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The murky world of financing Small Nuclear Reactors (SMRs)

IKEA it ain’t: don’t go looking for friendly nuclear option, no matter the spin

MICHAEL WEST MEDIA, By Noel Wauchope|December 30, 2021 

”……………..[Everyone] should be aware of the financial  gymnastics going on in the USA, with NuScale, and in the UK, with Rolls-Royce. That’s just to single out the two most advanced of the many dubious SMR projects still at the starting gate.

The Murdoch media is enthusiastic about SMRs. Missing from the hype are a lot of unanswered questions. For a start — the ”M” stands for ”modular” — meaning that these reactors will be built in pieces, sort of, and transferred to a site, where they will be assembled, like a piece of IKEA furniture. But in fact there are at least 50 designs being promoted, and not all are modular. 

The critical question comes down to – the money

The enthusiasm of the SMR lobby for the economic viability of SMRs is not matched by the facts.

 For one thing to consider – there’s the price of the electricity to be eventually delivered by these small nuclear reactors. The Minerals Council of Australia estimates that by 2030 and beyond, SMRs could offer power to grids from $64-$77MWh, depending on size and type.

An analysis by WSP / Parsons Brinckerhoff, prepared for the 2015-16 South Australian Nuclear Fuel Cycle Royal Commission,  estimated  a cost of A$225 / MWh for a reactor based on the NuScale design, about three times higher than the MCA’s target range. CSIRO  estimates SMR power costs at A$258-338 / MWh in 2020 and A$129-336 / MWh in 2030.

Then there are the costs of actually getting SMRs in the first place.

In Russia, China, France, and Argentina, the construction is done entirely or largely at taxpayers’ expense, and there is little or no transparency about the costs. But generally in the Western world, electricity production is supposed to be a commercially viable operation.  In the context of promoting low -carbon technologies, SMRs are promoted as being cheaper than large ones.  It is generally acceptable for the government to kick-start the process, with some funding, but with the understanding that the industry will become successful, profitable. 

NuScale financing contortions

In the US, NuScale leads the pack. After its efforts to partner with Romania, UK, Canada and Jordan, NuScale has joined with a Utah-based utility consortium to develop what initially was proposed to be a power plant with 12 small reactors. The project, which is now forecast to cost $5.1 billion, has since been scaled back to six reactors, expected to start coming online in 2029.  The Department of Energy (DOE)  is to provide an annual supplement of about $130 million a year for a decade. However, that would be dependent upon annual renewals of the funding by Congress during that decade, which is a risk.

NuScale promises to deliver electricity at  $55/MWh. UAMPS and NuScale have not explained the methodology used to develop  this figure. Meanwhile PacifiCorp and Idaho Power have concluded that electricity from NuScale reactors would cost $94-$121/MWh.

Now NuScale is to go public by merging with what’s known as a special purpose acquisition company, or SPAC. The company, Spring Valley Acquisition Corporation, is already publicly traded. The new company named NuScale Power Corporation will list on the Nasdaq under the ticker symbol SMR. Their new SMR power plants will be called VOYGR, and NuScale will open centres at universities to promote technical training for them. The Department of Energy (DOE) will support these centres with funding, and NuScale will open centres at universities to promote technical training for them. DOE will support these centres with funding.

A SPAC is a type of shell company (shell companies being those not having actual business operations, just specific objectives, in this case, raising capital)  The SPAC raises money from the public through initial public offerings, the sponsor getting 20% of the funds invested. Later private investments through public equity, or PIPES, can be added, often bought at a discount price by big institutions. The whole process is done relatively speedily, and with much less scrutiny than in usual mergers.  US Securities and Exchange Commission Chair Gary Gensler wants to tighten regulations on SPACs:

Glitzy corporate presentation decks, hyped press releases and celebrity endorsements can balloon a SPAC’s equity well beyond a reasonable value long before proper disclosures are filed,  Gensler said.

SPACs have had a chequered history — they enable the sponsors to avoid financial loss, even if the business fails, as many did, in the 1990s.  Sixty-five per cent of deals completed in 2021 at a valuation above $1bn are trading below $10 — the price at which they were floated. All of the companies are trading below their stock market highs with some of them down by as much as 70%. Senator Elizabeth Warren and three other Democrats are investigating the imbalance between the financial results for the sponsors and banks versus the early investors.

Rolls-Royce still looking for money

The process of getting funding for the UK’s SMRs is equally tortuous.   The government invested £18 million in November 2019, which delivered significant development of the initial design as part of Phase One of the project. At the beginning of November 2021, Rolls-Royce Holdings Plc raised 455 million pounds ($608 million) to fund the development of SMRs, with almost half of the financing coming from the U.K government      Rolls-Royce Small Modular Reactor (SMR) business is  a consortium, backed by BNF Resources and Exelon Generation. BNF Resources UK Limited is a subsidiary of BNF Capital Limited. Other members of the consortium are Assystem, Atkins, BAM Nuttall, Laing O’Rourke, National Nuclear Laboratory (NNL), Jacobs, The Welding Institute (TWI) and Nuclear AMRC, as well as Rolls-Royce. It’s not at all clear how much each group has put into the venture.

For the plan to have the planned £30 billion fleet of mini-nuclear power stations, the business will have to rely on UK taxpayers to help fund the construction of the first of the new designs. New government funding of £210 million announced on November 9 will take forward phase 2, over the next three years, of the so-called Low-Cost Nuclear project to further develop SMR design and take it through the regulatory processes to assess suitability of potential deployment in the UK. Exelon is contributing under an agreement from a year ago to find international markets.  Rolls-Royce expects the first five SMR reactors to cost £2.2bn each, falling to £1.8bn for subsequent units.  

Rolls-Royce will be seeking more investment for the project to help fund the building of actual SMRs.

The government is currently passing legislation that will allow investors to back projects like SMRs using a regulated asset base (RAB) model, which allows them to recoup upfront costs from the consumers, over the construction period, long before those consumers actually get any electricity from the project. 

Mythical beasts
So — what it all boils down to is an agreement to spend about £400 million over the next three years — to perhaps produce a design for a reactor, which might get approved by the regulators, and might find investors who might be willing to pay what will be at least £2 billion to build each one.

It’s not at all clear who is going to end up paying the most for small nuclear reactors, or indeed, if that fleet of SMRs will ever become a reality. It will probably be the taxpayers.  I haven’t mentioned all those ancillary costs — of winning community approval, of security, waste disposal.

In the meantime, it’s worth being wary about the financial aspects, given the obscure manipulations going on in the US and UK, and remembering that not yet does one of these mythical beasts, Small Modular Nuclear Reactors actually exist.

Renewables remain the cheapest “new-build” source of energy generation. They exist. They work. 

December 30, 2021 - Posted by | business and costs, Small Modular Nuclear Reactors, UK, USA

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