Investing

Let me start by dispelling the notion that I think smaller, modular, manufactured nuclear power systems – often called SMRs or micro reactors – are the be all and end all solution to anything, including climate change or energy security.

Though not THE solution, they have the potential to be a crucial, uniquely capable part of a fully-integrated, 0% emission climate-solving grid. 

The best of the breed build on lessons from aircraft manufacturing, submarine construction, electric vehicles, wind & solar and even computers. They are leavened with six decades worth of experience in building, operating and maintaining extra large nuclear systems. They address some of the public relations challenges that have plagued very large reactors.

Some of the system designers are paying close attention to the social science lessons and teachings of groups like “The Good Energy Collective” and designing their systems with customer needs and wants in mind. They often state that they are planning to build reactors that people want to buy. Many of the people or communities interested in buying those reactors are planning to live, work, and play right next to the power system. (Regarding the “play” part of that statement – at least one of the proposals I’ve seen includes directing the waste heat from the power system to a community swimming pool.)

Economy of series production & operation

As former submarine engineer officer who also had the rare opportunity to plan and budget for fleet level nuclear power training, maintenance and construction programs, I have a personal understanding of how economies of series production and standardization work to help keep costs under control and schedules predictable.

It is enlightening to see how much costs fall when you can train a group of operators in a common speciality and send them out to several dozen plants that have identical equipment, spare parts lockers and layouts. It’s also easy to see how maintenance procedures can be written once and used by all and how alterations can be planned, reviewed and implemented. These are just a few of the examples I can list. Rules protecting confidential information prevent me from sharing quantified details. Space prevents me from listing other examples.

It shouldn’t surprise anyone who has made anything that people learn to do things with experience or that doing the same thing repeatedly produces better results the more often the task is done. Those learning curve-related improvements don’t require mass production of thousands or millions of units, they start improving cost and performance with the second unit.

Widely cited literature from thought leaders like Clay Christensen (Innovators Dilemma and other works) show that there is a relation between costs and doubling of cumulative unit production.

The modern renewable industry – wind and solar energy collection systems – demonstrate the utility of replication. Starting from the high cost systems of the early 2000s, the industry took advantage of tax credit and mandates originally designed to help them build markets and achieve scale economies. Their impressive cost reduction performance is more attributable to the economy of learning by doing than it is to technological innovations and new inventions.

Aside: Some of the techniques used for the dramatic cost improvements in wind and especially solar power systems are not actions that we will to use to drive down nuclear costs. The sector has an admirable tradition of paying living wages to people who eagerly accept the responsibilities that come with high quality work and a strong safety culture. It also does not concentrate its manufacturing in countries with lower standards. End Aside.

Of course, cost and schedule improvements that result from experience can be lost, team relationships can be broken and skills can atrophy with a lack of practice. Smaller nuclear power systems will not be immune to these advantages and vulnerabilities. But unlike far larger plants that might be able to serve five, ten, or even fifteen years worth of electricity demand growth with a single unit, smaller systems will need numerous units to be steadily brought into service.

Smaller nuclear systems do not replace extra large power plants

Some challenge the idea that we should add small reactors to our product catalog. They believe that we know how to build large reactors, we have proven that we can operate them with incredible safety records and each one can make a big difference in both energy supply security and CO2 emissions. They claim that smaller reactors make the tasks more difficult and that many of the smaller reactors still need many years of operating experience to catch up with larger units.

SMRs and micro reactors are not intended as replacement products for situations when customers want large or very large power units. They are an addition to the options list for those who want or need their power in smaller quantities or who want to learn how to build and operate nuclear plants in a more gradual fashion.

Some object to those of us who characterize modern nuclear power systems as “advanced” because they claim we have done them all before. While it is true that world nuclear energy history includes projects that envisioned or actually used many of the potential combinations of fuel form, coolant, fuel enrichments, and secondary power systems, it isn’t true that they explored all available technological advances. Today’s designs benefit from innovations and developments that were not available back when some of the original research and testing was done.

The fact that there was a thriving market for electric cars that took off in the 1890s, even before the Model T years, does not make the Tesla any less advanced of a vehicle.

Aside: There are numerous smaller and micro reactors that are already in operation today. Two most recently completed examples are Russia’s Akademil Lomonosov and China’s HTR-PM. But the hundreds of reactors that have propelled naval vessels in a half dozen or more countries for decades also demonstrate many of the principles that make commercial SMR worthy of excitement. Indian PHWRs also have many of the characteristics of modern SMRs, including power rating. End Aside.

Note: The Wright Brothers and Henry Ford built internal combustion engines 120 or more years ago. That does not negate the statements by current automobile manufacturers that their power plants are advanced or modern. Modern electric vehicles may be descended from earlier products built on roughly the same combination of features, but they are still marvels of advanced technology.

