Key Points: 

• Behind-the-meter nuclear projects require careful coordination with grid operators and utilities, involving detailed interconnection studies and agreements to manage power flows and ensure system reliability.
• Regulatory challenges may arise from state laws granting exclusive service territories to utilities, particularly when third-party ownership structures are involved. These issues require state-specific analysis and navigation.
• Project developers must engage early with regulators, secure necessary approvals, and navigate complex state and federal regulations, including potential state commission proceedings for larger projects.
• Successful development hinges on understanding local economic, environmental, and tax policies, building strong relationships with regulators and supporters, and securing experienced legal representation familiar with large-scale energy projects.

Small modular reactors (SMRs) can be collocated with high demand customers such as data centers and large manufacturing and chemical facilities to provide electric energy and capacity to them directly. Behind-the-meter nuclear generation may be a practical response to issues related to the cost, reliability, and schedule availability of power from incumbent utilities particularly given the size, scalability, constructability, safety, efficiency, and reliability of SMRs. Clients considering such a colocation strategy should consider a range of practical and regulatory issues.

NRC Licensing 

Under the 1954 Atomic Energy Act, the Nuclear Regulatory Commission (NRC) is mandated to license nuclear power generating facilities. For traditional large scale nuclear reactors, which typically produce more than 700 MW(e), the NRC process for approval of design and siting has been very expensive and time consuming. There are current proposals by developers, states, and Congress, to either re-interpret or amend the NRC’s “utilization facility rule” to allow the design and siting of SMRs and microreactors, which typically produce no more than 300 MW(e) – with some as low as 10 MW(e) - to be exempted from much of this traditional approval process. Despite potential changes, the NRC will likely still need to approve the design and location of SMRs before they can be deployed. Additionally, state regulators may play a larger role in this process.

Compatibility with Load

Nuclear power plants are designed to operate continuously at high capacity, making them ideal for supplying electricity to consumers with steady, round-the-clock demand. These consumers typically don't experience significant fluctuations in their energy needs on a daily or seasonal basis. Industries or facilities with consistent energy requirements, regardless of time of day or season, are particularly well-suited to the output profile of nuclear plants.

However, it's important to recognize that all electrical loads have some degree of short-term variability. Additionally, allowances must be made for both planned maintenance outages and unexpected events, which can affect both the nuclear power plants and the facilities they serve.

While some operations, such as remote mining or refining facilities, can function as isolated microgrids without a connection to the main utility grid, this is not feasible for all potential users with variable loads. Many users (data centers, for example) must rely on additional measures to ensure uninterrupted processes. These backup options may include battery storage systems, peaking facilities for handling demand spikes, or maintaining a connection to the main power grid.

This approach ensures a reliable power supply that can accommodate both the steady baseload provided by nuclear plants and the inevitable fluctuations in demand, planned outages, and unforeseen circumstances.

Utility Service Agreements

When using the electric grid to supplement on-site nuclear generation or absorb excess power, project developers must coordinate with the incumbent public utility. The terms of the electric service agreement will vary based on the utility's tariffs and regulatory structure.

In regions with vertically integrated investor-owned utilities (common in the South and Mountain West), a single agreement may cover both power supply to the facility and excess power sent to the grid.

In competitive markets, the incumbent utility provides grid interconnection and possibly emergency supply, while competitive suppliers handle other services. This may result in separate agreements for grid connection and power market transactions.

Qualified Facility (QF) Status 

On-site generation facilities that can utilize waste heat or steam from nuclear units may qualify for Qualified Facility (QF) status under federal law. This status can provide significant advantages for selling power back to the grid. QF status creates a must-take obligation for the incumbent electrical supplier, primarily in areas without wholesale competition. Consequently, these benefits are mainly available in regions where power supply markets are not deregulated.

The Terms of Utility Service Agreements

The terms of the electric service agreement will depend on which utility serves the location in question and the specific market structures tariffs, regulatory policies and statutes that govern that utility’s operations. Forty-two regional transmission operators (RTOs), independent system operators (ISOs) and major electric utilities serve 85% of U.S. load, but there are many more electric utilities and cooperatives that operate under RTO and ISO umbrellas. Among the hundreds of incumbent utilities, there is tremendous variation in the rules and practices that might determine what sort of utility service agreement might be negotiated to support on-site nuclear generation. There is no one-size-fits-all answer. A case-by-case review of the statutory and regulatory structure for each location is necessary.

Flexibility in the Terms of Utility Service Agreements

Currently, there's little standardization in utility contracts for behind-the-meter nuclear projects. In supportive utility and regulatory environments, developers may have room to negotiate agreements tailored to their specific needs.

