- How Energy Security is a Driver of Climate Policy
- Q&A with IP3’s Michael Hewitt
- Bulgaria Faces Energy Choices
- A Greek New Deal
- UK Pursuit of Energy Security and Climate Policy
- Poland Goes Private for SMRs
- DOD Work on SMRs will Benefit US Developers
- Energy Security for HALEU Nuclear Fuel
It is no secret that China and Russia use their exports of commercial nuclear reactors as tools of statecraft. By offering very favorable financial terms to build light water nuclear reactors in nations such as India, Turkey, Egypt, Bangladesh, and Pakistan, the two authoritarian nations simultaneously link energy security and climate policy commitments while also drawing these nations closer into their respective spheres of geopolitical influence.
Not biting the hand that is building new nuclear reactors at bargain basement rates is the result even when that hand is involved in reprehensible behaviors. A case in point is India which has abstained from criticizing Russia for its invasion of Ukraine.
Why? The answer is found in the two 1000 MWe VVERs commissioned at Kudankulam, the two more that are under construction, and the two additional units planned for that site. Another six units, at 1200 MWe each, are on the drawing boards in Andhra Pradesh for a site on India’s east coast. By comparison, firms from western nations have been effectively locked out of India’s nuclear energy market by a so-called “energy security law” which was promoted by India’s coal mining interests.
Russia solves the problem of “EPC risk” for India, and other “customers,” by covering all the costs of building a massive full size reactor no matter what. The reason is that Russia isn’t in a conventional business relationship with its customers, even though, as in Finland, they make it look that way. Russia’s interest is focused on statecraft. Russia doesn’t count EPC costs the way the Finnish government or any other western nation committed to a capitalist economy adds up the numbers.
China is committed to the same paradigm in its decision to build two 1000 MWe Hualong One PWR type reactors in Pakistan. Recently, Argentina asked China to assume the full $8 billion cost to build a new reactor. It believes, based on China’s past disregard for EPC risk in favor of statecraft, that it will get it.
In the middle of this globally significant change is the key question of what is the U.S. going to do to re-asset its role in the global nuclear industry and win hearts and minds in the process without breaking the bank? Publicly traded companies, and their private equity counterparts, are in the pursuit of profits not statecraft.
- The Linked Futures of Energy Security and Climate Policy
In an article published in the National Interest titled, “Energy Sovereignty Will Be the Westphalian Principle of the 21st Century,” David Gattie, Associate Professor of Engineering at the University of Georgia and Michael Hewitt, RDML (ret) U.S. Navy, Co-Founder and CEO of IP3 Corporation make the case that energy security has to travel hand-in-hand with climate policy.
The central premise of the article is that “Energy Sovereignty” will be the “Westphalian Principle” of the twenty-first century. It will be driven by the need for abundant, baseload, and clean energy. It will show that nuclear power (as Eisenhower projected) will be critical to energy sovereignty. The paradoxical danger of over commitment to clean energy, aka “renewables”, will be diminished even if its advocates create more sound and fury than they can justify in terms of delivered decarbonization of major industrial sectors.
According to the two authors, energy as the currency of the twenty-first century, just like oil in the twentieth century, is starting to dominate decision making by European elected officials, technocrats in major corporations, and asset managers at investment funds.
What’s new, Gattie and Hewitt say, is that the unprovoked invasion of Ukraine by Russia has flipped the coin for Europe in terms of how to achieve energy security and decarbonization of its industrial and consumer use of energy.
They say an opportunity is at hand that can be leveraged to advance America’s efforts to revitalize its civilian nuclear enterprises and compete once again on the world stage. Their view is that the West needs to step up to the geopolitical plate, and sooner rather than later, along with its most recent COP26 commitments, to address climate change.
Q&A with IP3’s Michael Hewitt
Recently, IP3’s Michael Hewitt agreed to talk with this blog about what his firm is doing to develop sustainable energy and energy security infrastructure via public/private initiatives and industry-led partnerships.
Hewitt says that IP3 is hanging its hat on small modular reactors (SMRs) because they reduce EPC risk due to their size at less than 300 Mwe. While the firm is not tied to any particular vendor, Hewitt is bullish on the fact that SMRs also reduce capital requirements per unit.
