Potential next step after demonstrating a reactor under DOE authorization

The Reactor Pilot Program (RPP) has been a rousing success.

The group of four reactor criticalities achieved during the early phases of the RPP mark a major step forward in the process of designing, developing, testing, iterating, refining and licensing new types of nuclear fission power plants that have not yet become commercially viable.

The program is not over; expect to hear additional announcements of major milestones during the next several months.

Perhaps the most important outcome of the RPP – measured over the long term – is that it provided the Department of Energy several opportunities to refine its processes for reviewing, approving, constructing and operating novel reactor technologies. That full authorization process has now been completed for four separate reactors with reviews continuing for participants in the RPP and Launch Pad that are at different stages of development. With experience and practice the process continues to improve. Exercising with real world projects is a terrific way to refine processes and procedures.

The existence of a well-supported and improving path between the development stages of ideas and computer models to the stage of constructing and testing physical pilots can enable access to a vast pool of private risk capital. The refined process retires a significant number of known risks. It lets the review pilot review process move at the speed of business. Even though more risks can be mitigated with additional actions, substantial progress should be made in parallel with continuing process improvements.

The pilot reactors that have achieved criticality are not commercial products. They need several iterative steps before they are even complete R&D products. Three of them are not yet ready to produce any fission power because they have not yet installed the heat transfer systems that will remove fission heat. The one that is producing power, the Valar 250, was built with a reduced power reactor and a correspondingly small heat rejection system, not a complete heat conversion or utilization system.

There is a reasonably clear path for installing the needed systems, both in a regulatory and physical sense. Once those steps are completed, an extensive series of tests will be completed. If electricity is produced during testing, it can be supplied to the reactor facilities and the hosting laboratories or it can be dissipated through heat rejection systems. Alternatively, it can be dissipated by producing electricity that is then discarded in added systems like resistor banks.

That’s as far as the pilot reactors can go under their DOE authorizations; those approvals do not allow for the sale of electricity or heat to outside customers. For micro reactors producing a megawatt or so, that limitation is not much more than an annoyance, but the RPP and the Nuclear Energy Launch Pad include participants with much more powerful reactors. A heat rejection system for a few megawatts is reasonably compact and doesn’t have too much local environmental impact; one that needs to reject 225 – 900 MWth is a different story.

Throwing away electricity generated during full power testing of a 75 MWe reactor wastes almost $200,000 per day. The specialized heat rejection system would also require a significant design, supply chain and manufacturing investment that would be one-of-a-kind because it would be different from the one that is part of a commercial product.

It would be more prudent for pilot or demonstration reactors to be built with fully functional power conversion systems that produce useful electricity or heat so they can sell those products when available during portions of the testing program. Some of the tests that help prove commercial viability will include sustained periods of high power operation for reliability and fuel performance evaluation. Selling the electricity produced as a byproduct of the testing won’t turn the test and demonstration reactor into a profitable installation, but the revenues can help reduce the amount of capital required for commercial product development.

It’s widely recognized that selling products like electricity and heat would require a license from the Nuclear Regulatory Commission, but it’s also well known that there is a chasm between a DOE authorization and a commercial power plant license from the NRC that takes a long time to cross. It also requires a lengthy process to modify a plant design once it has achieved a commercial Part 103 license.

Class 104c is an existing licensing step between DOE authorization as an R&D facility that is not allowed to sell products and NRC licensing as a Class 103 commercial reactor. It’s a licensing step that has not been exercised, but the NRC regulations associated with Class 104(c) licenses were recently updated and re-emphasized.

Reviews and approvals for Class 104(c) are, by law, somewhere between those required for a DOE authorization and those required for a fully commercial license under Class 103. The NRC page titled “Technology, License Class, and Regulatory Approach” includes the below quote:

Section 104(c) of the Atomic Energy Act of 1954, as amended, states that,

The Commission is directed to impose only such minimum amount of regulation of the licensee as the Commission finds will permit the Commission to fulfill its obligations under this Act to promote the common defense and security and to protect the health and safety of the public and will permit the conduct of widespread and diverse research and development.

Reactors licensed under Class 104(c) should get reviews and approvals that are similar to reactors that are authorized under DOE regulation 1271. As is evident from the quote above, these reviews should be timely enough to permit effective development where refinements can be incorporated quickly. Because Class 104(c) reactors are still developmental, the vendor and the NRC may need to agree on additional safety features or operating restrictions that wouldn’t be necessary with a more complete license application and review.

Under Class 104(c), reactors that are still in the research and development – aka pre-commercial – phase can sell electricity, heat and non-energy services as long as less than 75% of their annual costs are dedicated to providing those activities. They are also allowed to sell training and research and development services without counting against the cost limitation.

Those who are well-versed in developing high tech products might think of Class 104(c) as a regulatory permission structure for beta product releases in high-impact, tightly-controlled markets.

The provision for licensing pre-commercial products under Class 104(c) licenses has been in the rules since 1970, but it hasn’t been widely exercised. It’s hard to determine the precise  reasons why something hasn’t been done before, but contributing factors include the assumption that all nuclear reactors had to be extra-large before they could be commercially competitive. The financially risk averse nature of monopoly electric utilities, established reactor vendors and their traditional financial partners also plays a role. It’s hard to imagine a successful financing model for a reactor costing $10 B or more that is restricted in its ability to generate sales revenues.

The rising prominence of smaller, lower-cost reactors, non-traditional electricity customers and the increasing importance of venture capital-backed vendors has changed the decision process. Modern reactor developers know that new and improved products with revolutionary proprietary features need several iterations before they can become competitive products. They know that initial units will produce losses, but they may prefer to minimize those losses by selling output when they can.

Venture capitalists are not like bankers or public service commissions; they understand that there are major risks associated with product development and refinement. History has shown them that there are major rewards when the product finds a fit with the needs of eager customers, making venture capital an increasingly capable source of financing.

The RPP has helped to restore the development process originally envisioned by the Atomic Energy Act of 1954. That foundational piece of legislation provided a framework for Atomic Energy Commission reactor licenses that established appropriately differentiated rules and process requirements for licensing reactors that were still being developed and refined compared to the rules that govern licensing for reactors that were ready to compete in the commercial energy markets.

The next step is to begin exercising the transition between DOE R&D reactor authorization and NRC pre-commercial licenses under Class 104(c). Adequate rules are in place and do not need any immediate “act of Congress” or lengthy rule-making processes.

The RPP showed that the U.S. is capable of moving smoothly when building new nuclear power systems using appropriate levels of cooperation between government, government contractors and private enterprise. Major process steps have been developed and exercised. There is a daunting amount of work ahead but there are clear paths on which to take the next important steps in this rewarding journey.

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This is a modified version of an article that first appeared on Fund News at Nucleation Capital. Atomic Insights is a publication of Nucleation Capital where Rod Adams is a Managing Partner. He attended the initial criticalities of the Deployable Energy Unity and the Aalo-X CTR. Both companies are in the Nucleation Capital portfolio.