US Nuclear Industry Revival on the Horizon

In late May, President Trump issued four separate Executive Orders (EOs)  with respect to growing the nuclear power industry in the US. As the implementation of these orders begins, several Washington focused publications have written about one emerging consequence of these EOs—the likely termination of NRC oversight with respect to approval of new nuclear reactor designs. This major responsibility is being moved to the Pentagon and the Department of Energy. One administration official referred to the NRC’s prospective role in reactor approval as akin to a rubber stamp. The implied criticism here being that the NRC was much too slow in approving new reactor designs and are an obstacle to the President’s goal of dramatically increasing nuclear power in the US. So, in effect, they got FEMA’d. This raises the question whether we are effectively deregulating commercial nuclear energy technologies, assuming, of course, that the prospective review processes of the Pentagon and DoE are less rigorous than the NRC’s.

But why do we think this administrative or bureaucratic shift in responsibilities sets the stage for a nuclear renaissance? There are several reasons. First, and this has nothing to do with nuclear power in particular, the demand outlook for electricity usage is more robust than it has been in decades. And it’s not just data centers—which we view as the flavor of the month. It would not surprise us if someone soon developed an extremely efficient computer chip using a fraction of present electricity usage projections. This would immediately negate their large prospective electrical demand. What’s more, we’ve already seen these tech driven, compressed boom-bust cycles numerous times recently with scarce materials like lithium or cobalt. To us, the increased steady demand for electricity comes from several unrelated technologies under the rubric of electrification— heat pumps (which also provide A/C), electrified cars and trucks, and more displacement of fossil fuels by electricity in manufacturing.  To us, the AI boom was always like icing on an already large cake or representing even more hype to an already ongoing cycle. Electric demand throughout society is growing substantially relative to past trends with or without AI. And this is always bullish for all power generators, including nuclear.

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Trying to determine how much faster nuclear plant licensing will be without the NRC is hard because they’ve only approved one new reactor design, a 50 MW SMR from NuScale. However, NuScale quickly requested a design change increasing the reactor output to 77 MWs, triggering further delays, so it’s hard to gauge from this one, perhaps a unique example. However, we do know there are a lot of SMR reactor designs waiting in the queue. A rapid speed up of approvals helps them all. A neutered or non-existent NRC removes a huge hurdle in the process of establishing commercial viability for new reactor designs.

A major step towards commercial reactor viability involves deployment and acceptance by utilities, the government, and the manufacturing sector. At this point, thanks to the President’s EOs, the military could represent significant new demand for at least two different SMR types, small, 5-10 MW power plants serving remote locations like Westinghouse’s eVinci and larger power stations like those from NuScale or Holtec. For nuclear technology, we guess this is kind of like a homecoming. But an industrial company, Dow Chemical, has also ordered 4 80 mw reactors from SMR builder X-Energy to provide electricity and steam for a plant in Seadrift, Texas. But despite these promising developments, we don’t think it would be an exaggeration to call the new order flow here a relative trickle.

Former Energy Secretary Perry, however,  wants to site four Westinghouse AP 1000s for a new Texas energy park. His company. Fermi America is proposing to build a 6,000 MW “hypergrid” consisting of nuclear, gas, and renewable energy sources for a “data center campus” in Amarillo, Texas. Interestingly, Amarillo is not part of ERCOT, so all of this power is essentially behind the meter, that is, not available for export to the grid. We only started laughing when their press release said the first reactor would be in service by 2032. But seriously, this project is the one to watch. If Fermi America can receive approvals and finance over 4,000 mws of new nuclear at one go, this could be a game changer. History buffs will recall that it wasn’t that long ago when multiple reactor orders were common for large power serving entities like TVA or the Washington Public Power Supply System, whose five reactor debacle led to a bond default and financial reorganization.

Our point is it might be time to consider another round of siting multiple nuclear units. Given how much electricity the US uses, even a four reactor order just isn’t that big as a percent of installed generation in any region. Four new reactors would add less than 5% to California’s power grid for example.  Can these new power plants find financing? All we can say is that finance has always been nuclear energy’s Achilles heel. The good news is power prices overall are increasing and this always helps a high cost producer like nuclear.

To conclude, let’s look at nuclear new build in terms of one of our favorite concepts,  the energy trilemma (we want electricity that’s affordable, sustainable, and secure, but we can only maximize two out of those three variables). In this sense, nuclear has never been affordable relative to alternatives. It qualifies as sustainable in the sense that it produces no CO2 emissions and it has a secure domestic fuel supply.

 This time, though, may really be different. We think the nuclear renaissance does not begin with new orders from price sensitive public utilities, but rather from relatively price insensitive power and process steam buyers like manufacturers, technology companies, chip manufacturers, district heating systems, or large university campuses. Also very high energy cost archipelagos like Hawaii or Puerto Rico would also be a target market. The addressable market for what we might call premium priced electricity, even away from utilities, is quite large. And the present administration has effectively said to the nuclear power industry, “Go find buyers for your products and we’ll approve the contracts.” Can’t ask for a more constructive environment than that.

By Leonard Hyman and William Tilles for Oilprice.com

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