Is Nuclear Energy the Answer? It Depends on the Risk Threshold

Bradley Intelligence Report

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At the recently concluded U.N. climate conference in Dubai (COP28), world leaders boldly announced a 22-nation, multilateral commitment to triple the use of nuclear energy production by 2050, with nuclear energy to provide a targeted one-third of all global electricity. The Dec. 2 declaration cited analysis from the OECD Nuclear Energy Agency, the World Nuclear Association, the International Energy Agency, and the Intergovernmental Panel on Climate Change to the effect that increasing nuclear power in the global energy mix will be key to reaching the global net-zero emissions target by 2050. It also referenced new nuclear technologies, namely small modular and other advanced reactors, as important innovations and encouraged the private sector, NGOs, development banks, and financial institutions to support the commitments of the declaration.

The declaration has been met with mixed responses, from excitement over the renewed interest in expanding nuclear power (which has zero emissions and could displace coal plants) to skeptics who see practical obstacles to scaling nuclear power per the declaration as insurmountable. In other words, advocates are focusing on the potential of nuclear power, while the critics cast the prospect as an empty promise.

Small Modular Nuclear Reactors: What Are They?

A small modular reactor (SMR) is a nuclear fission reactor that is factory-built and assembled in modules. They are about 1/10 to 1/4 the size of a traditional nuclear energy plant and can be configured to suit power generation requirements by adding modules, rather like a Lego platform. Modules can be added as demand increases. SMRs can be used for power generation, heat processing, desalination, or other industrial applications. They are compact, enabling them to be transported and installed in remote locations, and do not require access to large water sources to keep them cooled.

Advocates argue that SMRs are a better option than traditional reactors because they are cheaper and can be massed produced and installed much more quickly, substantially reducing costs and construction time. They are reliable, producing electricity 24/7, and power generation can be ramped up or down in response to demand. SMRs can be paired with other clean energy sources such as wind and solar, ensuring power is always available. SMR reactor designs include passive safety features that rely on the natural laws of physics to shut down and cool the reactor during abnormal conditions.

Can SMRs Deliver?

As of 2023, there are more than 80 modular reactor designs under development in 19 countries. Some have more traditional water-cooled designs, while others are innovating with molten sodium or helium gas coolants. The U.S. Nuclear Regulatory Commission (NRC) fully certified the first SMR design in January 2023, a critical step forward for the United States. Russia and China already have SMRs in operation. So, the question is not whether the technology works. The challenge is the economics.

While nuclear power development in the U.S. is benefiting from government investment and tax incentives, the cost to generate power needs to be competitive with other forms of renewable energy for sustainable project finance. The cost of solar and wind power has been dropping as technology develops and the sector scales. SMR-generated nuclear power costs at least three times as much as power from solar or wind. The case of the NuScale SMR demonstrates the stark challenges.

NuScale started working towards regulatory approval in 2008, in what proved a long and costly, but ultimately successful, endeavor. In 2017, NuScale planned for its first power plant to be built at the Idaho National Laboratory, with six SMRs for a plant capacity of 300 MW in total, operational by 2026. Due to regulatory delays, a design change to increase power generation, and inflation impacting the cost for construction materials, project costs skyrocketed to $9.3 billion. Even with the Department of Energy (DOE) investing $1.4 billion, power generation costs rose to an estimated $89/MWh, three times more than alternative sources of renewable power. NuScale’s prospective customers, the Utah Associated Municipal Power Systems, a coalition of power systems from seven western states, consequently walked away from the project.

The NuScale case demonstrates the risks associated with bringing to market new technologies but it does not mean the end of the road for SMRs. The challenge will be to operate at scale to reduce costs and offer competitive power generation pricing to lock in long-term contracts. This is not going to happen overnight. It will require significant government investment, financial incentives, and a more efficient regulatory process (security cannot be a tradeoff for greater efficiency). Furthermore, the supply chain for the nuclear fuel in question needs to be developed. The vast majority of the SMRs receiving funding from the U.S. government are designed to use high assay low enriched uranium (HALEU). Russia is the primary supplier of HALEU, a major supply chain risk given the current geopolitical situation. The U.S. is investing to home-shore the manufacturing of HALEU, but even the best-case scenario puts HALEU production at a third of what DOE projects will need for U.S. reactors by 2030.

Is Tripling Capacity Feasible?

The 2023 edition of the World Nuclear Industry Status Report provides an annual snapshot and trends assessment for the international nuclear industry. This year’s report, released in December, documents that global electricity production from nuclear energy dropped by 4% in 2022 compared with 2021, falling to its lowest point since the 1980s. As of mid-2023, a total of 407 reactors were operating in 32 countries, four less than a year earlier and 31 below a 2002 peak of 438. There were 58 reactors under construction by mid-2023, five more than in 2022. The vast majority of new construction is being carried out by China domestically and Russia in various partner countries.

To triple capacity, the sector would need to significantly accelerate construction of new reactors while extending the life of existing reactors. Mycle Schneider, lead author of the World Nuclear Industry Status Report, cast doubt on the sector’s ability to scale construction of SMRs at a competitive cost. Noting the examples of NuScale, two SMRs built in Russia and two in China, the latter examples taking twice as long to build as planned, he assessed that SMRs will not start generating power before 2030 and it would not be until 2040s that any substantial amount of generating capacity will be on the market. Thousands of SMRs would need to be built to come anywhere near targeted capacity. Looking at traditional reactors, the sector would need to connect 10 reactors per year, starting next year, just to replace closing reactors. In the past two decades, the construction rate has been five per year on average. Schneider characterizes the prospects as “simply impossible.”

Risk Thresholds

Perceptions on climate risks and urgency to transform the energy mix to zero or low emissions power generation are shifting and changing the economic behavior of nations, businesses, and individuals. Rocky Mountain Institute (RMI), an independent clean energy NGO, released an interesting study entitled “The Battery Domino Effect,” exploring exponential growth in batteries that was unanticipated but has created a reinforcing feedback look of scale, cost and quality. As one sector scales up demand, the cost and quality feedback loops enable batteries to start uptake in the next. The sector is seeing the biggest capacity ramp-up since World War II. RMI assesses that “the battery domino effect is set to enable the phaseout of half of global fossil fuel demand and be instrumental in abating transport and power emissions, propelling us over 60% of the way toward a zero-carbon energy system.”

This domino effect is interesting, as it reflects a shift in the risk/gain equation, propelling a sector into an economy of scale. Nuclear power generation faces many of the same business risks, as well as unique risks of nuclear technology. What seems insurmountable today may look differently in five years.