Growing uncertainty in US regarding economics of new nuclear

5 December 2023

A recent statement from Fitch Ratings casts doubt on any new nuclear construction in the US in the immediate future. Similar concerns were voiced during discussions at a full committee hearing of the Senate Committee on Energy & Natural Resources to Examine Opportunities and Challenges Associated with Advanced Nuclear Reactor Commercialisation.

Fitch noted that without “broader joint action, improved cost competitiveness and/or greater certainty of cost and delivery, most US public power systems are unlikely to pursue new nuclear construction over the next few years, and those that do face the risk of weakened credit quality”.

The recent announcement by the Utah Associated Municipal Power Systems (UAMPS) and NuScale Power to terminate their Carbon Free Power Project (CFPP) illustrates the challenges facing public power systems as they consider new nuclear construction, Fitch said. “The project was unable to attract interest from enough purchasers to continue development, despite the plant's modular design, improved safety measures and the offer of low-cost government funding, likely due to schedule delays and cost concerns.”

Interest in new nuclear generation “should remain piqued as a result of proposed Environmental Protection Agency (EPA) rules to limit carbon-dioxide emissions from power plants, as well as widening concerns about the effects of climate change and more aggressive carbon-free energy standards”. However, “until the cost of new construction can be assured through insurance or guarantees provided by the US government or highly creditworthy entities, widespread ownership agreements can broadly distribute and limit project exposure, and new design construction is proven to be both feasible and replicable, these risks will remain formidable barriers to participation”.

Fitch noted that nuclear projects “are large, costly and complex, and developers have a historically poor record of completing new projects on time and within budget”. The agency cited the projects launched at the Summer and Vogtle nuclear stations in 2013 that were “plagued by scheduling delays, fabrication challenges, labour shortages and significant cost overruns almost from the beginning of construction”. The Tennessee Valley Authority (TVA) completed its Watts Bar unit 2 in 2016 after work was suspended in 1985 and resumed in 2007, Fitch said. “However, the final cost was roughly $2bn higher than initially planned.” It was only the operational breadth and financial strength of TVA allowed that the utility to absorb the costs and maintain its then current ratings.

Meanwhile, the US Senate Energy & Natural Resources Committee hearing chaired by Joe Manchin discussed opportunities for advanced nuclear considering federal support from the Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law, commercialisation challenges and the need to onshore nuclear energy supply chains.

The Bipartisan Infrastructure Law provided $2.4bn to support competitive Department of Energy (DOE) awards for advanced reactor demonstration projects at commercial scale. The IRA provided ten years of certainty to commercialise advanced reactors through a 30% investment tax credit or $25/MWh production tax credit for new nuclear plants, along with making tens of billions of dollars in loan guarantees available for nuclear projects, said Chairman Manchin, opening the hearing. “The IRA incentives were not just about building power plants, but also securing our nuclear supply chain. Congress provided $700m for High-Assay Low-Enriched Uranium (HALEU), which is the fuel that most advanced nuclear technologies need, including Pele, Terrapower, and X-Energy.”

However, “despite all of the federal and private sector support, we’re witnessing struggles and hesitancy in getting advanced nuclear projects off the ground”, he said. There are large design, cost, and regulatory uncertainties associated with first-of-a-kind nuclear technology, he added, which is why numerous federal programmes were put in place to help reduce these risks. “But someone will need to go first, and unfortunately many of the utilities I’ve spoken with won’t get in the game until others have done it first. We also must continue to ensure that taxpayer dollars are being spent judiciously and we’re managing risks – and learning from instances like the NuScale project with UAMPS, which fell far short of our expectations.”

Manchin also commented on the need to offset China and Russia’s growing influence on international nuclear energy development. “We must push back and they cannot succeed. To regain our civil nuclear leadership, we need to demonstrate domestically that we can develop and deploy the next generation of nuclear energy to attract our international partners. We also need to export these technologies to our allies and partners to help reduce their energy dependence on foreign adversaries.”

He also discussed Russia’s dominance over the nuclear fuel supply chain. “Currently, Russia is the only commercial supplier of HALEU, the fuel used for our DOD [Defence Department] micro-reactor project, DOE Advanced Reactor Demonstration Projects, and many other advanced nuclear technologies.” The bipartisan Nuclear Fuel Security Act of 2023 “authorises a DOE programme to onshore US uranium conversion and enrichment capacity, for both traditional and advanced reactors”, said Manchin. “We must re-establish a domestic nuclear fuel supply chain, and our bill will do just that. I’ve also worked … to introduce legislation that would limit and eventually ban uranium fuel imports from Russia. Today, I’m calling on my Congressional colleagues to include these critical nuclear fuel bills and associated funding in the defence and appropriations packages we’re currently negotiating.”

