Modular nuclear reactors are gaining momentum. Last week, The Wall Street Journal reported that Babcock & Wilcox, a division of Houston-based McDermott International, had signed agreements with a trio of companies that could help Babcock & Wilcox get federal approval for its proposed modular reactor, a unit that would generate up to 140 megawatts.

Babcock & Wilcox aligned itself with the Tennessee Valley Authority, Ohio-based utility First Energy, and Georgia-based Oglethorpe Power Corp. in an effort to move the design for its mPower reactor from the drawing board into production. The announcement of the deal with the three companies provides significant momentum to Babcock & Wilcox, which announced the design of its mPower reactor last June. (For my August 2009 interview with Chris Mowry, the CEO of Babcock & Wilcox Modular Nuclear Energy, click here.) Indeed, the company, which provided the boilers for Thomas Edison’s first central power plant on Pearl Street in Manhattan back in 1882, is riding a wave of good news. In December, McDermott announced that it would spin off Babcock & Wilcox into a separate, independent, publicly traded company. No date has been set for the spinoff, but the move indicates confidence that Babcock & Wilcox can succeed on its own. And in January, Babcock & Wilcox announced that it had received a $450 million order from the US Defense Department for nuclear components.

Of course, simply because Babcock & Wilcox signed an agreement with the TVA and the other two companies doesn’t mean that it will ever build an mPower reactor. Many hurdles lie between last week’s announcement and commercial viability. The biggest hurdle: getting approval from the Nuclear Regulatory Commission. That agency is busy analyzing applications for several large reactors. Any approval for modular reactors will likely take two years, or perhaps much longer.

In addition to the licensing issue, Babcock & Wilcox faces significant competition in the effort to commercialize small reactors. In 2006, Japanese industrial giant Toshiba began discussing the possibility of locating a small (10-megawatt) reactor in the remote town of Galena, Alaska. Toshiba’s proposal called for a reactor that would be cooled by liquid sodium instead of water. And the company claimed that the reactor would be a “nuclear battery” that could operate for up to 30 years without refueling. But it’s not yet clear whether Toshiba will pursue the small reactor project.

Two US companies – Hyperion Power Generation and NuScale Power – are also hoping to license the first modular reactor for the US market. Hyperion, a Santa Fe-based company, is using technology developed and licensed by Los Alamos National Laboratory. Hyperion’s 25-megawatt reactor would be about the size of an average hot tub, making it small enough to be transported via tractor-trailer. Hyperion says that it wants to build “about 4,000” of its reactors within the first 10 years of production. The units will be encased in concrete, buried underground, and would be refueled every 5 to 7 years. Hyperion is backed by venture capital money.

Oregon-based NuScale is also backed by venture capitalists. The NuScale design would produce 40 megawatts of power, a size that the company says will give utilities and other power providers “a way to add and finance new generating capacity in a manner and on a time scale similar to gas turbines.” NuScale is also backed by venture capitalists.

All of the companies proposing to build modular reactors are planning to use a factory-based approach where the reactors are manufactured and then shipped to their final destination. This approach, which is not quite mass-production, should result in lower costs. That’s not to say the reactors will be cheap, but they will easily be competitive when compared to alternative energy sources.

The cost comparisons are straightforward. NRG Energy is planning to build two reactors, with combined capacity of 2,700-megawatts at the site of the South Texas Project. The projected price tag for that project is about $13 billion, or $4,800 per kilowatt. Rebecca Smith of The Wall Street Journal reports that Babcock & Wilcox expects the price of the mPower reactor to be about $5,000 per kilowatt. While that’s far more expensive than gas-fired turbines, that cost level is very competitive with wind and solar energy projects.

Last year, Norwegian energy giant StatoilHydro began building the 315-megawatt Sheringham Shoal offshore wind farm. That project, located in British territorial waters about 120 miles northeast of London, carries a price tag of about $1.7 billion, which works out to about $5,000 per kilowatt of installed capacity – a sum which puts it in the same ballpark as nuclear. And unlike nuclear reactors, which usually has a capacity factor of 90%, those offshore generators will likely only produce power about 30 to 40% of the time.

Or consider the costs of solar. In early 2009, Austin’s utility, Austin Energy, agreed to spend $180 million on a 30-megawatt solar facility. At that price, the solar plant will cost about $6,000 per kilowatt. And according to Austin Energy officials, the solar farm will run at a capacity factor of about 23%. Thus, Austin Energy has agreed to build a solar plant that will operate about one-fourth as often as a nuclear plant and will cost about 20% more on a per-kilowatt basis.

The other promising news on the small reactor front: General Atomics, a decades-old defense equipment firm, announced on Sunday that it wants to build a reactor that would rely on spent fuel rods that come out of large reactors. As with the modular reactors that were discussed above, there are numerous hurdles to be overcome. General Atomics expects the development of the high-temperature, liquid-helium-cooled reactor could cost $1.7 billion – and it doesn’t have the money to fund that kind of research and development effort. Thus, it will need to rely heavily on the Department of Energy for grants and funding.

But the idea has merit. Among the biggest political problems facing the nuclear power sector is the waste issue, a problem that critics of nuclear power often conflate with the challenge of nuclear proliferation. The Obama Administration and Congress recently agreed to stop funding the development of the Yucca Mountain waste repository in Nevada, a move that leaves the US with no long-term plan for dealing with the waste produced by the country’s fleet of 104 commercial nuclear reactors. General Atomics believes that its proposed reactor, which would be rated at 240 megawatts, could be a partial solution to the waste problem as it would be fueled solely by the waste that comes out of the commercial reactors.

There are some encouraging signs from the White House on the nuclear front. Over the past few days, the Department of Energy announced $8.33 billion in loan guarantees for two new 1,100-megawatt reactors that are slated to be built in Georgia. And earlier this year, the Obama administration included $54.5 billion in loan guarantees for the nuclear industry in its 2011 budget.

In an April 2009 speech in Prague, Obama said “We must harness the power of nuclear energy on behalf of our efforts to combat climate change.” It appears that Obama is making good on his pledge to support the nuclear industry. And given the recent announcements on the modular reactor front, some new, small reactors may soon be added to America’s commercial power sector.