Ep371: What It Takes to Finance New Nuclear

Welcome to Currents, a Norton Rose Fulbright podcast. I am your host, Jim Burger. Today, we are joined by Chris Calvita, head of Project Finance at Oaklow. Welcome, Chris. Thanks, Jim. Good to talk to you. You too. So let's start off with a little bit about what Oaklow is doing and how it is different from other nuclear developers. Yeah, that question makes me chuckle. What are we doing? The short answer is we're doing a lot. At its core, Oaklow is building an integrated nuclear energy company across power fuel and isotopes. Power creates long-term contracted revenue, fuel strength and supply security and supports deployment at scale. And our isotope business creates additional high-value opportunities from nuclear materials and infrastructure. Our integrated approach across power fuel and isotopes also is probably the first differentiator of Oaklow compared to others in the nuclear space. The second key difference on the power side is our build-own operating model. Rather than primarily selling reactor designs to utilities, Oaklow intends to design, build, own and operate its powerhouses and sell electricity to customers under long-term contracts. Generating contracted recurring credit were the cash flow from our power business is key to unlocking Project Finance Capital to support our multi-gigawatt development pipeline and to meet customer demand for clean base load power. The third difference is size and repeatability. Our Aurora Powerhouse product, which is our SMR product, is designed around smaller plants rather than a single multi-gigawatt plant, which allows capital to be deployed incrementally and units to be added alongside customer demand. The fourth difference is vertical integration. We're thinking about the fuel supply chain, fuel fabrication, fuel recycling, manufacturing and ultimately operation of the asset rather than optimizing only for the reactor design. The fifth difference is that Oaklow's development is demand-led. Oaklow works directly with customers to understand when, where and how much power is needed and we develop projects around that demand. I can keep going, but I'll pause there for the sake of time. All right, so you're busy. One thing you mentioned was the cash flows and project finance. I kind of want to take that angle for a second. I know you've spent 20 plus years financing renewable projects. What from that playbook transfers directly to financing first of a kind nuclear project and what doesn't transfer? Yeah, great question. A lot of the project finance 101 playbook transfers directly. Having strong contracted cash flows, credit worthy off-takers, disciplined risk allocation, milestone-based capital deployment, and making sure the party best equipped to manage a risk owns that risk. What does not transfer from the renewable energy project finance playbook? Is that the advanced nuclear sector is not at the same level of commercial deployment and operating maturity as the renewable energy sector is today. However, several first of its kind advanced reactor projects are under construction across the US, including our Aurora INL project, which Kiwa is building for us. This initial wave of proof-it reactors will give lenders and tax credit investors the empirical construction and operating data they need to support underwriting second, third, and end-of-its-kind advanced reactor deployments. With more deployments and more data, expect project financing costs to tighten and capital availability to loosen over times just like we saw in renewables. The biggest takeaway for my 20 years financing renewables that lenders and investors can evolve very quickly once an asset class becomes repeatable. Early wind, solar, and battery projects are commercialized and finance is very different than they are today and the cost of capital for those renewable assets has understandably come down and lockstep with the narrowing bounds of development construction and operating risk and I predict that advanced nuclear will follow suit. Okay, so I just want to dive into it a little bit more. Your projects don't have the decades of operating data that lenders used on a right, a solar project, wind product, project, etc. And so it sounds like to get a bank comfortable extending project finance debt against a reactor design with no commercial operating history or you're kind of building a pilot project and using that. Is that the idea or is there any more to that? And no, that's exactly the idea and it's a fair and valid question for a project finance lender to ask and frankly it's one I like answering because it highlights what differentiates our product business model and deployment strategy. First, our 75 megawatt Aurora powerhouse is based on sodium fast reactor technology with substantial operating history. A lot of people don't know that. The experimental Breeder Reactor 2 or EBR2 located at the U.S. Department of Energy's Idaho National Laboratory operated safely and continuously for 30 years and demonstrated the passive safety characteristics on which Aurora builds. So EBR2 provides us with a strong foundation of relevant