Security, Insurance and Non-Proliferation

Some claim that rules aimed at ensuring security and preventing the proliferation of nuclear weapons will make smaller systems unaffordable. They overlook the efforts that are going into the system designs to make security easier to implement, the ways that safeguards are being designed into the systems and the fact that some of the rules are being changed because responsible leaders have recognized that they do not actually improve safety or security. Some of them were implemented with the express purpose of slowing nuclear energy development. The immediacy of climate change is stimulating efforts to identify and alter requirements that serve primarily to undermine nuclear economics.

There are even some who cling to the shibboleth claiming that nuclear energy is somehow subsidized because it has a specially designed group insurance program under the 1957 Price Anderson Act (as amended over the years.) While there are changes needed in that Act, it has never been a subsidy for nuclear energy. The truth is that insuring nuclear power plants has never cost taxpayers a dime in paid damages and the insurers that specialize in providing the required commercial insurance have been hugely profitable by collecting premiums and rarely, if ever, paying a claim.

When opponents point to the long-term costs of the accident at Fukushima Dai-ichi as a reason to believe that nuclear plants are under insured, they have some basis in fact. But most of the nuclear-related cleanup costs associated with that accident have been self imposed by the Japanese national, prefecture and local governments. They set radiation exposure standards that were much more stringent than already conservative international standards. Simply using international standards for radiation doses would have greatly reduced evacuation and relocation costs. Basing those actions on a more complete understanding of radiation and its risks would have virtually eliminated costs of actions taken outside of the plant fences.

Rebuilding an area decimated by an earthquake and tsunami isn’t cheap, but it shouldn’t be attributed to events at an industrial facility that did not harm its neighbors.

Are SMRs a good investment?

The answer is, it depends. As with every industry that is experiencing a new generation of technological innovation, some entrepreneurial teams are progressing well, successfully pitching their vision to investors, building their teams, executing against their milestones, learning from set-backs, adjusting to regulatory and market conditions and keeping their eye on the ball. And others not so much.

At Nucleation Capital, the partner team has a combined total of several decades spent investigating and observing the growing potential for advanced nuclear power production. We know that nuclear energy is clean enough to run inside sealed submarines full of people and safe enough for caring parents to not worry when their children work in close proximity to an operating nuclear power plant. We also know that commercial nuclear plants have amassed an admirable safety and reliability record.

That gives us tremendous hope and confidence that great teams will emerge that can learn from our historical performance, from the navy and otherwise, and that new designs will emerge that competitively meet the challenge to deliver clean energy reliably and cost-effectively with newer implementations of amazing carbon-free technology. But we also recognize that not every design will work as hoped or be well-suited to the market demand that exists. Not every team will have what it takes to be successful in a complex market.

Furthermore, we understand the concerns that many people have about the unknowns regarding new designs and the risks of deploying many more small reactors in an widening array of applications. Just as with the deployment of electric vehicles which cannot succeed on the basis of a car design alone but must be matched with a robust national grid of charging stations, this next generation of nuclear ventures will need to solve for an array of related challenges, including nuclear fuel production, long-term waste handling and storage, spent fuel transportation and reprocessing, among other things.

Fortunately, there are quite a lot of groups and entities that are eager to work on these issues, so that new nuclear systems can help us address climate change, provide humanity with reliable power in a climate-stressed world and also succeed in winning public support. There are valid concerns and there are good ways to address them. We also believe that we will have more success overcoming these concerns if coalitions of people across all spectrums participate in helping to solve them collaboratively. 

We are very pleased to be in a position to talk with founders, get briefed on detailed, often non-public information and discuss with them their development goals and challenges, as well as their experiences dealing with a range of potential funders, regulators, suppliers, strategic partners and potential customers. 

Of course, we cannot be specific about those interactions, but we can express how confident and energized they make us feel for this next generation of reactor developers to broaden the zero-carbon toolset to help reverse the trend of ever increasing CO2 emissions. In the foreseeable future, those new designs will likely contribute to the gargantuan task of reducing the existing emitted inventory of over a trillion tons of greenhouse gases already afflicting our climate, by working in combination with a range of carbon capture and removal technologies.

Our investments do not give us a “conflict of interest.” Rather, we believe they give us a broadening window into the future of decarbonization. We will continue to work with the ventures in our portfolio to help them navigate in the ever-shifting policy, regulatory and investment environments. We will keep our eye on the progress towards commercialization goals and continue to drill down into technological and competitive progress being made, so we can better determine our future investment activity.

We are not policy makers nor government officials. We have “skin in the game.” We will be participating to the extent of working to make sure that the developing advanced nuclear energy industry focuses on meeting customer needs and wants and ensuring that there are cost-effective methods for delivering these over the longer term.

We are also enthused by the opportunity to expand the world of “clean energy” and “climate tech” investing to include nuclear energy. We know that a large portion of the clean, near zero-emission energy produced in the world today comes from long ago investments in nuclear power plants that have been operating reliably for decades. While some look at the hiatus in new builds and believe it indicates that nuclear power is on its way out, we look at the same hiatus as the impetus to improve upon and achieve major strides towards perfecting this extraordinary but still overlooked technology. We will be working our hardest to make sure that we and our investors are able to participate in the growth and success of those ventures which best meet the climate challenge with the right set of products and services.