Small nuclear reactors could power the future — the challenge is building the first one in the U.S.

Nuclear plants could become smaller, simpler and easier to build in the future, potentially revolutionizing a power source that is increasingly viewed as critical to the transition away from fossil fuels.

New designs called small modular reactors, or SMR in shorthand, promise to speed deployment of new plants as demand for clean electricity is rising from artificial intelligence, manufacturing and electric vehicles.

At the same time, utilities across the country are retiring coal plants as part of the energy transition, raising worries about a looming electricity supply gap. Nuclear power is viewed as a potential solution because it is the most reliable power source available and does not emit carbon dioxide.

Building large plants is very costly and time-consuming. In Georgia, Southern Co. built the first new nuclear reactors in decades, but the project finished seven years behind schedule at a cost of more than $30 billion.

Small modular reactors, with a power capacity of 300 megawatts or less, are about a third the size of the average reactors in the current U.S. fleet. The goal is to build them in a process similar to an assembly line, with plants rolling out of factories in just a handful of pieces that are then put together at the site.

"They're a smaller bite from a capital perspective," Doug True, chief nuclear officer at the Nuclear Energy Institute, told CNBC. "They're a perfect fit for things like replacing a retired coal plant, because the size of coal plants typically is more than that of the small modular reactor design space."

The challenge is getting the first small modular reactor built in the U.S.

Only three SMRs are operational in the world, according to the Nuclear Energy Agency. Two are in China and Russia, the central geopolitical adversaries of the U.S. A test reactor is also operational in Japan.

Executives in the nuclear industry generally agree that small modular reactors won't reach a commercial stage until the 2030s. An ambitious effort by NuScale to deploy SMRs at a site in Idaho was canceled last year, as the project's price tag ballooned from $5 billion to $9 billion due to inflation and high interest rates.

Eric Carr, president of nuclear operations at Dominion Energy, said the biggest challenge to commercializing the technology right now is managing the costs of a first-of-a-kind project.

"Nobody exactly wants to be first, but somebody has to be," Carr told CNBC. "Once it gets going, it's going to be a great, reliable source of energy for the entire nation's grid."

Dominion is currently evaluating whether it makes sense to build a small modular reactor at its North Anna nuclear station in Louisa County, Virginia, northwest of Richmond. The utility's service area includes the largest data center market in the world in Loudoun County, less than 100 miles north of the plant.

Electricity demand from these computer server warehouses is expected to surge because artificial intelligence consumes more energy. In the case of Dominion, the peak power demand from data centers is forecast to more than double to 6.4 gigawatts by 2030 and quadruple to 13.4 gigawatts in 2038.

Dominion asked SMR technology companies in July to submit proposals evaluating the feasibility of developing a small reactor at North Anna. Carr said interest in the proposal process has been high. The utility is currently working with vendors to make sure they understand Dominion's needs and to figure out which technology might be suitable, Carr said.

"For our specific case at Dominion, we have a duty to our shareholders to do the right thing, and we also have a duty to our customers to make sure we can meet the demand of this growth, but we have to balance both of those interests," Carr said. Though Dominion has not committed to building an SMR yet, one planning scenario envisages developing six such reactors starting in 2034.

The tech companies driving the data center boom have also shown a growing interest in nuclear due to its reliability and role in fighting climate change. Carr said Dominion is having discussions with some customers on possibly collaborating to move SMRs closer to reality.

"We're having some discussions with the technology vendors as well as the large customers that are coming in and saying, 'What could this look like if we all work together,'" Carr said.

Holtec International, a privately held nuclear technology company, is trying to find a path forward for the industry on two fronts. The company is in the process of restarting the Palisades nuclear plant in Michigan, which would be the first time a plant that ceased operations has come back online.

Holtec also plans to install two small reactors at Palisades in the early 2030s, which would nearly double the power capacity of the plant. Kelly Trice, president of Holtec, said, without disclosing names, that at least six utilities are interested in participating in restarting Palisades and constructing the small reactors.

"If they participate, they can get all of those painful lessons learned without having to pay for them," Trice told CNBC. "And then, when the plant is built at their site, it is the second one or the third one or the fourth — which usually becomes a lot less expensive once you've learned all your lessons."

Once the first SMR has been constructed at Palisades, Holtec plans to build an order book to "continually manufacture the components to do this for whatever plant is needed," Trice said.

Holtec's SMR design is a pressurized water-reactor, the same technology as most plants currently operating in the U.S. fleet. "But with some elegant safety features that don't require human action, and as a result of that simpler to operate, fewer people required, easier to maintain," Trice said.

"And also reproducible. Our goal is for every SMR to essentially be the same," he said.

The largest operator of nuclear plants in the U.S., Constellation Energy, is also exploring the possibility of building a small reactor at one of its facilities.

The trend in the industry is to upgrade existing plants with small reactors in part because the communities are already open to nuclear. The necessary land, water, grid connection and security footprint are also already available, said Kathleen Barrón, chief strategy officer at Constellation.

Barrón said the idea is to work with a customer that is interested in contracting at one of Constellation's existing plants for power today, and then working with them to use the facility to "host an SMR to provide greater clean power to that customer in the future."

"This will only happen if there's a supportive state policy akin to what states have done with offshore wind and there are customers that are interested in buying the offtake from those reactors," Barrón said.

For now, the energy transition will require an all-above approach with natural gas acting as a bridge toward cleaner energy as coal phases out — until the next technology comes online, Dominion's Carr said.

"SMR may very well be that next technology," he said.