The European Commission’s recent strategy to deploy small modular reactors (SMRs) by the early 2030s signals a significant shift in EU energy policy.1 Rather than treating nuclear power as a legacy energy source, policymakers now see SMRs as a future source of a decarbonised, secure, and resilient energy system. This strategy is part of a broader effort, the European Industrial Alliance on SMRs, to accelerate SMR development and deployment across member states.2
SMRs are compact nuclear reactors with electric outputs typically up to 300MW, designed for modular construction and factory fabrication that can shorten build times and reduce costs. They can also potentially support a range of applications beyond electricity, including process heat, hydrogen production and district heating. For instance, the groundbreaking 462MW SMR facility being developed by RoPower Nuclear in Doicesti, Romania, on the site of a former coal power plant will feature six 77MW Voygr modules, the NuScale technology from the US.
While wind and solar capacity are expanding rapidly in the EU, their variability requires storage and grid upgrades which are not feasible in the short term. SMRs on the other hand provide firm, low‑carbon power that operates independently of weather conditions, complementing renewables and enhancing system stability.
The ongoing conflict involving Russia and Ukraine, instability in Venezuela, and the war in Iran, to name just a few, have exposed the fragility of Europe’s energy system. We are seeing direct threats to centralised energy infrastructure, the use of energy exports as geopolitical leverage, disrupted supply chains, and sharp price volatility. Together, these developments highlight the urgent need for energy sources in Europe that are both more secure and more resilient.
SMRs offer a compelling answer to these energy security challenges. Smaller, modular, and more flexible, they reduce reliance on concentrated energy assets vulnerable to disruption while giving European countries greater control over their own power generation. In the current climate, that makes SMRs an even more attractive option.
Beyond power generation, SMRs can also support the expanding data-centre development in Europe.
Nevertheless, this strategic and political consensus does not resolve a central question: can these projects be financed at scale?
Financing constraints
While political support for SMRs is strengthening across Europe, financial viability remains the core challenge for immediate and long-term deployment. Nuclear energy projects historically have faced difficulty attracting purely private capital due to high upfront costs, extended development and construction timelines, regulatory uncertainty, and a history of cost overruns. Institutional investors and commercial lenders tend to be cautious when it comes to such large and complex infrastructure projects.
In addition, third-party liability in the event of a catastrophic accident continues to weigh on investor decisions. A developed national and international legal framework channels responsibility exclusively to the licensed operator, backed by supporting compensation mechanisms. Even so, residual concerns about liability remain, particularly in the event of a major accident.
In theory, SMRs could mitigate some of these remaining risks: modular construction and standardised designs should reduce costs and provide shorter construction timelines, and improved project management.
In practice, however, these benefits will materialise only after multiple units have been deployed and supply chains mature. The reality is that, to date, no SMR facility in Europe has achieved financial close for the entire project development. Early projects lack established supply chains, proven construction methods, and clear regulatory pathways. This creates a paradox: the long‑term case for SMRs depends on cost reductions achieved through replication and scale, yet achieving that scale requires investment in inherently riskier first-of-a-kind (FOAK) projects today.
FOAK SMRs involve new technologies, untested delivery models, unseasoned sponsors, and limited operational experience. As a result, cost estimates are uncertain, schedules are hard to predict, and risks are difficult to allocate – translating into reduced investor confidence and hesitancy around financing.
The challenge is not a shortage of capital. Global investors are actively seeking long‑duration infrastructure investments, particularly those aligned with sustainability and decarbonisation goals. Institutional investors like pension funds and infrastructure funds, sovereign wealth funds, and insurance companies could invest in nuclear energy if project structures aligned with investor requirements. However, current SMR projects often lack the revenue certainty, risk allocation, and sponsor credibility needed to satisfy such prudent institutional investors.
Bankability starts with project structure
At the core of the SMR challenge lies bankability: a project’s ability to attract financing by offering predictable returns within an acceptable risk framework. This includes:
* Revenue certainty – Exposure to volatile liberalised electricity markets is difficult to manage in capital‑intensive projects with long payback periods. Securing long‑term offtake arrangements and/or revenue support mechanisms with creditworthy counterparties – whether utilities, industrial users, data centres, or government‑backed entities – provides the cashflow certainty necessary to support investment and financing.