operating data that informs how we intend to improve, deploy and operate a sodium fast reactor at a commercial scale. We also appreciate that lenders would like to see cost, schedule, and operating data from a true commercial scale project to support adding term debt to the capital sector. And that is why we are financing our first Aurora powerhouse at I&L with 100% sponsor equity. Once Aurora I&L is operational, I expect lenders will be more willing to support the second third and subsequent Aurora projects. I also expect the quantum and cost of debt to be conservative at first, but to improve over time is more proof points are validated. Okay, that makes a lot of sense. So you mentioned that the Aurora uses a sodium fast reactor design and metal fuel, and you have multiple potential fuel pathways including ALU, which is high assay, low-enriched uranium. Does the technology differentiation make lenders more cautious, or can these passive safety characteristics and the smaller plant design make the project easier to underrate? Yeah, great question Jim. I think lenders are correct to be cautious about financing a truly novel technology. However, as I explained earlier, sodium fast reactors have decades of operating experience. What is new is deploying Aurora at a commercial grid connected facility at a 75 megawatt utility scale. From a financing standpoint, the simplicity of SMRs can be valuable. Aurora's sodium cooling system operates at atmospheric pressure and is designed around inherent and passive safety characteristics. Oak glow can draw on established industrial supply chains, and Aurora has a smaller physical footprint, a more modest name plate capacity, and doesn't require the same water use for cooling or pressurized safety equipment as conventional light water nuclear plants do today. Those attributes should reduce the amount of equipment, complexity, construction scope, capital, and uptime risk exposed to any single project. I think that will be helpful in the financing story. Lenders will still appropriately underwrite our technology, licensing, construction, and fuel supply risks. The point isn't that these risks disappear. Is that the plant architecture and our vertically integrated approach give us tools to reduce manage and spread them across multiple units and many phase deployments? Okay. It's interesting how you're designed and a lot of other factors already kind of inherently address some of the concerns and risks that I know lenders will look at. So, you know, walk us through the capital stack that you're targeting for your first powerhouse. You know, what makes of debt, tax equity, government-backed capital, are you actually going after and which is the hardest to actually close? I don't expect there to be one permanent capital structure that applies every Aurora project. You know, for example, our first project, we planned a finance, the construction period, with 100% sponsor equity. Oaklow entered the third quarter of 2026 with a $3 billion cash war chest and we recently announced plans to raise another $1 billion of equity via a follow-on ATM program. So, Oaklow's balance sheet and continued support from the public equity markets lets us be patient and deliberate about raising third-party project capital rather than trying to maximize leverage before the project is ready and before risks align with the cost of capital and offer. Beyond our first of its kind deployments, I expect we'll bring in various forms of leverage into the projects including construction to term debts, customer prepayments, tax credit bridge loans, tax credit sales, government loan arrangements such as EDF, and government grant capital where appropriate. As project risk declines and operating history matures. I expect the capital stock will look a lot like how wind, solar and storage projects are financed today. Our Aurora SMR power projects currently qualify for 45 Y and 48 E investment tax credits. We expect our Aurora projects to qualify for the base 30% credit plus the 10% domestic content adder given that we are standing up a domestic supply chain as we speak. So our base case assumption is that all of our Aurora projects will qualify for an ITC rate of 40%. We also expect some of our projects to be cited in an energy community, which will bring that applicable ITC rate up to 50% of eligible costs. So it's a huge part of the capital stack for our Aurora projects for sure. Given the current lack of nuclear project safe harbor tables and the five-year capture risk associated with ITCs, I expect ITCs will probably be the most challenging piece of the capital stack to monetize for advanced nuclear companies like GoClow. However, any I or the Nuclear Energy Institute is working closely with its members, the DOE and the Treasury Department to publish nuclear-specific safe harbor tables that will simplify and reduce uncertainty about what qualifies and what doesn't. And as more and more commercial scale deployments with robust PPAs and contractual frameworks come online, I expect recapture concerns to relax and allow more advanced nuclear ITC deals to be effectively underwritten. But today, I