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Why investors should be wary of small nuclear reactors

NuScale has some big challenges.

NuScale announced that completion of the project would be delayed by three years to 2030 and estimated the cost had climbed from $4.2 billion to $6.1 billion. This is a familiar old song in the nuclear energy sector: Big schedule delays and big cost-overruns.

M. V. Ramana, a physicist at the University of British Columbia who works on public policy was not surprised that so many utilities backed-out of the project. “They (utility companies) ought to be seeing the writing on the wall and getting out by the dozens.”

at least one study says that small nuclear power plants will generate more waste than conventional reactors.

NuScale: Finally Time For Small Module Nuclear Reactors?

Summary

  • Small module nuclear reactors have been discussed and researched for decades – going back to at least my college engineering days in the 1970s.
  • Yet for a variety of reasons, small module reactors (“SMR”) have never become a reality.
  • NuScale Power wants to change that and at the present time, the company appears to be the planet’s best chance to do so.
  • Today I’ll discuss my sense of NuScale’s chances of success and whether or not the stock is a good fit for an investor’s “speculative growth” bucket.

…………………………………………. My sense is that many of NuScale’s potential utility customers are waiting for – what I consider to be the “proof-of-concept” plant – to be built in Idaho.

Valuation

After a big jump in the stock price in July, NuScale currently has a $3.3 billion market cap (and a 13.7% short position):

……………… In June, NuScale gave a financial update re-affirming guidance for (only) $16 million in FY22 revenue. For the three-month period ending March 31, 2022, the company reported:

  • Total available capital was $383.7 million.
  • Revenue of $2.4 million and a net loss of $(23.4) million compared to revenue of $0.7 million and a net loss of $(22.7) million for the same period in 2021.
  • Research and development expenses of $24.4 million compared to $18.8 million for the same period in 2021.

Clearly the company is burning cash. However, even if the cash burn grew to, say, $30 million per quarter, the available capital would last more than three years.

Risks

However, NuScale has some big challenges. Back in 2020, several utility companies within the UAMPS group backed-out of the deal to build the first NuScale SMR power plant. Even with the infusion of U.S. federal dollars, NuScale announced that completion of the project would be delayed by three years to 2030 and estimated the cost had climbed from $4.2 billion to $6.1 billion. This is a familiar old song in the nuclear energy sector: Big schedule delays and big cost-overruns. It was a big-blow: After all, the whole idea behind a small scale modular nuclear plant was to reduce the risk of both schedule and expense.

According to the previously reference source, critics of the project said it will be “untenably expensive.” M. V. Ramana, a physicist at the University of British Columbia who works on public policy was not surprised that so many utilities backed-out of the project. “They (utility companies) ought to be seeing the writing on the wall and getting out by the dozens.”

The Department of Energy (“DOE”) previously agreed to $1.4 billion in funding for the project. However, as I reported above, the cost estimate for the project now is $6.1 billion. That’s a big gap in funding. Further, at that price, investors need to question whether or not renewable solar and wind capacity would be better back-stopped by battery backup, and more wind and solar capacity additions, as opposed to an SMR.

Meantime, I personally would be much more supportive of the effort if NuScale had a partnership of some sort, or at least a well publicized plan, to re-process or store spent radioactive fuel. That’s especially the case given that at least one study says that small nuclear power plants will generate more waste than conventional reactors. The report said SMRs would create up to 30x more radioactive waste per unit of electricity generated as compared to conventional reactors. According to Reuters, Lindsay Krall – the study’s lead author – said:

Even if (the U.S.) had a robust waste management program, we think there would be a lot of challenges to deal with some of the SMR waste.

The study said NuScale’s reactor would produce ~1.7x more waste per energy equivalent than traditional reactors. NuScale countered that the study used “outdated design information and incorrect assumptions about the plants.”

Summary and Conclusions

In theory, small module nuclear reactors sound like a great idea. And they have been sounding like a great idea for decades. Yet despite all the technology available to man, and the pressing threat of global warming, no small module nuclear reactor has yet to be built in the United States. And that should tell the investor something.  https://seekingalpha.com/article/4530416-nuscale-time-for-small-module-nuclear-reacto

August 5, 2022 - Posted by | business and costs, Small Modular Nuclear Reactors, USA

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