Without such contractual commitments, projects struggle to offer the predictable revenues investors require. Mechanisms such as contracts for difference, regulated asset base models, and (subject to state aid rules, as discussed below) long‑term power purchase agreements are therefore essential tools to mitigate price risk and provide predictable cashflows.
* Construction risk management – Historically, nuclear projects – especially FOAKs – have been prone to delays and cost overruns. While SMRs promise improvements through modularisation and factory production, these advantages remain largely theoretical at this point. Demonstration SMR projects will require robust contractual frameworks that clearly allocate risk among developers, contractors, and suppliers.
Such risk‑sharing arrangements coupled with strong and demonstrable project management capabilities, including suitably qualified and experienced key personnel in critical positions, are necessary to reduce uncertainty and minimise cost escalation.
* Sponsor credibility – While new entrants may bring innovation, they also introduce additional risk. Investors are more inclined to finance projects backed by established utilities or industrial firms with solid balance sheets and relevant experience.
* Standardisation in structuring – One less visible but equally important challenge is the lack of standardisation in project contracts and risk allocation. Simply put, there are very few SMR precedents in Europe. When each SMR project is negotiated from scratch with bespoke terms, transaction costs remain high and timelines stretch. Developing standardised contractual templates and project frameworks could significantly accelerate deployment.
Public finance institutions
Given the risk profile of leading SMR projects, public finance institutions are likely to play a central role in this initial deployment phase.
Export credit agencies can support projects through equity investment, guarantees, direct lending, as well as insurance against political or commercial risks. Their involvement can lower perceived risk for private lenders, making projects more financeable. ECAs can be particularly useful in crossborder nuclear project deployment where international supply chains and collaboration are common, if not necessary.
Development finance institutions/multilateral financing institutions – together DFIs – can complement ECAs by providing early‑stage financing, technical assistance, and project development support, and by facilitating policy dialogue between European states to help harmonise the regulatory landscape for SMRs. DFIs can support SMR projects through long-term debt, concessional financing and guarantees, thereby enhancing bankability and reducing the overall cost of capital. Their participation often enhances investor confidence and signals credibility that helps mobilise private capital.
DFIs are well placed to catalyse private investment by acting as anchor investors in green, sustainability-linked or transition bond issuances linked to SMR projects, now that nuclear energy falls within the EU’s sustainable finance framework. Under the EU Taxonomy Regulation,3 nuclear energy, including SMRs, as a low-carbon energy source, can qualify as environmentally sustainable under certain conditions, provided it meets the technical screening criteria and does not cause significant harm to other environmental objectives. By using such instruments, DFIs could strengthen the role of SMRs in delivering Europe’s net-zero and energy security objectives.
Government-backed development finance need not come only through DFIs and ECAs. A recent example is the £599m financing announced by the UK National Wealth Fund to support Rolls-Royce SMR in the development of its SMRs, each of which is expected to generate 470MW of stable, low-carbon electricity, enough to power the equivalent of around one million homes under current consumption levels.
ECAs, DFIs and similar investors have a very important role to play. However, they operate within defined mandates and cannot absorb unlimited risks nor substitute for fundamentally bankable project structures. Their varying guidelines and policies can also lead to delays and inefficiencies. To maximise overall impact, close collaboration among EU institutions, national authorities, ECAs, DFIs and government-backed investors will be needed to develop an integrated approach and align stakeholders around a common SMR deployment strategy.
ECAs, DFIs and other government-backed development financiers can, collectively, provide an anchor for a commercial tranche and support broader lender confidence. It is worth noting that, in 2025, Nuclearelectrica (the Romanian predominantly state-owned nuclear company) secured €620m in financing from a syndicate of commercial lenders for the refurbishment of Unit 1 of the Cernavoda nuclear power plant and the limited notice to proceed phase for new Units 3 and 4. While not directly on point – conventional vs SMR/refurbishment and limited notice to proceed vs new build – this transaction does demonstrate the potential for a blended financing structure involving commercial bank participation in conjunction with other sources of finance.