expect that will be the toughest piece of the capital stack to monetize. Okay. And I know your first project is all equity, so you may not be there yet. But have you been talking with tax equity investors and tax credit buyers? And I'm curious, you know, whether the policy uncertainty around nuclear incentives change your structuring approach and how these investors and buyers are engaging? Yeah, we're definitely talking to tax equity investors today. And, you know, as you can appreciate, you know, buyers of investment tax credits really focus on minimizing risk. So my conversations with them have really centered on how we plan to address the five-year recapture risk and how we plan to mitigate other first of its kind operational realities. You know, first and foremost, we need to prove to the market that we can deliver our commercial scale demonstration projects and that they work as advertised. Obviously, our strong balance sheet and ability to fund our first of its kind projects with 100% sponsor equity is a huge advantage on that regard. But obviously, we don't really want to have to deploy 100% equity on every single project that we do in the future. Secondly, structuring a strong contractual package, starting with a credit worthy PPA, and partnering with experienced vendors and contractors willing to stand behind the reps and warranties, is really our most effective way to address recapture concerns. From a tax policy perspective, investors seem very open to supporting nuclear industry tax credits. And I think that's just somewhat consistent with the policy tailwinds, favoring nuclear and clean base load power at scale. And the realities that, you know, there seem to be some, you know, a sunsetting and headwinds already impacting renewables. So I expect nuclear to actually benefit from this natural asset class rotation. Yeah, I imagine it's also, you know, with the explosion and demand, you know, from things like data centers that need 24/7 power, that's probably also a good tailwind for you. But I want to kind of go back to thinking about how the project financiers are looking at this. You know, they want often completion guarantees and a track record of on time and on budget delivery. So, you know, how do you underwrite that risk for a first-of-a-kind nuclear plant? And, you know, what else are you doing to make that credit story bankable? They just need to trust us Jim. No, I'm joking. That is really where it's helpful to point to tangible precedents. You know, the fundamental role of, you know, first of its time projects and the main reason why we're using our balance sheet to fund our initial projects with 100% equity is really to establish those precedents and provide those lessons learned. For example, I mean, if I could pivot a little bit, we went from a raw field in Caldwell County, Texas to the criticality of our Groves isotope reactor in less than one year. So, this stuff can be done and we need to show the market that, you know, what the art of possible really is. And our Groves isotope reactor represents our first nuclear reactor to reach criticality. And while the scale and complexity of our Groves project is not the same scale as our Aurora INL project, Groves provides Oklo with real experience taking a nuclear facility through design, procurement, construction, authorization, commissioning, staffing, and operation on a very accelerated schedule. And once our first of its kind projects are operational, our bankability story will be guided by how we intend to apply the lessons learned and improve each subsequent iteration. In other words, once we have a demonstrated baseline, it becomes easier to talk to lenders about our approach towards standardization and modularization, how we intend to leverage repeat vendors, how we can pre-fund long lead equipment to help bring critical past schedule constraints to the right, as well as to highlight the experience of not only Oklo, but also of our key partners and vendors like Kiwit and Siemens. Having precedents also makes it easier for me to set realistic goal posts on contingency and reserves and to reduce uncertainty around cost and schedule. The other benefit of our build-on operate model is also the other benefit of our build-on operate model. We're not looking to sell unit one declare victory and go home. Our goal is to build, learn, and keep iterating to improve on upfront economics and cash available for debt service across all three of our business units over the long term. OK, so you're doing this first project, sponsor equity, and you had mentioned, hoping that allows you to unlock project finance, et cetera, your second, third, fourth project. At what point does this stop looking like venture-backed infra and start looking like a repeatable project finance asset class? Yeah, the first project has to pay for a lot of learning and diligence that subsequent projects can reuse, you know, design work, licensing precedent, supplier qualification, construction sequencing, lender due diligence, operating procedures, documents, et cetera, et cetera. And with the second, third and tenth unit, you know, the financing conversation