The committee heard witnesses from the Idaho National Laboratory (INL), Strategic Capabilities Office (SCO) at the Office of the Secretary of Defence, Dow chemical company and the US Nuclear Industry Council.

Dr John C Wagner, Laboratory Director at INL described the various projects underway. These included MARVEL, an 85 kW DOE test reactor; Pele, a partnership with DOD and BWXT that will utilise TRi-structural ISOtropic (TRISO) particle fuel. INL, working with Southern Company and TerraPower also plans to conduct the Molten Chloride Reactor Experiment (MCRE), which “will become the world’s first fast spectrum salt reactor experiment to achieve criticality”. These first three systems will be authorised for operation under DOE authority, as opposed to the Nuclear Regulatory Commission (NRC) licensing. The first planned NRC-licensed reactor on the INL site is the Oklo Aurora microreactor in 2027. INL intends to use existing reactor facilities as test beds for reactor demonstrations via the National Reactor Innovation Center (NRIC) to streamline testing, demonstration, and, ultimately, deployment of advanced reactors into the market.

“We are making steady progress, said Wagner. “But we cannot rest easy, as the recent ending of the Utah Associated Municipal Power Systems (UAMPS) Carbon Free Power Project shows. The era of constructing paper reactors must end. We have to identify our challenges, address, and overcome them. We need to accelerate the systems and build the supply chains needed to rapidly develop and deploy advanced technologies at scale, in our nation and around the world. The project did not end because of technical flaws [but] was suspended because of economics.”

He added: “We cannot abdicate our world leadership in nuclear energy development and deployment. When we build new systems – and export our technologies, materials, and services – we also export our values. A nuclear power plant is designed to operate for six to eight decades. When a country sells a nuclear reactor to another nation, it begins what can be a century-long relationship that encompasses many areas.”

Countries will look for developers who can quickly, safely, affordably, and effectively develop a reactor and get it deployed. “And because U.S. developers are not competing on equal terms, too many of these nations will turn to China, Russia or our friends in South Korea. This presents not just a missed opportunity, but in the case of Russian and Chinese expansion, a danger to US national security.” INL is also working to supply HALEU from DOE-owned materials. “But our lack of domestic fuel cycle capabilities is already hurting efforts to deploy the next generation of technologies needed to allow our commercial fleet to produce 24/7, carbon-free power more than 93% of the time,” Wagner noted.

Optimistic presentations were made by Dr Jeff Waksman SCO Program Manager, about projects being developed by DOD and Edward Stones Vice President, Energy & Climate at Dow about its planned project with X-Energy. However, Jeffrey S Merrifield, a former Commissioner at NRC and Chairman of the Advanced Nuclear Working Group of the US Nuclear Industry Council was more circumspect

He acknowledged that companies such as Dow, Microsoft, Google and Nucor were all considering how nuclear energy to meet their energy needs. These companies share is a large balance sheet and conduct extensive infrastructure design and construction. “Thus, they are not deterred by the additional complexity and patience that comes with the deployment of nuclear power.” However, apart from large state-owned or quasi state-owned utilities, including Ontario Power Generation in Canada and Tennessee Valley Authority other power utilities are hesitant.

“Financial markets and public utility commissions have viewed what is admittedly a tortuous path that it took to get Southern Company’s Vogtle units 3-4 online and the failure of the VC Summer project and have made it abundantly clear that they do not want to repeat that example. Despite the provision of government-backed loan guarantees and other federal tax incentives that are intended to jump start the order process, utility executives … have a variety of built-in incentives for not jumping to the front of the line.

What utilities fear the most is that they will commit to building a first-of-a-kind plant and that there will be financial and timing risk on the back end of the project that could put the utility at economic risk.”

He proposed further support from the federal government and Congress , noting: “As a nation, our skills at building very large infrastructure projects, to put it politely, are ‘rusty’ and we need to have additional investment in university-based engineering programmes.” He added: “Some of the capabilities needed to build new nuclear units either don’t exist or have limited options in the US. While some of these come from friendly nuclear supplier countries such as South Korea and Japan, the vast potential for new nuclear deployment certainly begs the question as to why more of this supply of components can’t be fabricated and built in the US.”

To achieve the economies of scale needed to efficiently and cost effectively manufacture multiple lines of small modular reactors (SMRs), further incentives will be necessary.

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