Lessons Learned for NuScale and Its Next Customers
The question a lot of talking heads in the mass media, the nuclear trade press, and in investor reports are asking is whether the cancellation of NuScale’s planned six 77 Mwe small modular reactors (SMRs)for its first customer UAMPS is a down market signal for SMRs in general.
Anti-nuclear groups, and advocates of competing solar and wind renewable energy projects, are saying things like, “I told you so.” But is it true? More important, what lessons are contained in the events leading up to the project’s end? How can NuScale profit from the experience in landing its next first customer?
Certainly, there are things for the UAMPS deal that if planned differently, might have set a course for success in a different time and place. There is a lot more to take in than just the black and white of a walkaway decision and a significant 28% staff layoff. In this report, some of the significant lessons learned, and their application to revive the firm’s future prospects, are assessed for relevance and use.
Important lessons emerge from the collapse of the NuScale / UAMPS deal. Some of them are fundamentals about the nuclear business and others are specific to markets and competition for market share among SMR developers.
Price Sensitive Customers Are a Norm
For starters, the lack of cost competitiveness of the NuScale UAMPS project will have implications for the firm’s export opportunities in Romania, Poland, and Indonesia. All three countries are price sensitive and are likely to closely assess offerings from NuScale and for every other developer of SMRs, for both LWR and advanced designs, seeking export sales.
Other countries, like Estonia and the Philippines, which are in the preliminary stages of planning nuclear power projects, will also likely be doubling down their scrutiny of SMR offers. The key competition in all of these countries will come from the price of natural gas used to generate electricity and time to deliver a gas plant v. building an SMR.
The UAMPS project was heavily subsidized by the US government in the form of $1.35 billion in cash to make the first-of-a-kind new build affordable. However, until global inflation pressures abate, no commercial customer in the Philippines, Poland, or anywhere else is likely to commit to multi-billion-dollar capital expenditures for multiple SMRs without the host domestic government providing financial and rate guarantees for the project.
Use a Bird in Hand Approach
NuScale has a bird in hand with the NRC’s approval of its 50 MWe design. The agency’s voice in this matter is a global gold standard for reactors and NuScale should leverage it to the hilt.
NuScale’s ability to book new sales is hampered by the fact that it does not have a reference plant built for the 50 MWe design, much less one for the 77 MWe power profile, where sales prospects can visit to kick the tires. It follows that the firm’s short-term objective should be to build just one 50 MWe SMR for someone, anyone, and bring it to completion without significant cost escalation and/or schedule delays. This is the concept of the minimum viable product. An MVP proves to investors and potential customers that the firm can deliver its offering to the market.
A case in point is China’s strategy as part of its Belt & Road program in building a reference design of its 1000 Mwe PWR – the Hualong One – in Karachi, Pakistan, so that potential customers, including Saudi Arabia and England among others, could closely evaluate an operating plant that was in revenue service. This is the test that any nuclear utility will want to bring to bear on any SMR developer.
One of NuScale’s planned projects is to supply 24 SMRs to power two data centers, 12 for one in Ohio and another 12 one in Pennsylvania. The firm backing the project is privately held so there is no way to independently verify it has access to its claim of having access to $10 billion in capital to fund the project. Plus, without a reference plant built in Idaho, investors might reasonably ask how NuScale can expect to to convince the market it can build 24 of them.
NuScale and other SMR developers of LWR and advanced designs have made multiple claims that “factory production” of SMRs will produce economies of scale and drive down unit costs. The paradox of these claims is that a firm can’t expect to make and sell multiple units of its product if it can’t get the first one out the door and into the hands of a customer.
Windows of Opportunity Exist for Export Sales
In some of NuScale’s export opportunities, the US has provided support in the form of “door openers” like funding for front end engineering design (FEED) efforts.
In the case of the Philippines, the US government went further by facilitating an agreement under Section 123 of the Atomic Energy Act which covers the peaceful use of exports of US nuclear technology. Once in place, US nuclear technology vendors, including SMR developers, can sell their reactors to the island nation.
