DOE Bets Big on Costly SMRs
This week, the US Department of Energy made two substantial financial awards to two SMR builders who each proposed 300 MW units. GE-Hitachi’s BWRX 300 will be built at a TVA facility, Clinch River in east Tennessee, while the two planned Holtec units are for repowering the Palisades nuclear plant in Michigan. The awards are for $400 million apiece with an additional $100 million available for “contingencies”. There were several things that struck us about the DoE’s award, which originated in the Biden administration. First, this seems like the ultimate “shovel ready” project that the nuclear power industry had available. Essentially, build a slightly smaller version of the reactors that the power industry has been designing and building since the 1960s. Are 300 MW reactors small or even modular as those terms are conventionally used? Not really. But, by being larger and more familiar, they should have the best economics of the lot. Despite all the public relations hoopla about these being next-generation, Gen 3+ light water reactors, this DoE award was focused on helping a legacy technology begin to scale. In other words, Gen 4 reactor designs, like the Bill Gates-favored Natrium reactor, for example, were not eligible for these awards.
For analysts, the most interesting financial fact was TVA’s estimate that its new 300 MW facility would cost $5.3 billion, or $18,000 per kilowatt. This is roughly six times the cost of new gas-fired power plants, which the TVA is also constructing to meet new load requirements. If environmental concerns are irrelevant, it’s a lot cheaper to build new base-load gas or even coal-fired power plants. Economics like these ensure that this will remain a niche technology in any commodity or price-sensitive environment. Holtec’s CEO addressed the affordability issue head-on, essentially saying this is our industry’s opportunity to demonstrate the economic viability of this technology. We couldn’t agree more.
However, not to spoil the story, the biggest additions to grid capacity have been solar and grid storage, presumably for a reason that they are more economical than the alternatives, including nuclear power. That is the case in many countries, not just in the USA. We are not sure what stimulates nostalgia for old technologies, like coal-fired and nuclear power stations and internal combustion engines, but we do know that that sort of nostalgia has consequences. It raises the price of electricity above what it would have been if the generators had made economical choices. Just what consumers need. We don’t hear anyone talking about that. In competitive markets, some arrangement will have to be made to cover the higher costs, such as a surcharge on all sales. In regulated markets, the new, uneconomical resources will lead to rate increases. Simple as that. ( Unless the AI centers would like to buy all the nuclear output.) And here’s the real long-term issue: raising the price of grid electricity as non-grid resources become cheaper and cheaper will encourage better-off consumers to invest in on-site alternative resources (like solar plus battery), putting more of the burden of supporting the grid on less affluent consumers. Nukes don’t come for nothing.
By Leonard Hyman and William Tilles for Oilprice.com
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