The apparently indifference of the U.S. to this trend over time has been caused in part by the fact that nuclear reactors here are built with private capital and cannot compete with the subsidized financing of state-owned enterprises from Russia or China.
Hewitt says the SMR is the game changer for energy security, and is the conceptual blockbuster for both energy security and climate policy. The firm’s work in Bulgaria and Poland illustrates how a strategy of moving from coal to nuclear energy meets objectives for energy security and climate policy in a free market context.
He points to recent experience in Bulgaria and other nations that are examples that can be brought home to the US and offer an example for other western nations seeking to break the current dominance of state-owned enterprises globally on new nuclear reactors projects.
Bulgaria Faces Energy Choices
Recently IP3 inked an MOU with the Bulgarian energy ministry to support low-carbon solutions. The objective is to support an innovative commercial plan focused on energy security and to decarbonize baseload residential and industrial energy processes. The MOU addresses project inception, development, financing, and operations.
The priority is to attract private capital and energy companies, including nuclear, to Bulgaria. For this work IP3 is working with a partner Gemcorp Holdings (GHL) which is based on London, and which focuses on emerging markets.
Bulgaria’s energy security issues in the nuclear sector are legacies of the status of the nation’s emergence from being behind the Soviet Union’s iron curtain. Two relatively small Russian built VVERs that entered revenue service in the early 1980s provide the bulk of the nation’s (31%) current CO2 free electrical power according to the IAEA. Another 44% of electrical power is provided by coal.
- Bye Bye Belene
An effort by the Bulgarian Energy Ministry to complete a partially built Russian 1000 MWe VVER nuclear power generating station at the Belene site did not proceed despite significant interest from Western nuclear vendors.
According to the World Nuclear Association, August 2012 Bulgaria’s EPC awarded a contract to Westinghouse Spain to assess the feasibility of two options: a VVER unit using Russian equipment already procured, but with instrumentation and control systems and fuel from Westinghouse, and a turbine-generator from Toshiba; and construction and operation of a western 1000-1200 MWe PWR, essentially it could be when completed a Westinghouse’s AP1000.
In September 2012 Rosatom said that it would not cooperate with the Westinghouse Spain evaluation and escalated its claim to €1 billion to encourage a purely Russian outcome for Kozloduy 7. The claims were settled for €620 million in compensation for the already-produced primary cycle equipment for Belene units 1&2. The Belene project was subsequently abandoned by Bulgaria.
- SMRs Would Be a Better Buy for Bulgaria
Going forward IP3’s Hewitt says that small modular reactors may be a better solution for Bulgaria in the near term than trying to build more full-size reactors with their decades long development timeline. A key objective could be for SMRs to provide process heat for district heating which currently relies on coal-fired steam plants. There are additional opportunities besides generation steam and electricity.
“A lot of institutional investors are looking at the potential for ‘hybrid energy’ projects that engage nuclear energy and renewables. Because this focus is not just on generating electricity, they see new revenue opportunities for process heat and production of hydrogen.”
More importantly, Hewitt says, the combined drivers of energy security and climate policy have focused the interest of these investors on fleets of small modular reactors (SMRs) rather than “one off” projects.
Hewitt and Gattie write in their National Interest essay, “A central problem for the private U.S. nuclear sector is cost competitiveness for the current nuclear fleet and for new construction. For currently operating reactors, natural gas and subsidized renewables are oftentimes less expensive at the margins. Moreover, high capital costs for large nuclear power plants are disincentives to attracting investment dollars for such long-term projects. SMRs offer lower construction costs and shorter construction schedules. But, without a demand for SMRs and a book of business, economies of scale will remain elusive and costs will remain high.”
In other words, whereas in the past Russia would have absorbed the EPC risk of building 1000 MWe PWRs in Bulgaria, now, with lower risk for SMRs, western investors can enter the game of financing them to replace coal plants securing energy supply and decarbonizing district heating among other uses.
“SMRs provide confidence in the area of EPC risk, Hewitt says.
“The era of exclusively building large nuclear power plants is over. SMRs represent a great opportunity to create an entire industry (for fleets of them) along with the manufacturing and supply chain firms.”
Hewitt cautions that to build a fleet of SMRs requires creating an order book that in turns creates predictive demand for suppliers who can then invest in manufacturing capabilities to build these reactors. Raising the first $1 billion in capital for innovative energy projects in Bulgaria is one IP3’s key objectives.