Until or unless the US commits to major levels of export financing for SMRs, like the levels of commitment South Korea and Japan have shown over the years for full size reactors, all US SMR developers will be at a financial disadvantage to Russia and China when they eventually bring their SMRs to market. It is one thing to settle nonproliferation issues to open new markets. The US government needs to take the next step to facilitate financing of US exports of nuclear technologies to these emerging markets before other players make their moves.
There is a window of opportunity. China has a 100 MWe SMR but built it to power artificial islands supporting military bases in the South China Sea but it has not offered it, so far, for export. Russia has offer a floating SMR but with a huge staff for the ship and the reactor, the costs to build and run it are not competitive on a global basis. Russia has also adapted the small reactors it uses to power its icebreaker to power Siberian mines. The cost of these units and time to deliver them is unknown. Russian and Chinese state owned enterprises will be formidable competitors for SMR market share once they fully commit to this segment of the reactor market.
Key Mistakes to Avoid for the Next NuScale Customer
NuScale’s business decisions that led to the UAMPS contract contain a number of missteps that can be avoided in future deals. Here’s a short list.
NuScale selected, or was persuaded by DOE with all that federal cash as leverage, to select a remote site at the Idaho National Laboratory on the windswept, remote Arco desert in Idaho 50 miles west of Idaho Falls, ID.
The plan was to install six 77 Mwe SMRs in an underground bunker the size of a seven-story office building to avoid the cost of an above ground containment structure.
The subsurface geology of the Snake River Plain is a jumble of lenses of sediment and lava flows (basalt). According to the USGS, the western plain of the Snake River Plain is underlain mainly by unconsolidated and weakly consolidated Tertiary and Quaternary sedimentary rocks as much as 5,000 feet thick. Lots of complicated, time consuming, and expensive blasting would have been needed to proceed.
UAMPS, which was to be NuScale’s first customer, has impossible internal governance processes being composed of a bunch of small risk adverse utilities. This setup made it an unwise choice as a sponsor for a highly innovative, multi-billion-dollar plant based on a design that had never been built.
Galloping inflation in terms of escalating costs for steel and concrete sealed the project’s financial fate in January 2023. It is a mystery why it took almost another year to pronounce the patient dead. Even as inflation slows down, prices are not resetting to prior levels. This means any customer going into a NuScale deal has to avoid buying into DOE’s wishful target prices for the “Nth of a Kind” SMR of $3,600/KW overnight costs.
NuScale should have sought as its first customer a utility with an operating nuclear reactor that would have a management team with the know-how to handle a new nuclear project. A single 50 Mwe SMR is equivalent to an uprate to an existing reactor which makes it an interesting alternative for scaling future growth, e.g., adding more 50 MWe units, as electricity demand rises over time. This is another opportunity to apply the “bird in hand” strategy.
This on-site strategy would accrue significant cost savings with a switchyard and grid connection in place with a well-defined service area facing growing demand for power. Local and regional transportation networks, including rail, would have been available. Recruitment of skilled trades to build the plant and access to supply chains would be easier.
The new SMR’s environmental impacts of being adjacent to an operating reactor would be much less significant than a green field site on top of Idaho’s Snake River Aquifer. There would be no risks of frightened farmers worried the plant is primed to bake their potatoes on the vine.
Several other SMR developers are mindful of these issues. For instance, GE-Hitachi has plans to build multiple units of its BWRX-300 SMR at TVA’s Clinch River site and at OPG’s Darlington Site. X-Energy announced its first ARDP site to be located near the Columbia Generating Station.
Holtec has announced plans to build two 300 MWe SMRs on the site of the Palisades plant in Michigan, and to build one or more SMRs at the former Oyster Creek plant in New Jersey. Admittedly, Holtec’s plan at Palisades to convince DOE to loan it $7 billion to relicense the Palisades reactor and build SMRs at two sites is an ambitious strategy. Time will tell whether the Feds will agree to fund it.
Look at NuScale’s Competition in the US
X-Energy has signed DOW up for a project to provide four 80 MWE HTGRs to supply combined heat and power to one of DOW’s chemical plants in Texas. The advantage for X-Energy is that DOW has been thinking about using an HTGR at one of its factories for a long time. X-Energy’s deal with DOW is based on a DOW objective first aired in 2010 for the Next Generation Nuclear Plant (NGNP) which called for a 300 MWe HTGR.