The state aid question
State support will almost certainly be required for the first European SMR projects, but the European Union’s state aid framework introduces another challenge and risk. Government participation may include offtake arrangements such as PPAs, equity stakes, revenue guarantees, tax incentives, and loan guarantees – tools that can materially improve project economics and reduce investor risk.
However, securing approval under EU state aid rules can be lengthy and uncertain, affecting project timelines and costs. Investors are unlikely to commit capital to projects where key components of the financial structure depend on political approvals that are not yet secured. In the past, EU authorities have opened in-depth investigations into state aid plans for nuclear reactors highlighting the need for clear guidelines on how SMRs will be assessed under state aid rules and streamlined approval processes to reduce EU regulatory risk for investors.
These EU-level issues are increasingly being recognised by the EU leadership. Speaking at the Nuclear Energy Summit in Paris in March 2026, European Commission president Ursula von der Leyen outlined a three-pillar approach to making SMR technology operational in Europe by the early 2030s: simplifying regulation through cross-border regulatory sandboxes, mobilising private investment through a new guarantee mechanism, and strengthening coordination among member states on permitting, skills and supply chains. While it remains to be seen how the other two pillars will be implemented in practice, the announcement of a dedicated €200m guarantee is a positive step towards lowering investment risk and attracting private capital for SMR projects.
Licensing and standardisation challenges
One of the main advantages cited for SMRs is their potential for standardisation and replication. However, Europe’s nationally based nuclear safety regulatory system poses a significant challenge. Each EU member state rightfully maintains its own nuclear licensing regime with distinct safety standards, procedures, and authorities. And while this reflects legitimate national sovereignty over nuclear safety, it also risks eroding the economic benefits of standardised SMR technologies across the EU.
Accordingly, efforts to promote regulatory cooperation – such as mutual recognition of approvals, joint safety reviews, and common technical standards – may become critically important. While full harmonisation may not be practicable or even desirable, cooperation and incremental alignment could meaningfully shorten timelines and reduce costs. Achieving this will require political will and commitment (at the national and the EU level) as well as meaningful discussion and trust among national regulators.
Managing FOAK risk
FOAK risk remains a particular challenge for SMR deployment. Future European SMR projects will combine multiple layers of uncertainty – including technological performance, construction execution, supply chain readiness, and regulatory approvals – making them difficult to finance under existing finance models.
Public sector intervention will therefore be necessary to bridge this gap, whether through direct government investment, guarantees, or risk‑sharing mechanisms designed to reduce exposure for private investors. Demonstration projects can play a pivotal role to minimise this risk in the long term by delivering successful early deployments which can then generate the experience, supply chain and knowledge needed to reduce uncertainty and build investor confidence.
Over time, as projects transition from FOAK to nth of a kind (NOAK), costs and risks will naturally decline. However, this transition will not be automatic; it will require deliberate policy support, effective project execution, and the development of robust, competitive supply chains.
From strategy to execution
While the European Commission’s SMR strategy represents an important, welcome, and necessary first step, transforming ambition into reality requires planning and coordinated action to: (i) establish clear revenue support mechanisms, (ii) standardise project frameworks, (iii) mobilise ECAs, DFIs and other government-backed investors, and (iv) advance regulatory cooperation across the EU. Without progress on all of these fronts, SMRs may remain strategically attractive but commercially out of reach.
With the right combination of policy clarity, and coordination, Europe has the opportunity to position itself as a global leader in SMR technology and deployment – one that could play a meaningful role in the global energy transition.
The challenge is no longer in setting the policy or defining the strategy – it is in making it financeable.
Footnotes
1 - European Commission. (2026, March 10). Commission unveils strategy to bring Europe’s first small modular reactors online by the early 2030s. https://energy.ec.europa.eu
3 - Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment and amending regulation (EU) 2019/2088. http://data.europa.eu/eli/reg/2020/852/oj and Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities. http://data.europa.eu/eli/reg_del/2022/1214/oj
Originally published on May 19, 2026 online with Project Finance International (PFI). Reproduced with permission. Further duplication without permission is prohibited. All rights reserved.
