For more than 50 years scientists have been reporting danger due to global warming caused by burning fossil fuels. Today there is no excuse for claiming that this is all just hype as the headlines of just about any newspaper anywhere in the world document the climate crisis. While not the only emergency currently, the fact that Pakistan has floods covering 30% of the country with 30 million people affected and 90% of its crops destroyed makes clear what a big deal this is. The climate emergency is now, not in the late 2030s. Not only is decarbonization urgent, but the latest reports indicate massive savings if there is aggressive exit from fossil fuels over the next 30 years. The Russian invasion of Ukraine emphasises the point that fossil fuels are high cost, insecure and polluting. So what is the solution? Hiding in plain sight is massive expansion of renewables (solar PV and wind power), notwithstanding that the fossil fuel industry seeks to dismiss that renewables can provide the solution. Instead, there are increasing calls for dramatic expansion of nuclear power, especially based on SMR (Small Modular Reactor) technology. Here I update my take on the opportunity for nuclear power. I conclude that much of the nuclear push ignores reality and the urgency of the task at hand. While there are substantial companies involved in nuclear developments (e.g., a partnership between GE (NYSE:GE) and Hitachi (OTCPK:HTHIY), Rolls-Royce (OTCPK:RYCEY), China General Nuclear Power Group (OTCPK:CGNWF)) investment in any of these companies has issues for investors interested in nuclear power.
The headlines make it sound as if nuclear power is an easy solution to the current urgent need to exit fossil fuels. Here I indicate just a few of the many issues that show that trivialising the barriers to nuclear re-emergence after the Fukushima disaster is not a good plan and that investors need to think about the complete picture.
A telling comment about the renewed French interest in nuclear power is that the country is not well positioned. A major concern about nuclear revival is that in recent decades investment in the nuclear segment has been focused on decommissioning of old plants rather than maintaining skills in new plant construction. The UK is similarly challenged by skill shortage and this is compounded by Brexit. Until recently it seemed that nuclear revival in the UK might be significantly managed by China General Nuclear Power Group. Given concerns about China, this plan seems to be off the agenda (unacceptable security risk).
Decommissioning of nuclear facilities is a big deal that takes decades to complete and is hugely expensive. Given that a significant segment of the global nuclear fleet is approaching end of use dates, the GE Hitachi Nuclear Energy Group has developed a significant business in decommissioning and dismantling nuclear plants.
To use an Australian term, Daniel Westerman CEO of the Australian Energy Market Operator's (AEMO) comment about firmed renewables (wind and/or solar plus batteries) is that they are the cheapest reliable power option "by a country mile". He commented further that 60% of Australia's coal power electricity generation will be retired by the end of this decade. These comments are even more apposite with the recent European hiatus that has sent coal and gas prices spiraling. This same exit from coal is happening in many other countries and the timescale indicates that the low carbon replacements are happening this decade. This timing fact alone raises questions about whether nuclear power can contribute to this huge decarbonization effort.
A new report says a fast transition to renewables by 2050 would save the world $12 trillion.
France is the country that went all-in on nuclear power in the 1970s and in 2018 nuclear power provided 72% of France's electricity from 56 reactors. The Fukushima disaster led to reassessment of the safety of the French nuclear system, with need for substantial safety modifications. More problematic has been the emergence of stress corrosion in a number of reactors (which includes France's most modern reactors). And in the recent European drought, there have been cooling problems with the nuclear fleet. Earlier this month 28 of France's 56 nuclear reactors were offline due to various problems. EDF (OTCPK:ECIFF) which owns the French nuclear fleet indicates that nuclear power output in 2022 will be the lowest in 30 years. The reality is that the French nuclear fleet is getting old and substantial expansion is required for France to stand still in its nuclear power generation. And it is clear that the cost structure for nuclear power is substantially increased. Additionally, if nuclear reactors are not operated at full capacity, the cost structure for power generation rapidly escalates. This does not bode well for nuclear contribution to a grid that manages a large amount of intermittent power through cheap wind and solar power, which is where the power industry is going worldwide.
While the Russian invasion of Ukraine has led to urgent temporary action to find power in Europe from any possible sources, it is clear that plans to exit nuclear power in Belgium and Germany are locked in, even if in the short term nuclear shutdowns can be delayed.
Big nuclear is mostly about Gen III, e.g., EPR (European Pressurised Water Reactors), and it is worth a look back in time to see how long it takes to get a big nuclear project established. In 2016 I wrote about the resurgence of the UK nuclear industry with the go-ahead for construction of the Hinkley Point C facility (2 reactors). In 2016 planning had already been in train for 10 years and the concern was that only 4 such new generation plants were under construction, one in Finland (Olkiluoto 3, construction commenced in 2006), one in France (Flamanville 3, construction commenced 2007) and two in China (Taishan 1 & 2, commenced in 2009 and 2010).