GE-Hitachi has the right idea about offering its BWRX300 to TVA for site adjacent to the Clinch River plant in Tennessee and to OPG for a site adjacent to the utility’s reactors at the Darlington site in Ontario, Canada. Like other SMR developers, it is also in pre-licensing dialogs with the NRC.
The firm claims that its prior success in licensing the 1,500 MWe ESBWR, for which the BWRX300 is a downsized version, gives it a leg up to cross the finish line to obtain the NRC’s approval earlier than its competition. However, for business reasons related to electricity demand, none of the COLs issued by the NRC for the ESBWR ever resulted in a utility breaking ground to build one.
Separately, TerraPower’s Natrium reactor has the right idea of replacing a retiring coal-fired power plant but it chose a site in the remote southwestern corner of Wyoming east of Utah’s Wasatch mountains which limits access to the people and resources of the Salt Lake technology corridor. The DOE ARDP project has pushed back its projected start date by two years due to a shortage of the HALEU fuel it needs to burn to generate electricity.
DOE recently issued an RFP worth $500M for supplies of HALEU to prime the market pump for the fuel. However, the enriched uranium fuel (5-19% U235) will be in the form of UF6. It must be converted into the fuel forms needed by TerraPower, X-Energy, and others by a separate process and then sent to fuel fabrication plants to put it final form (uranium metal for TerraPower and TRISO fuel for X-Energy). Both firms are building fuel fabrication plans with DOE’s cost shared ARDP funding and plan to have them operational within two-to-three years of breaking ground.
Further down the line is the brand new Westinghouse AP300 which is a down sized version of the firm’s AP1000. While the AP300’s bigger brother is licensed, and two of them have been built in the US, the significant cost escalation and schedule delays at Georgia Power’s Vogtle project are well known.
The companion Westinghouse project, at the V C Summer site in South Carolina fell apart leaving rate payers with a $9 billion debt. The root causes of failure to control costs and schedules were compounded by criminal wrong doing by utility executives, e.g., lying about problems building the twin AP1000s and financial double dealings, who are now convicted felons.
Overcoming these buckets of bad news in Georgia and South Carolina will be the biggest challenge for the AP300 in terms of convincing potential customers about the value of the Westinghouse brand and its new SMR.
Meanwhile, GEH BWRX-300 has a strong marketing position in Poland. The issue elsewhere in eastern Europe is that Romania is more interested in finishing Cernavoda #3 & #4 than building SMRs from scratch. The twin CANDU type reactors, if finished, would generate 700 MWe each or the comequivalent of 28 of NuScale’s 50 MWe SMRs.
Indonesia just signed a major agreement with Thorcon for twin 250 MWe molten salt reactors to be delivered on barges to be built by South Korean shipyards. Floating plants are resistant to seismic risks which makes them attractive in the seismically active region.
In the UK Rolls-Royce is promoting its 470 MWe PWR as an entry to the UK government’s competition involving six SMR developers for a brass ring of guaranteed government funding and certainty on rates. The firm, which has for decades supplied the UK Royal Navy with small specialized nuclear reactors for its fleet, is waving the home town team flag in its public relations campaigns.
NRC Licensing – Check the Status of the Competition
Neither X-Energy, GE-Hitachi, or Holtec have submitted applications for review by the NRC. All three firms are in pre-licensing discussions with the NRC.
Holtec, which has been working with the agency on a 160 MWe, just increased the power rating to 150 MWe and plans to sell them in twin packs. This will require the firm to update all of its technical submissions based on the 160 MWe design.
X-Energy just completed all work required by the Canadian Nuclear Safety Commission (CNSC) Vendor Design Review. The agency said there are no fundamental barriers to licensing the 80 MWe Xe-100 HTGR which X-Energy plans to offer in a configuration of four units to customers. This is good news for X-Energy in Canada but it has limited traction in the US despite an agreement between the CNSC and the NRC to coordinate regulatory reviews.
