SMRs: private investors call for track record and big government orders

The latest United States budget has earmarked $907.6m for nuclear energy research and development in advanced reactor and fuel cycle technologies as well as small modular reactor licensing technical support. But is it enough to attract private sector investment?

Secretary Moniz says the FY16 budget request will enable the transition to a “low-carbon secure energy future through the development of low-cost all-of-the-above energy technologies.” But private investors are looking for a big government order before th

By Peter Taberner

Secretary Moniz says the FY16 budget request will enable the transition to a “low-carbon secure energy future through the development of low-cost all-of-the-above energy technologies.”

The US Department of Energy has placed its money where its mouth is when it comes to SMRs. As proven with their decision in May last year, to awardNuScalewith $217m to facilitate their development of modular reactors.

But it would signal significant progress for the SMR market, if the model could attract private capital, resulting in not having to rely on government subsidies.

When considering some of the putative advantages that SMRs have, in the areas of siting, licencing, and a shorter construction time compared to larger nuclear plants.

It is conceivable that Wall Street could have an interested eye fixed on the development of the small nuclear reactors.

There are global factors that will have an influence on the private sector’s view of SMRs.

Market indicators for SMR adaption

Currently, there are tangible growth spots for future nuclear development, such as the UAE and China, even though Chinese growth is slowing down.

EU member states have many plans in place for the construction of new nuclear plants, but growth is crawling along at a painfully slow rate.

Dr. Glenn George, principal with KPMG’s Advisory practice, and co-head of KPMG’s U.S. Economics & Regulation group, reflects: “I think that investors are in a wait-and-see mode regarding development of the SMR market. They will follow the progress of SMR development, commercialization, and licensing efforts that are being supported by the U.S. Department of Energy.

“They will review how SMR technology develops more broadly. And they will keep an eye on large nuclear new-builds, such as Vogtle and Summer, to see how those projects perform.”

He adds: “Investors will want to see SMR learning-curve effects, but a chicken-and-egg situation is at work: Decreased cost comes from production of multiple units over time, yet such production requires investment in the first place. So it’s not surprising that, in the absence of commercial orders, Westinghouse and Babcock & Wilcox have slowed SMR development.”

“The economic and financial advantages that come from easy siting and series production in a factory setting need to be weighed against SMRs’ smaller capacity and energy output. This places a high burden on SMRs to be cost-effective relative to large nuclear power plants.”

“For the market for new nuclear plants, including SMRs, to flourish, there likely needs to be significantly more expensive natural gas, or an effective price on carbon, or both. Competition in the market for new baseload capacity from efficient CCGT units is too stiff otherwise.”

Climate change agendas

Climate change agendas also have the potential to spur investment in SMRs in the future.

In June 2014, the US Environmental Protection Agency put forward the Clean Power Plan, proposed under the Obama‘s Climate Action Plan.

This is aimed to tackle greenhouse gas emissions, reducing the amount of power plant emitted pollution into the air by 25%.

The proposed rule allows state by state flexibility in how they choose to meet their smog reducing goals.

The obvious link to SMRs from this is that nuclear remains the most reliable way of sourcing clean energy which is economical for the consumer.

Regardless of whether the Democrats or the Republicans are victorious in next year’s presidential election, expansion for nuclear energy is certain to continue.

However, Arjun Makhijani, president of the Institute of Energy and Environmental Research, is not enthusiastic about the SMR market attracting private sector funding until a track record is produced to compare this burgeoning nuclear market with the traditional one.

“There may be a chance that there are venture capital entities who might take a chance on SMRs, but I would doubt that any sensible investor would fund an SMR project. The chance of a return on the investment is not that high. It’s still not certain that SMRs will solve the problems that they are meant to, in comparison with large conventional plants.”

“What the SMR market needs is a big order, probably coming from the government, this would allow SMRs to prove itself, and that the supply chain and the assembly lines in the factories are working properly.”