Fast forward to today and the French Flamanville 3 reactor is still not operational (expected mid-2023, but that is not a firm date) and the cost blowout is now 4x of original estimates at Euro 15 billion. The Olkiluoto reactor is at last in final phase testing and expected to be fully operational in December, 13 years after completion was expected and with a cost blowout from expected Euro 3 billion to Euro 11 billion.
The UK Hinkley Point C facility continues to involve delayed expected completion and cost blowouts, with a May 2022 update indicating a start now in June 2027 and a cost blowout to 25-26 billion pounds (2015 prices). The history of the Hinkley Point C project makes interesting reading. Plans for revitalising UK's nuclear industry don't seem promising for UK consumers who will be confronted with big increases in power prices if nuclear resurgence occurs.
The Chinese Gen III reactors have a better completion track record, commencing operations in December 2018 and September 2019 respectively, but details of costings are opaque. However, Unit 1 of the Taishan nuclear plant was out of action for more than a year recently due to damaged fuel rods, which were detected in July 2021.
Given the above delays and cost blowouts, it is hard to see how big nuclear is going to show a return to the golden days of the 1980s, although one area of hope for big nuclear is the construction of 4 Gen III reactors in the UAE by South Korean company KEPCO (KEP). The contract between KEPCO and the UAE is reported to involve $20.4 billion for 4 reactors with combined capacity of 5.6 GW. This is considerably cheaper than the cost of the European Gen III reactors described above. It will be interesting to see if KEPCO gets more business and if so whether it can keep building Gen III reactors at this price. As I discuss in the article linked above, the South Korean Government is focused on the profitability of KEPCO and the company is getting serious about renewables, especially offshore wind.
Another possible contender is GE Hitachi's ESBWR (Economic Simplified Boiling Water Reactor) which is a Gen III reactor with 1520 Mwe power capacity. This reactor was certified by the US Nuclear regulatory Commission in 2014. I couldn't find evidence of a clear path to manufacture for this reactor, although there were discussions with DTE Energy (DTE) in 2015.
As a result of the confronting costs and time delays for large nuclear reactors, it isn't surprising that the nuclear industry has refocused attention to SMR (Small Modular Reactors). In ways that escape me, the assumption is that by making reactors smaller and much of the manufacture being completed off-site, cheap and rapidly completed facilities will become the norm. Two core issues seem to be overlooked. For successful SMR implementation, there need to be large numbers of units constructed. Never addressed is when it will be possible to get agreement about large numbers of SMR reactors to be built. Clearly, with new technology (especially nuclear) there needs to be implementation and testing of small numbers of units. The second issue is getting approval sorted for large numbers of small facilities. Two issues that spring to mind are i) getting community agreement about a reactor in your town and ii) security issues with large numbers of nuclear facilities spread around. I'm yet to see serious consideration of these issues.
In the meantime, as outlined below, it seems unlikely that significant numbers of SMR projects can be completed by 2030. This means either careful testing of new SMR implementation is ignored, or a SMR escalation won't be possible until the 2040s. Investors might think about this when factoring in potential returns for investment in SMR technology.
GE/Hitachi is undoubtedly the leader in the SMR field and, between them, GE and Hitachi have vast experience of the nuclear industry. It is a smart combination of skills, but I'm not so sure whether both parties are going to stay the distance. Specifically, GE is about to enter new territory with break-up of the company into 3 separate listed entities: aerospace, health care and energy. It is not easy to get a sense of the cost or profitability of GE's nuclear endeavours as they are buried within a big company structure (currently in GE Power which will combine with GE Renewables in the formation of energy company GE Renova).
The new GE Renova energy company is going to be much more exposed and under pressure to perform, without cover from Healthcare and Aerospace. With the massive injection of cash ($369 billion) for energy security and climate change in the Inflation Reduction Act 2022, it was clear in the Sept 15 GE transcript from the Morgan Stanley 10th Annual Laguna Conference that renewables are going to be a big focus, especially onshore and offshore wind. If the enthusiasm for offshore wind expansion gets through the pricing issues, this will be a significant part of the GE Renova business. At the same time, GE's gas turbine business is under threat from competition from renewables plus battery storage. This means a lot will be happening in the new energy company. The nuclear program must come under scrutiny as part of working out the future path for GE Renova. In the transcript above nuclear was named as part of the current GE Energy company. There was no mention of expected expansion of nuclear or indeed any details at all about it. Given my comments (see below) about the competitive space for nuclear (including with wind) I wonder if the cash drain of the future nuclear business, which currently is going nowhere, is likely to continue. Of course, it might turn around, but I would have expected at least mention of it had the company expected to see action soon. No doubt there is good business for GE in the decommissioning side of the nuclear industry. I conclude that GE Renova's attitude to the GE Hitachi nuclear business is a potential risk for investors.
