Will Artificial Intelligence Revive US Nuclear Energy?
Yes, but many investors will lose a lot of money betting on breathless hype.
“If we don’t build 100 (nuclear) reactors, we won’t make a significant contribution to climate.”
That’s a quote from Microsoft (NSDQ: MSFT) billionaire Bill Gates. And to some extent, he’s putting his money where his mouth is—funding TerraPower’s 345-megawatt capacity, sodium-cooled fast reactor demonstration project near Kemmerer, Wyoming.
Construction activities are limited to “non-nuclear site features.” That’s pending a permit for TerraForm’s “Natrium” design from the US Nuclear Regulatory Commission—a process expected to take several years though management says the facility “could begin operations by 2030.”
Natrium reactors would not use water as the primary coolant. That would eliminate the need to deal with extreme water pressure and after heat, two major complexities that increased the cost of Southern Company’s (NYSE: SO) AP-1000 reactors in Vogtle, Georgia.
The Wyoming project is a partnership with GE Hitachi, ensuring an immediate entre to the global power industry if successful. And for now, it’s one of two nuclear projects co-funded by the US Department of Energy’s “Advanced Reactor Demonstration Program.”
TerraPower is also developing a molten chloride fast reactor through a public-private partnership led by Southern Company. Partners say operational testing could begin at US government facilities in Idaho “as soon as 2027.”
Mr. Gates says he’s “invested over $1 billion” in new nuclear already and “will be investing even more.” That includes funding advanced grid technology, such as the “TS Conductor” he says will double the transmission capacity of the power grid. And his Breakthrough Energy Ventures’ efforts have enlisted US research universities as well as Singapore sovereign wealth fund Temasek Holdings.
But nuclear power is going to need all of that support and a lot more for a true US renaissance.
Let’s start with the current generation of 94 operating US nuclear power plants, which generates around 20 percent of America’s electricity and 50 percent of Illinois’. All but the two new ones at Vogtle entered service at least 35 to 40 years ago.
The NRC reports 41 US reactors have been shut to date. And at least a dozen more will close permanently by the end of the decade barring license extensions.
Some retirements have been relatively small, such as the 620 MW Vermont Yankee plant shut in December 2014. But several big ones have closed too, including Zion 1 and 2 in Illinois and San Onofre in California.
The primary reason for closing wasn’t safety but economics: The plants simply couldn’t compete on cost and efficiency with new natural gas and renewable energy generation.
To keep plants open, Connecticut, Illinois, New Jersey and New York have granted operators generous state subsidies. And the Inflation Reduction Act of 2022 provides even bigger credits on the federal level.
Constellation Energy (NYSE: CEG) is the nation’s largest nuclear generator by far with 22.1 gigawatts of capacity and consistent mid-90s percent operating rates. The IRA provides a production tax credit (PTC) of $15 per megawatt hour from 2024-32, a benefit projected to generate billions of dollars of earnings. That’s enough incentive for the company to “up-rate” facilities by “1,000 megawatts or perhaps more” the next couple years.
CEO Joseph Dominguez has forecast artificial intelligence-enabled data centers will require an additional 10 to 20 gigawatts of power generating capacity in the PJM Interconnection by the end of the decade, business his company plans to pursue.
Nonetheless, Constellation currently has no plans to invest in and build new nuclear. That includes SMRs (small modular reactors), which the company says will take until at least “early next decade” to begin producing energy.
Despite successfully getting the Vogtle project to the finish line, Southern Company CEO Chris Womack says the utility is in no hurry to build either And Dominion Energy (NYSE: D) will apparently rely on new natural gas and solar at its South Carolina electric utility, rather than revive the two cancelled AP-1000 reactors planned at the Summer site.
I can think of at least a couple good reasons for their reluctance to invest:
· The cost of Vogtle.
Estimating the future cost of siting, permitting, financing and building a future Natrium or molten Chloride nuclear reactor is purely speculative right now. So is trying to guess the price tag of a new SMR.
What’s not up for debate is the now spent $30 billion to complete the Vogtle project, Nor is the fact it took seven years longer to build than anticipated.
The project didn’t financially ruin Southern Company for three main reasons. The company had partners, so it was responsible for just half the costs. It had the unflinching support of Georgia regulators as well as the US government, including low cost federal loans and favorable rate mechanisms. And the company was large enough to assume control of the project when Toshiba/Westinghouse declared bankruptcy, defaulting on the fixed price construction contract.
Absent any of those, Vogtle would have failed at a cost of billions of dollars, just as the Summer project did. And with solar and gas generation quick and cheap to build, no utility or developer is going to take that chance, at least not without a far larger guarantee than Southern had.
· Cost of capital.
Borrowing costs for investment grade companies are at generation highs. Stocks of leading non-utility nuclear operators like Constellation and Vistra Corp (NYSE: VST) are up big this year. But utilities have lagged. And any companies announcing a major investment in new nuclear with uncertain cost will risk mass selling of their stocks and bonds.
Will investors make money in nuclear? You bet.
We’ve already done very well just by being patient with stocks like Constellation, Southern and Vistra in Conrad’s Utility Investor. And I’m highlighting more opportunities in the July issue of CUI, posting on the 8th.
But Bill Gates’ money and apparent bi-partisan support in Washington aren’t enough to wipe away the major hurdles to an American nuclear renaissance—from the current lack of technology with acceptable and predictable deployment cost to volatile global uranium prices. And even in an absolute best case, it will take years to overcome them.
Any company that eventually winds up in the nuclear winners’ circle will need staying power. And successful investors will need patience and perseverance, as well as the perception to separate reality from hype.