OpenAI created the artificial intelligence chatbot ChatGPT – Oklo was valued at about US$850 million ahead of its listing, delivering substantial gains for early investors.

Two years after raising capital from the public market, the company has secured approval from the United States’ nuclear regulatory commission for its Aurora reactor design and has begun construction. It is now valued at US$13.9 billion. 

While advanced nuclear technologies have typically been supported by government financing, Oklo’s high-profile listing is a reflection of growing investor demand for solutions that could power the intense energy needs of AI applications. 

That same surge in AI-driven electricity demand is increasingly shaping how advanced nuclear startups are financed, with technology billionaires and hyperscale data centre companies pouring venture capital into the sector – though few companies have followed Oklo’s route into public equity markets. 

Big tech powers nuclear financing 

Microsoft has signed several deals to secure nuclear energy to power its data centres, such as the reopening of the nuclear plant on Three Mile Island, and with nuclear fusion startup Helion Energy. Its founder Bill Gates also started advanced nuclear company TerraPower to build next-generation nuclear power plants. 

Google inked a partnership with Kairos Power as an offtaker of their advanced reactors and is also working with Elementl Power to fund the development of three new advanced nuclear projects in the US. 

Then there is Amazon, which has invested in nuclear reactor developer X-energy, while its founder Jeff Bezos has made a personal investment into General Fusion, which is developing a fusion power technology. 

“What is interesting is you have an alignment of the billionaires who are basically taking a bet,” said Djoann Fal, founding partner of Atlas Capital, a decarbonisation-focused venture capital firm based in South-east Asia. 

“So you have one billionaire, he is going to take a bet on this one, then another billionaire competitor who is taking a bet on another one, and they don’t mix,” he added. “Why? Because, basically each of the designs is going to be associated with a data centre that the billionaire owns.”

Likening the new wave of advanced nuclear technologies to an energy renaissance, Fal said that he is hoping to reap significant gains by investing alongside these giants. 

Atlas Capital has invested in two advanced nuclear startups – Avalanche Energy and NuCube Energy. 

Long-term power purchase agreements that big tech has inked with some of these advanced nuclear reactor startups serve as an important signal that there is demand for clean sources of reliable baseload electricity, said Melvyn Yeo, founding partner of decarbonisation-focused VC firm Trirec based in Singapore. 

While solar and wind are the most mature and commercially viable clean energy sources, they are intermittent sources of power and often require battery storage to mitigate that problem. 

Trirec has invested in nuclear fusion startup Type One Energy, which has been contracted by the state utility company of the US state of Tennessee to develop a pilot fusion power plant at the site of a retired coal-fired facility. 

Besides big tech and VCs, Yeo noted that nuclear engineering and infrastructure companies, such as Westinghouse and Aecon, are other private sector players “dipping their toes” into the emerging sector.

“Potentially, they will be supplying parts and components to these startups as they build out the reactor. So they also want to step in early and see which ones may work, and then also help to drive this whole process from their own expertise perspective,” he added. 

Governments still play a dominant role 

Even though tech billionaires and VC firms play an increasingly important role to fund the early-stage development of advanced nuclear technologies and also serve as long-term offtakers, governments and state-linked entities remain central to de-risking and enabling the financing required for actual plant deployment. 

The US Department of Energy, for example, provides loans and loan guarantees for advanced nuclear projects through its loans office programme. Gates’ TerraPower and Amazon’s X-energy had received US$160 million in initial funding through a cost-sharing partnership. 

The United Kingdom government is also providing close to £600 million (S$1 billion) to Rolls Royce to develop the country’s first small modular reactors (SMR). 

Canada’s first SMR project in Darlington, Ontario, which is largely considered the Western world’s first grid-scale SMR, has largely been financed by the province’s state-owned utility company as well as other government-linked investment vehicles, with some degree of private-sector involvement. 

Another key area of advanced nuclear financing in the US are government-backed insurance schemes. 

Charles Yonts, Macquarie Capital’s head of Asian sustainability research, said that there would be no nuclear financing of any sort without these insurance pooling systems as liability is being shared across nuclear reactor operators and the government. 

Advanced nuclear financing is increasingly taking shape as a hybrid ecosystem in which governments and state-linked utilities fund demonstrations, provide regulatory support, de-risking mechanisms and underpin plant deployment, while VC and tech billionaires finance early-stage innovation and big tech companies serve as demand offtakers through long-term power purchase agreements. 

Missing piece of the puzzle

However, scaling advanced nuclear technologies will ultimately hinge on the ability to bring in banks and institutional investors, which are essential for providing the long-term capital required for large-scale commercial deployment. 

Conventional financiers, so far, are sitting out of financing advanced nuclear technologies due to its nascency and high cost curves. 

“Because the technology cost curve hasn’t been decreased, they need a lot of long-term support from the government (and) long-term offtake agreements,”said Joost Bergsma, global head of clean energy for asset manager Nuveen. “And institutional investors are sometimes a little bit sceptical about these support mechanisms that last 15, 20 years because of government changes.” 

The supply chain ecosystem supporting and maintaining these long-term infrastructure assets also has to be developed, he added. 

As the first few advanced nuclear power plants are only going to come online in the next three to five years, its commercial viability and cost-competitiveness is still unknown.

“Once that is done, then I would expect that commercial project financing will start to kick in, because it is then a viable power plant that the credit committees of the banks can assess and look into how much power is being produced, how much are they selling. Are there power purchase agreements in place and all that stuff,” said Yeo. 

Some commercial banks have started preparing for the eventuality of financing advanced nuclear technologies. Under DBS’ updated transition finance framework, advanced nuclear technologies, including SMRs, was listed as one of the eligible activities the bank could finance. OCBC and UOB’s financing frameworks currently do not explicitly include advanced nuclear technologies. 

Fal believes that technology is no longer the bottleneck in the commercial deployment of advanced nuclear technologies. 

“There are 120-plus advanced reactor designs in development globally. The bottleneck is regulatory: who gets licensed, how fast, and which incumbents the licensing regime protects,” he said.

“China removed the friction. Most other markets are still working through it. That’s why, outside of China, the firms moving fastest are the ones with billionaire backers who can navigate government relationships at the highest level,” he added. 

China has the world’s largest pipeline of nuclear capacity as the government has an explicit mandate to reach 200 GW of nuclear power by 2040. 

But more governments are increasingly receptive to nuclear energy, given the advent of AI and the current geopolitical crises, including the Russia-Ukraine war and the Iran war.

Some South-east Asian governments, such as Indonesia, Vietnam and the Philippines, have similarly begun setting policy mandates on nuclear energy. 

Said Yonts:“The hope is that advanced nuclear financing can ultimately move toward a more private-led stack, given step-change in safety and the absolute cost should be quarter to a tenth of conventional nuclear reactors, simply scaling with the size difference.”