should progressively shift from does this technology work towards what are the site customer construction and operating risk of this particular asset? And I think that's where standardization is particularly powerful. If the reactor, major equipment, supply chain, contracts, and operating model are substantially repeatable, lenders don't have to start from zero every time. Ultimately, my goal is to move from funding single-phase deployments to multi-phase gigawatt scale portfolio financing. Where lenders can finance a series of substantially standardized assets rather than treating every powerhouse deployment as a discrete package. I expect this will look a lot like the accordion type facilities that we put together supporting solar and storage assets. Okay, so you mentioned earlier how, you know, kind of the financing of these at its base is project finance 101. And to me, one of the things you look at is your offtake because you can produce all the power in the world, but you got to get paid for it and who's paying for it. And lenders really look at that. So I know there's a lot of data center operators signing long-term power deals with nuclear developers, you know, long before the plants exist. From a financing lens, how bankable are those offtake agreements today? And what would make them more bankable? Yeah, you know, a recognizable, you know, customer name helps. But the contract matters more than the logo. You know, lenders are going to look at a tenor and pricing and minimum purchase obligations, termination rights, termination payments, buyer security, development milestones. And what happens if either the customer's load or the powerhouse comes online late? Customer capital can also help strengthen this PPA arrangement. For example, Oculus Agreement with Meta supports a mechanism for Meta to prepay for power. And those funds support fuel procurement and advancing the first phase of our Aurora Ohio campus, which will follow our Aurora INL deployment. From a lender's perspective, that structure gives the customer real economic participation in building that project, rather than simply signing a long-dated PPA. The reality is our customers want the election electrons yesterday if they could. And the real true balance in the PPA discussion is, you know, signing up PPA centered on when the buyer needs the power and when Oh Glow, as the seller can deliver the power to the customer. Again, successfully Delivering Aurora I&L will help us better establish the price necessary to deliver a return to our investors and the key delivery dates underpinning our mutual obligations. Okay, so another risk that lenders look at is fuel supply, you know, at least for things like gas assets. Obviously there's free fuel for wind and solar. But you're pursuing a multi-source fuel strategy that includes commercial HALU, DOE, manage materials, and longer-term fuel recycling. How mature are those pathways today? And how do you think the financiers think about the fuel supply risk? Yeah, fuel is the main pinch point for SMR reactors and operators like ourselves. And that's why our fuel strategy is deliberately diversified across DOE, manage materials, commercial HALU, and as you said, overtime recycled fuel. Importantly, you know, Oklahoma has secured the initial fuel needed to operate our Aurora I&L demonstration project. And that's going to be coming from a, you know, a super enriched HALU stockpile that we will down blend and fabricate on site at our Aurora I&L fuel fabrication facility. And we're also in various stages in negotiation with multiple suppliers to secure additional commercial HALU supply for our future powerhouse deployments. For example, the letter intent that we signed in June was centrist contemplates a supply of domestically produced HALU beginning in 2029, in quantity sufficient to support multiple years of fuel for up to five Aurora powerhouses. Beyond DOE, manage and commercial HALU recycling is really our ultimate feed stock solution, providing a long-term scaling and supply security pathway. We're building a $1.7 million fuel recycling facility in Tennessee that we call the Tennessee Advanced Fuel Center. And that's, and that is progressing site and technology development work as we speak. And, but ultimately, that fuel, that recycling of facility will support longer-term fuel optionality for us. To support project-financied lenders and investors are definitely going to want to ensure that fuel required for their specific portfolio is secured and to understand what alternative fuel arrangements can be made if necessary. I expect those fuel supply alternatives, especially, will grow as more SMR units are deployed and need support over their entire useful lives. In the meantime, it's the classic chicken and egg dilemma, but it will naturally resolve as more SMRs come online and as SMR market ventures. And your fuel recycling, I think I read on your website, you take used fuel from other currently operating reactors and you can recycle it into fuel that your reactor can use as average. That's correct. Yeah, really the goal is to, you know, take the 100,000 metric tons of spent