Other Competitive Issues Are Facing NuScale
Raising new investor capital for NuScale will be a significant challenge. The firm says it has $200M in cash to sustain it while it plans its path forward to secure new customers.
In late 2023 NuScale was subjected to attacks from short seller investors who issued a report which gained lots of media attention despite having errors that undercut its credibility. Spooked by NuScale’s experience with a SPAC investment vehicle, X-Energy cancelled its plans to go public with one and later took a private placement of capital. The firm also reportedly laid off an estimated 100 employees to cut costs.
Enthusiasm for nuclear at COP28 to triple by 2050 is a very challenging goal. Key factors that will likely delay realizing this objective by several decades will be limits on financing, supply chain choke points, and shortages of skilled trades to build the reactors. There is no global coordination mechanism to do load balancing which means a huge increase in projects will increase inflationary pressures on the costs of components and construction.
According to some back-of-the-envelope estimates the announcement would deliver about 550 GW of new nuclear capacity by 2050. That means globally there would be a need to add about 20 GW per year as a benchmark over the next 35 years.
It is difficult to estimate the mix of full size and SMRs in the total tripled number of reactors implicit in the COP28 statement. Assuming for the sake of discussion that one uses the current average of 0.4 FTE/1000MW, the total staffing would be (400 FTE x 550 GW) or 220,000 new nuclear operators and plant personnel. These numbers are necessarily SWAGs. Your mileage may vary.
This figure would drive the need for nuclear engineering education and nuclear operator training over time. Also, while all this new work is going on, there will also be a need for replacement of the current workforce in phases as older workers retire. China already has this problem with its rapid expansion of its nuclear fleet.
Finally, there is only so much nuclear reactor talent available on the market in the near term. For instance, an Austin, TX, mini reactor start up seeking to commercialize the INL’s Marvel SMR recently hired the lab’s project manager to be its Chief Technology Officer.
What About the Promise of Competing Mini-Reactors?
There are at least a dozen or so mini-reactor developers hustling for investors and market share. To borrow an analogy from the National Football League, the right to wear a Super bowl ring is based on winning the game. For mini reactor developers, the same challenges facing NuScale prevail. To win customers they must build one of their designs as a successful commercial project.
The Defense Department is developing a transportable mini reactor as part of its Project Pele. Eventually, commercial spin offs from the design focused on military applications will enter the market. DOD plans to build and test the first of a kind unit at the Idaho National Laboratory.
Oklo is planning to rely on its SPAC funding closing in early in 2024. It has the potential to fund the firm with approximately $500M to bring its mini reactor to market. It has a major challenge in that it must get a green light from the NRC to accept its license application for the new, more powerful (15 MWe) advanced design. Using a “man from Mars” metaphor, if one of them were in the role of the SPAC asset manager, he might demand that outcome occurs prior to writing any checks.
The USAF may cut the knot of OKLO’S current procurement hassle in Alaska by simply reposting the procurement as a competitive bid process and let Oklo and USNC submit best and final offers.
Westinghouse is working on a 5 MWe mini reactor, dubbed the ‘eVinci.” The firm scored a CAD 27M grant from the Canadian government to fund its engagement in the Canadian Nuclear Safety Commission’s vendor design review. Westinghouse also announced that it is building a design and manufacturing facility near Pittsburgh to accelerate commercialization of the reactor. The company is one of three US-based advanced nuclear energy developers awarded federal funding to design experiments to test microreactor designs in the Demonstration of Microreactor Experiments (Dome) test bed at Idaho National Laboratory.
China has a 100 MWe SMR using a LWR design basis but has not offered it for export. The Chinese SMR was developed initially to power artificial islands in the South China sea to support the tactical readiness of military installations. Russia is promoting floating nuclear power plants, but the staffing is not cost competitive (ship plus a reactor). Russia is also offering redesigned versions of the small reactors used to power its Arctic icebreakers to generate electricity for mines in Siberia. The cost and schedule profiles of these projects is unknown.
Wrapping it up, there is a lot on NuScale’s plate and none of these challenges to finding its next customer are deal breakers. The firm needs to ensure that its business plans are grounded in the realities of the nuclear industry and not make promises it cannot keep. This approach will set the firm on the road to success.
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