A Greek New Deal
Bulgaria’s next step in its pursuit of energy security and climate policy objects is represented in recent talks with Greece to build SMRs in Bulgaria and sell some of the electrical output across their long common southern border with Greece.
Bulgaria’s Energy Ministry recently announced the effort. It said the two countries are starting a feasibility study, in cooperation with Greece, on a shared nuclear power project that could help the two countries overcome Greek dependence on Russian natural gas. Greece has no plans to build its own nuclear power plants of any size due to its seismic profile.
Facilitating the effort is a new, second, overhead 400 kv electric line will soon connect Greece and Bulgaria. This new interconnection line between the substations Maritsa East in Bulgaria and Nea Santa in Greece will be approximately 150 km (93 miles) long.
The nuclear project still has a long way to go. The fact that these discussions are taking place is another indication that innovation in energy project design is a crucial element in achieving energy security to meet climate goals.
UK Pursuit of Energy Security and Climate Policy
Other nations are linking energy security and climate policy Hewitt says. He points to the development of mid-size (470 Mwe) PWRs by Rolls-Royce in the UK which plans to build a fleet of 16 of them completing the task by the mid-to-late 2030s.
“Rolls-Royce has a clear opportunity,” Hewitt says. He adds that Exelon, now branded as Constellation, has partnered with Rolls-Royce and that it is reasonable to assume that its objective is to be the utility operator of the Rolls-Royce Fleet.
Hewitt points to a recent development in the UK which will help progress for the fleet size project is that the UK Parliament has passed the RAB method of financing new nuclear power projects. Like the CWIP method in the US, it pays for the cost of construction based on key milestones of progress. The method saves money by avoiding the interest carrying costs of having to wait for reimbursements until each reactor enters revenue service. For a full size, 1000 MWe or larger reactor, these savings are substantial.
Rolls-Royce’s confidence in the new financial plan is indicated by the fact that it recently submitted its 470 MWe PWR design to the UK government’s Office of Nuclear Regulation (ONR) to complete the Generic Design Assessment (GDA). The decision is not taken lightly. The GDA takes about four years. It is famous for being both complicated and costly. The regulatory review, if successful, will effectively allow Rolls-Royce to proceed with its plants to build the fleet.
In the UK Prime Minister Boris Johnson recently announced a plan to significantly boost the nation’s commitment to nuclear energy by setting a target of having 25% of the country’s electricity provided by fission power within the next few decades. The Rolls-Royce fleet could easily help meet that part of that overall objective. The planned 16 units, at 470 Mwe each, would create 7.5 GWe of electrical power exceeding the combined ratings of the now sidelined Wylfa, Oldbury, and Moorside projects.
Poland Goes Private for SMRs
Another nation where Hewitt and his colleagues at IP3 are working is Poland. There the impetus for SMRs is with private industry. The firm is an advisor to Polish giant ZEPAK. IP3 will work with its client to put together an implementation plan that will address key financial and regulatory milestones.
Hewitt says that this project is an example of a highly industrialized country using current technologies to simultaneously work towards energy security, e.g., less use of Russian natural gas for industrial process heat, and meeting climate policy objectives, e.g., CO2 emission free energy. It will also help ZE PAK reduce its use of lignite which is the most polluting form of coal.
ZE PAK plans to invest in four-to-six SMRs (GE-Hitachi BWRX-300) to be built at a power plant located in central Poland. The firm’s decision to focus on the BWRX-300, Hewitt says, has been bolstered by an unrelated decision last December by Canada’s Ontario Power Generation (OPG) to select the SMR for a first-of-a-kind (FOAK) plant at its Darlington, Ontario site.
“A government decision to select a vendor is always a confidence builder,” Hewitt says. “It shows that a utility has decided that an SMR can pay and that the market is here for them.”
- Leveraging SMRs Strategies via the 3 Seas Initiative
Poland’s experience is seen by 12 other European nations as a bellwether change in a path forward to simultaneously address energy security and climate policy. In this case the change process is funded in part by the US State Department along with the12 member nations who are supporting the 3 Seas Initiative.