In the case of Hitachi, the Q1 2023 earnings call transcript of July 2022 made no mention at all of nuclear power. In relation to the Hitachi energy business, there was quite a lot of discussion about HVDC cables for moving electricity over large distances. This seems to be very healthy at the moment.
My take home of the GE Hitachi nuclear business is that it isn't seen as a big opportunity by either company and surely in challenging times it must come under scrutiny in both GE and Hitachi? On the other hand, there is a lot of enthusiasm about the GE Hitachi Nuclear Energy business in the dedicated website for this partnership, which involves three distinct nuclear programs, one of which involves the large Gen III ESBWR and ABWR reactors. The other two programs involve SMR but is all about product available and not about product being delivered. The SMRs are the BWRX-300 SMR, the Natrium.
GE Hitachi claims the BWRX-300 to be the 10th evolution of BWR (Boiling Water Reactor) technology and that it is the simplest yet most innovative BWR design in almost 70 years. The claim is that the cost of power from this reactor is competitive with natural gas combined cycle plants, notwithstanding that no BWRX-300 plants are yet operational as far as I can gather.
The Natrium involves a partnership with TerraPower that is claimed to be cost-competitive and flexible, supporting load following. The claim is that Natrium offers ability to integrate with grids that have a high level of intermittent power generation. Again the first Natrium plant is yet to be built.
There is obviously a big effort to lock in place the relevant technical teams in a number of geographies. For example, GE Hitachi has engaged with Sheffield Forgemasters in the UK to speed its BWRX-300 SMR program.
TerraPower is often discussed as Bill Gates' investment in nuclear power. Its Natrium demonstration has a dream project team consisting of 16 parties, including several national US facilities and Universities, power companies (PacifiCorp (OTCPK:PPWLO), Duke Energy Carolinas (DUK), Energy Northwest), but most notably nuclear industry veteran Bechtel Power Corp and GE Hitachi Nuclear Energy. This is a "best of breed" enterprise for SMR developments.
Natrium is a 345 Mwe sodium fast reactor and GWh scale molten salt energy storage. The facility has the ability to boost output to 500 Mwe for more than 5.5 hours to help manage intermittency of a high renewables grid. The combination with substantial molten salt power storage is an innovation of the Natrium project.
DOE has awarded TerraPower funding towards demonstration project in a public-private partnership. In August 2022 TerraPower also raised $750 million which was co-led by Gates and South Korean SK Group, to help fund the Natrium demonstration project. The recent funding seems geared towards a combination of power and nuclear medicine applications of the Natrium SMR.
The demonstration site is in Wyoming at the site of a retiring coal power plant, which means that it will use the existing power take-off facilities. The current plans for construction involve permit application in 2023 and operating licence submission in 2026. The claim is that this will allow construction to commence in 2025 (before operating licence submission?) with completion expected in 2028. Time will tell if this timeline is realistic as virtually all nuclear programs in the West have experienced long delays. At that time the cost structure will be clearer.
If there is a market darling for SMR's then NuScale has to be in contention. It has a pretty small 77 MWe Power Module, which it proposes to configure with various numbers of Power Modules, notably VOYGR-12 (924 MWe), VOYGR-6 (462 MWe) and VOYGR-4 (308 MWe). However just like other SMR projects the hype is ahead of reality. Michael Fitzsimmons has covered some of the risks associated with NuScale's SMR journey to NASDAQ listing via a SPAC transaction. Cost seems like a big one as does the absence of a demonstration project.
In the UK Rolls Royce has made a major push to establish an SMR presence and Rolls Royce has engaged Sheffield Forgemasters to assist in manufacture of its SMR reactors in the UK. Last year I suggested that Rolls Royce is ready to commercialise its 470 MWe SMR. Last month an exclusive collaborative agreement was signed by Rolls Royce with recently established Dutch nuclear energy company ULC-Energy BV to establish its SMR plants in the Netherlands. This is yet another SMR project that is starting out with hopes of regulatory approval, in this case in 2024, and the first unit producing power by 2029. There are others, with Canadian Candu SMR planned to be online by the end of the decade.
All of the above programs are very optimistic about the future for SMR technology adoption, but the devil is in the detail about how many and when the first SMR facilities will be established and what the plan will be to grow out adoption of SMR technology. At this stage cost and approvals seem to be significant barriers that will need to be overcome.
A new DOE report canvasses the possibility of converting retiring coal plants into nuclear plants. Indeed TerraPower has received a US DOE Advanced Reactor Demonstration Program (ARDP) award to construct a Natrium demonstration plant at the retiring Naughton coal power facility at Kemmerer, Wyoming.
