Bader Thabti, Counsel at Vinson & Elkins, and Anuja Venkataramani, Trainee Solicitor at Vinson & Elkins, believe advanced SMR technology could hold the key to meeting the Middle East’s growing data demands, as they explain.
Small Modular Reactors (SMRs) are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit and can produce 7,200,000 kWh per day — about one-third of the generating capacity of traditional nuclear power reactors. The SMRs currently under development represent a range of sizes, capabilities and deployment scenarios, varying in size from tens up to hundreds of megawatts.
The current nuclear power landscape in the Middle East comprises both apprehension and early adoption by some states, primarily the United Arab Emirates (UAE), Saudi Arabia and Jordan. Despite this spectrum, SMRs have strong potential for use in the Middle East given data centre growth and their highly energy-intensive operations.
Data centre development in the Middle East
The data centre market in the Middle East is undergoing rapid expansion, expected to nearly double in size between 2023 and 2029 — the UAE and Saudi Arabia are key players in this. The main source of growth is both countries’ significant AI ambitions. Furthermore, an increase in demand for cloud services and digital transformation initiatives are also driving this growth.
Two related trends can be observed within the data centre market in the Middle East. Firstly, investments by major cloud providers like Microsoft, Amazon Web Services and Google demonstrate the growing importance of the Middle East in their operations. Secondly, the Middle East is increasingly seeing an influx of hyperscalers – IT services that can flex and grow as increased demand is added to the system.
Crucially, data centres are highly power-intensive, accounting for 1–2% of the world’s energy needs, with this figure expected to double over the next decade. Simultaneously, many of the major players in the market, such as Microsoft, Alphabet (Google) and Amazon, also have net zero commitments to meet by 2030 or 2040. Against this backdrop, and keeping in mind the UAE’s and Saudi Arabia’s aim to reduce oil dependence, SMRs have the potential to play an important role in servicing the energy demands of data centres in the Middle East, by providing reliable, carbon-free baseload power.
Existing approaches to powering data centres using SMRs
Broadly speaking, there are currently two approaches being considered.
One concept envisions having on-site SMRs to power data centres, as is currently being planned in Surry, Virginia. A total of 19 data centres are expected to be hosted here, powered by four to six on-site SMRs. While the data centres will initially be powered by the grid, the revenue they generate will be used towards the development of the SMRs. The project is being undertaken through a joint venture between the data centre developer and a nuclear power provider.
Another approach, and the one currently more commonly adopted, is to purchase power from SMRs developed and operated by nuclear energy companies – as Google has recently signed an agreement to do. Amazon Web Services has signed similar deals with utility companies to purchase nuclear power from SMRs, in addition to investing in the SMR firm and funding the initial feasibility study.
Key advantages of SMRs for data centres
Reliability
Given data centres’ demanding power needs, energy resiliency is a key concern for operators. While renewables like wind and solar, as are being developed heavily by the UAE, satisfy net zero aims, they are not sufficiently stable to provide a baseload supply of energy. Conversely, nuclear energy serves the dual purpose of providing a stable energy output to regulate fluctuations in the supply of renewables while also complementing decarbonisation strategies.
Size and modularity
Compared to traditional large-scale reactors, SMRs are designed to be smaller in size, power output and capacity. For instance, prefabricated SMR units can be shipped to site and assembled on location. As a result, there are fewer space constraints to consider, providing greater flexibility when it comes to site selection. Hence, SMRs can provide data centres with on-site nuclear power that can be deployed incrementally to match increasing energy demand, particularly important considering the growing presence of hyperscalers in the Middle East.
Safety
In contrast to large-scale reactors, SMRs’ safety concept relies more on passive systems and the reactors’ inherent low power and operating pressure. As a result, no external or human intervention is required in the event of a malfunction. Given that the accident risks associated with traditional reactors have been a significant barrier to improving public perception of nuclear power in some Middle Eastern countries, the increased safety of SMRs is a key consideration supporting adoption of this technology.
Cost benefits
SMRs have far smaller land requirements in comparison with wind and solar and much lower capex costs compared to traditional nuclear reactors. Further, because their modularity allows for series production and factory fabrication, they can take advantage of economies of scale. As SMRs allow investors to scale capacity incrementally based on energy needs, it is likely that a given data centre site will require multiple SMR units over time. Hence, the project can also save on certain fixed costs when installing subsequent units.
Importantly, in order to benefit from these, there needs to be a sufficient existing level of production upon which these economies can be realised. However, there are only four SMRs operational globally, in Russia and China, with most projects still heavily in the design phase. Hence, the reality is that greater technology stabilisation is needed over time to recognise the cost efficiency benefits of SMRs.
Talk of SMRs will likely build as data centre growth continues
The expansion of the data centre market in the Middle East, coupled with its economies’ aims of reducing oil dependence, offers fertile ground for the deployment of SMRs to service power needs. Promisingly, several tech companies have signed agreements to use energy from SMRs in their data centres, particularly in the US, demonstrating that the technology has garnered significant traction despite its relative nascency.
However, the high costs involved in kickstarting these projects will need to be reckoned with in the short- to medium-term, before the economies of scale contemplated can be realised in the long-term.