The State Department effort to support the 3 Seas Initiative will strengthen international collaboration between the US and the 3 Seas 12 partner countries seeking to deploy nuclear energy as part of their clear energy initiatives. This cooperation includes supporting the deployment of advanced nuclear technologies, including small modular reactors (SMRs).
IP3 Board member Georgette Mosbacher, former US Ambassador to Poland, is part of a leadership team at the Atlantic Council which is spearheading an effort by the Council to support the 3 Seas initiative.
According to the Atlantic Council, “Its objective is to see that Europe that is undivided, free, prosperous, and secure. This (Atlantic Council) leadership team will intensify the Council’s effort to catalyze new investments in Central Europe and the Baltic States and bolster US engagement in the region.”
“The Three Seas is a unique and transformational initiative launched and led by some of America’s closest allies. It is all about completing Europe.” Mosbacher said.
Department of Defense Work on SMRs will Benefit US Developers
Programs to procure micro-reactors and SMRs by the Department of Defense through Project Pele and the US Air Force “is a signal of the importance of energy security for the nuclear industry,” Hewitt says.
Hewitt, and his co-author Gattie write, “By including SMRs as a necessary technology in its long-term energy security and climate strategy, the U.S. DOD can create a strong demand signal that would, in turn, lead to the development of an efficient nuclear supply chain and, eventually, lower costs. This not only benefits U.S. military, it also benefits the U.S. civilian nuclear sector as SMRs become an economically viable option that invites private capital.”
DOD’s planned Project Pele micro reactor might fill the bill. It is designed to fit inside of a 20-foot shipping container, will be able to produce one-to-five MWe of power for three-plus years, and offer two million times the energy density of diesel fuel. The Department of Defense is requiring that the deployed version of the micro unit be capable of being fully transportable in semi-truck, can be set up at any remote site in three days, and be able to be disassembled and moved in seven days.
“DOD’s commitment to pursue these types of reactor designs will definitely have a spillover effect that will benefit the civilian nuclear industry,” Hewitt says.
“The DOD investment will spur supply chain investment which will be available for civilian developers of SMRs, and it will create opportunities for exports.”
Energy Security for HALEU Nuclear Fuel
Some of these DOD and civilian SMRs will burn high assay low enriched fuel (HALEU) (video) which until recently was only available from Russia which down blended it from highly enriched uranium (HEU) stocks. HALEU is enriched uranium at 5%-19% U235. By comparison, weapons grade bomb materials have enrichment levels of 80% U235 or higher.
Right now, Hewitt says, aside from breaking free of Russia’s grip on the supply, the firms in the US nuclear industry that will need HALEU are facing a ‘chicken-and-egg” paradox. In fact, it is their number one ‘keep awake” issue for their CEOs.
Fuel fabricators want to know that there will be demand for HALEU, that is, that SMRs with this type of fuel requirement, will be built in fleets, not just first-of-a-kind prototypes, to justify the huge investments in nuclear fuel cycle facilities. Reactor developers want to know that their plans for just in time delivery for fuel for their go to market timelines for their SMRs will be met. In this case advanced designs include HTGRs, MSRs, sodium cooled units, etc.
Image: “Establishing a High Assay Low Enriched Uranium Infrastructure for Advanced Reactors Prepared by the Nuclear Energy Institute, January 2022:
Hewitt says this is an opportunity for the federal government to step in to simultaneously address energy security and climate policy. By asking Congress to fund production of HALEU fuels for domestic use, the paradox goes away. Advocates from the nuclear reactor development community, along with DOE, would need to engage the energy and national security authorization and appropriations committees to make this happen.
In December 20, DOE issued a Request for Information (RFI) for public input on its planned program to ensure domestic availability of HALEU for the U.S. fleet (responses to DOE’s RFI are due on February 14, 2022). The Energy Act of 2020 authorized DOE to establish a program for domestic sourcing of HALEU for research, development, demonstration, and commercial use. DOE is now reviewing the input it got from its RFI. The agency has $45 million for HALEU work in 2022, but this is a drop in the bucket for the scope of fuel facilities commitments that are likely to emerge by the end of this decade if not sooner.
The security issue of having been dependent on Russia, which is now a heavily sanctioned international pariah, is resolved and developers of CO2 emission free power can be confident the fuel will be available to go to market with their designs.
“We know how to make it,” Hewitt says, “We just have to do it.”
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