The issue is that old coal plants are already being repurposed for solar PV and battery storage projects on previously mined land that is close to grid injection points. In March 2022 major coal company Peabody Energy (BTU) announced launch of R3 Renewables, a JV in collaboration with Riverstone Credit Partners and Summit Partners Credit Advisors. R3 Renewables has identified 6 sites in Indiana and Illinois and the plan is to develop 3.3 GW of solar PV and 1.6 GW of battery storage over the next 5 years.
Has this train already left the station?
For all of the above nuclear projects, competing technologies need to be considered, because they are relevant. Massive renewable projects are underway in this decade and it is hard to see that the momentum generated from such developments will dissipate in the 2030s. So any nuclear expansion needs to consider competition from firmed renewables.
China is a critical player to see if nuclear power is going to prosper or continue to lose momentum. I've been watching China's projections for solar PV, wind and nuclear power for some time. My take is that while solar PV and wind power keep outperforming, nuclear growth is slower. To put numbers on this the increase in power production in China between 2020 and 2021 from expanded renewables (solar PV and wind) was 255 TWh while nuclear expansion was 41 TWh. I acknowledge that China's nuclear growth is faster than anywhere else in the world, but in terms of actual increased power nuclear provided 6 fold less new power than solar PV and wind in China between 2020 and 2021.
It is hard to get a clear fix on projections, but if 2030 is considered a critical time (it is for climate action) then China's renewable (solar PV plus wind) projection for 2030 of 1200 GW represents a massive growth from 2022. It has been suggested that the 1200 GW figure could be substantially exceeded by as much as 300 GW. Nuclear capacity projections for China are of different order, being 105 GW by 2030. Currently, China has 54 GW of nuclear capacity.
The development to watch is offshore wind where China had 26.4 GW at end of 2021 and plans to reach 96.8 GW by 2031. Offshore wind, with high capacity factor (40-50%) is coming of age and it may become a critical part of renewables eclipsing nuclear power.
The Chinese nuclear capacity is largely Gen III reactors, which have a spent fuel disposal issue. There seems some possibility that Gen IV technology which involves recycling of spent fuel might become available at some stage. China is also exploring SMR technology, but its evolution remains unclear.
From left field, I've considered wave/tidal power recently and while there are no clear winners, there is a groundswell of interest and a lot of new ideas. While the way forward with wave power remains elusive, once a technology is identified it is likely to be quick to implement as the capture devices are not complex nor dangerous. They are about being sufficiently robust to cope with the power of the sea and then moving down the manufacturing cost curve. Indeed recent additional European support for both wave and tidal energy projects suggests that these technologies are getting closer to significant commercial implementation.
In this article, I've tried to distil my take on investment in nuclear power, by looking at the competitive landscape as well as the kinds of nuclear opportunities that could become part of a future nuclear energy scene. In terms of competition, nuclear is failing on cost, time to completion and various negatives for this technology (notably permitting and final clean up at the end of useful life). It is clear that the environment is changing for nuclear power, despite the fact that the core issues holding back nuclear power (what to do with nuclear waste, cost, slow development, shadow of Fukushima) remain. The optimistic nuclear commentary looks back to French success in the 1970s, when the nuclear industry was started from scratch. However, today there are some big differences to that time. The major change is that there are now clean energy solutions that are cheaper than fossil fuels (and much cheaper than nuclear), fast to implement and with negligible issues about make good after closure of a facility. Investors might pause and see if the current euphoria about a nuclear resurgence will lead to concrete actions. Call me a cynic, but my take is that nuclear power is yet another tool for the fossil fuel industry to seek to delay the exit from fossil fuels. I remain focused on opportunities for renewable energy as a more effective place for my investment dollars. I don't doubt that there is some smart technology being developed, especially in the SMR area, but the practical issues concerning getting approval and managing security at many nuclear sites suggest to me that SMR is more a dream than a reality. And as I indicate elsewhere, pay attention to entrants getting closer to commercialisation in the wave/tidal energy game. Recent news on both wave and tidal developments is relevant.
For investors not put off by the competitive landscape there remain challenges in deciding which companies to invest in. The obvious place is China, but I suspect many US investors are very cautious about Chinese investment currently. The GE Hitachi nuclear business is the most prominent nuclear player in the west, but investment is only possible through two very large industrial companies. Clearly with ~10% of global electricity provided by nuclear, there is substantial nuclear business but the question remains whether this is an industry in decline or whether another chapter might be about to open up. If I had to choose I'd think about Hitachi because this company has deep knowledge of nuclear implementation and it is also heavily involved in modernizing the grid through long-distance HVDC connections.
I am not a financial advisor, but I pay close attention to the massive changes involved with exit from fossil fuels and getting everything electrified. I hope that my analysis of nuclear prospects is useful for you and your financial advisor as you consider your energy investments.
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