Many utilities have tariff provisions for traditional behind-the-meter generation and net metering, often limiting capacity to very low megawatts. These tariffs typically target much smaller projects and should not be considered definitive for behind-the-meter nuclear developments.

Project developers may negotiate with utilities and seek regulatory approval for customized terms on a case-by-case basis. In jurisdictions supportive of behind-the-meter nuclear generation or the facilities it will serve, even statutory limitations might be addressed through potential amendments.

Transmission Interconnection

Facilities using behind-the-meter nuclear generation will connect to the grid at transmission voltages. The incumbent transmission system operator, typically a Balancing Area Authority (such as an RTO, ISO, or utility), must study potential power flows to and from the facility. These studies determine the cost and schedule for grid interconnection.

The studies assess the grid's ability to handle the facility's maximum anticipated electricity demand and energy injection, particularly during peak demand periods. They identify necessary facility additions or upgrades to accommodate these power flows within system operating parameters. This includes specific transmission lines and transformers for the facility, as well as any required system-wide upgrades.

These interconnection studies rely on reliability criteria and power flow models maintained by utilities to comply with National Electric Reliability Council (NERC) standards, as enforced by the Federal Energy Regulatory Commission (FERC).

The process typically occurs in phases: feasibility studies or transmission impact assessments (TIAs), followed by interconnection studies and facilities studies. Each phase provides greater detail on costs and schedules.

Transmission providers usually require developers to demonstrate a binding commitment to proceed beyond feasibility studies. Developers must pay for these studies or agree to cover costs if the project does not reach completion or justify the expense through sufficient load.

The process concludes with an Interconnection Agreement, which establishes a fixed price for transmission upgrades and an interconnection schedule. Utilities may face FERC penalties for failing to meet agreed timelines.

Queuing Projects

Behind-the-meter nuclear projects often transfer excess power to the grid when generation exceeds on-site demand. Consequently, these projects join the transmission provider's generation interconnection queue alongside solar, wind, and fossil fuel projects.

Recent Federal Energy Regulatory Commission orders require transmission utilities to analyze multiple interconnection requests in batches at least annually. The timing of these requests significantly impacts both cost and interconnection timeline. 

As customer demand grows, more extensive upgrades become necessary to accommodate additional power, increasing interconnection costs and delays. Therefore, securing an early position in the queue is crucial for behind-the-meter generation projects to optimize both cost and schedule.

Siting Acts and Certificate of Public Necessity and Convenience Statutes

Many states require utility commission approval for major electric transmission and generation projects before construction begins. This is typically mandated by siting acts or certificate of public necessity and convenience statutes. These laws often define major generation projects as those with at least 75-80 MW capacity.

Behind-the-meter nuclear generation projects in this range may require pre-construction approval through a state commission proceeding. Similarly, the incumbent utility must seek approval for any associated major transmission facilities.

While behind-the-meter nuclear projects should easily meet the substantive requirements for a certificate due to their direct link to on-site load, these proceedings can attract political opposition. Therefore, project developers should approach this process with careful preparation and not take approval for granted.

Third Party Ownership 

Financial structures where a third party owns the nuclear facility, rather than the on-site energy user, can create regulatory challenges. These issues arise from state statutes and regulatory frameworks that either grant exclusive service territories to incumbent utilities or classify any entity providing electric service to the public as a regulated electric utility.

These regulatory hurdles are typically avoided when a party operates generation resources solely for its own consumption or only sells excess generation into wholesale markets. However, in states with strict interpretations of territorial service rights, transactions may be prohibited if the nuclear facility owner differs from the on-site energy user. This arrangement could be viewed as violating the incumbent utility's exclusive territorial service rights.

It is important to note that states vary widely in their interpretation of these statutes. Consequently, there's no one-size-fits-all solution to this regulatory landscape. A thorough state-by-state analysis of relevant statutes, commission orders, and appellate court decisions is essential to navigate these complexities effectively.

Economic Development, Land Use, Zoning, Environmental, and Tax Issues 

Developing a successful behind-the-meter nuclear generation project demands careful navigation of state-specific laws, policies, and practices. This includes economic development, land use, zoning, environmental, and tax issues.

Early engagement is crucial. Establishing strong relationships with staff and regulators at the project's outset can be decisive in withstanding potential disruptions from other parties or interest groups. Identifying champions and supporters, and securing entitlements early, are key strategies. 

Early engagement is crucial. Establishing strong relationships with staff and regulators at the project's outset can be decisive in withstanding potential disruptions from other parties or interest groups. Identifying champions and supporters, and securing entitlements early, are key strategies. 

Legal representation with local knowledge and experience in similar large-scale development projects is essential. Such expertise can help anticipate challenges and streamline the complex regulatory process.

By addressing these factors proactively, developers can create a solid foundation for their project, enhancing their chances of success in the face of potential obstacles.