nuclear fuel in the US and be able to recycle it, reenrich it, and put it in the form factor necessary for our SMR reactors as well as other people's reactors. But just to put it in the context, Jim, that 100,000 metric tons of spent nuclear fuel that's, you know, sitting around, it has 95% of the energy content in it. And we need to be able to unlock that as a country and as an industry. That 100,000 metric tons of fuel is equivalent to 1.32 billion barrels of oil and could power the US for 100 years at the 2025 electricity consumption rate. So it's a huge unlock opportunity and it allows us to, you know, realize our multi-gigawatt pipeline of SMR projects. Okay, that is a lot. You know, another risk that I think you're addressing is regulatory. Yeah, so I know you're gaining experience through Department of Energy Authorization pathways while also advancing your commercial NRC licensing. And the NRC is developing new frameworks such as Part 57, which is intended to support faster, more repeatable microreactor deployment. So, you know, if I'm thinking about it from a lender perspective or another financing party, you know, how can these parallel pathways reduce regulatory and the related schedule risk? Yeah, you know, DOE authorized projects are really helping us create valuable real-world construction commissioning operating costs and scheduled data. That's really helping inform future projects. Going back to our Groves example, which is our isotope facility, that project reaching criticality under DOE's reactor pilot program. It's really, it's a concrete example of that learning cycle. Similarly, we're pursuing a DOE to NRC authorization pathway for Aurora INL. I expect we're going to sort out any hiccups or delays with that first of its kind experience, which will in turn, which in turn should allow us to develop and execute on a tighter NRC timeline for phase one of our Aurora Ohio campus and beyond. I'm not saying that a lender should not care about the NRC regulatory schedule. They obviously should care because every month the delay affects capitalized interest, return on equity, and ultimately the project economics. However, each completed authorization milestone reduces uncertainty, shortens the remaining critical path, and gives lenders more tangible information to price the risk, and to right size the contingency or reserves. Separately, NRC is coming out with all different types of pathways, including that proposed Part 57 that you mentioned, and that's designed around rapid and high-volume licensing of qualifying microactors, including standardized applications, and a general license construction concept in certain circumstances. Importantly, however, Part 57 remains proposed, and it's not currently available for applicants, but the NRC is trying to evolve to meet the growing demand and new technology types like we're trying to deploy. Okay, great. And so, kind of last question is, I know your plans are designed to be small and deployed as a fleet rather than one off mega projects, and you've spoken about this already a little bit, but does this modularity generally change the financing conversation, enabling the standardized repeatable deal structures that you had mentioned, and I think you've done with other technologies, or do you think lenders are really going to finance each project as a bespoke project? Yeah, I think being small and modular generally changes the financing conversation, because it really reduces the amount of capital exposed to an individual construction event. Right? For example, our Aurora Ohio project is ultimately going to be a 1.2 gigawatt campus, which we've envisioned as 16 of our 75 megawatt Aurora powerhouses, and that really allows capacity to be added in phases as customer demand grows. Being small and modular also helps our conversations with the customers, because they want the power to scale with their deployments, and they also want high uptime guarantees. You can see the basic logic in the campus model rather than building all the capacity at once. Additional Aurora units that we're deploying can be synchronized with successive phases of customer load, also operating a fleet of several units reduces the customer's exposure to single unit downtime and refueling period risks. It also creates a potential to standardize the core financing package, common reactor designs, suppliers, operating assumptions, diligence materials, and financing documents, and eventually we'll be able to finance multiple units or sites as a portfolio. There's always going to be a bespoke layer around site permitting interconnection, customer contracts, and local considerations of course, and our goal isn't for every project to be identical. It's really our goal is for the expensive, nuclear specific diligence in the middle of financing to become increasingly repeatable. Okay, I think that's, I think you're thinking about it the right way if I put on my my lender hat. All right, Chris, this has been really interesting. I really appreciate your time. Thanks for the opportunity. Have a great week. Our show today was produced by Emily Rogers. Stay ahead of the currents.