Supposedly a European energy deal has been reached in which a US firm sells a bunch of tiny nuclear reactors to European countries at an enormous price per GW. It’s hard to think that anybody would ink the deal as described.
It was a Bloomberg piece, and Bloomberg normally gets the facts right, although Bloomberg New Energy Finance gets the framing right far more often. And a bit of evaluation seems to confirm the basics. So let’s tear it apart.
Let’s start with small modular nuclear reactors (SMR). The premise is that they will be a lot cheaper than big nuclear reactors because, you know, modularity. Anything you can manufacture in large numbers drops in price, typically by 20% to 27% for every doubling of units. That’s a truism known as Wright’s Law after the first management consultant who observed it, the experience curve per Boston Consulting Group which happily stole and rebranded it or just the learning curve.
There are a bunch of problems with this premise when it comes to nuclear electricity generation. I’ve written about them, had my content peer-reviewed and included in text books, and debated them with nuclear industry proponents for audiences of a couple of hundred institutional investors likely representing funds worth close to a trillion, so I’m just going to quote myself:
Small modular reactors won’t achieve economies of manufacturing scale, won’t be faster to construct, forego efficiency of vertical scaling, won’t be cheaper, aren’t suitable for remote or brownfield coal sites, still face very large security costs, will still be costly and slow to decommission, and still require liability insurance caps. They don’t solve any of the problems that they purport to while intentionally choosing to be less efficient than they could be. They’ve existed since the 1950s and they aren’t any better now than they were then.
As I discussed with Professor Bent Flyvbjerg, megaprojects expert and author of How Big Things Get Done recently, small modular reactor firms are trying to hunt for an optimized point on the continuum between the efficiencies of big thermal generation and modularity, and I don’t think they are going to find it.
And that’s really true for Last Energy if this reporting is remotely accurate. So what’s the story? Well, apparently they’ve signed a $19 billion deal to supply 34 nuclear reactors that are 20 MW each. Apparently they are going to at least Poland and the UK, although regulatory approval stands in their way.
The first thing that caught my eye was the MW capacity. 34 reactors of 20 MW each only adds up to 680 MW of nameplate capacity. That’s smaller than a billion dollar offshore wind farm that takes ten months to build.
Side note: Nuclear nameplate capacities are usually reported with units of MWe, or megawatts of electricity. That’s because their thermal energy output is perhaps three times the size, but meaningless, as all we care about is the electricity. I just stick with MW usually because the best comparison is to wind and solar which don’t create and waste a lot of heat. However, at 20 MWe, the tininess of the reactor and related thermal generation suggests that the efficiency of turning heat into electricity is probably much worse. That’s the point about thermal generation liking to scale and why everyone building nuclear went bigger in the 1970s and 1980s so that it wouldn’t be as expensive.
So, 20 MW. Is that accurate? I went to their public website, and sure enough, that’s the size. It’s their only claimed product, although they have built and delivered none of them anywhere.
The second thing that caught my attention was the eye-watering price tag, $19 billion. That seems really high even for nuclear, and especially high for only 680 MW.
Maybe this would be reasonable if nuclear normally had capacity factors of 20%, and this tech was operating at 90%, but nuclear globally runs about 90% of the time. It has high uptime, which proponents overstate as an advantage, but is the reality. You can’t actually operate nuclear less than 90% of the time and have it be reasonably priced due to the cost of building the stuff.
How does this compare? Let’s pick the British Hinkley Point C nuclear expansion, one of the most expensive and slowest in the developed world. It is so expensive that the developers demanded and got about $150 per MWh wholesale guaranteed for 35 years with inflation bumps. This when offshore wind energy is running around $50 per MWh wholesale and onshore wind and solar are running around $30 per MWh wholesale. Yeah, Hinkley is absurdly expensive electricity.
Let’s take a walk through memory lane. Hinkley was supposed to deliver electricity for about $24 per MWh when it was originally proposed in 2008, and be in operation by now. Five times the cost per MWh accounting for inflation, so a clear miss. And the current plan is pretending that in 2027 it’s going to be grid-connected, but that’s undoubtedly 2028 at earliest, 20 years after it was originally set in motion, and 11 years after start of construction. So far, so nuclear.
Hinkley’s current cost projection — five years from grid connection, so incredibly likely to rise by billions — is about $40 billion. That’s a lot of amortization per MWh, hence the remarkably high wholesale price. As a reminder, Iceland, which runs 100% on renewables, is delivering consumer retail prices lower than this wholesale price. All of Canada is providing consumer rates below this wholesale cost, although recent news makes it clear that nuclear heavy Ontario are subsidizing consumer rates by US$4.4 billion annually to prevent revolt. Hmmm, is this a trend?
Surely Hinkley must be turning out to be more expensive than this SMR deal? Well, no. Hinkley is building two big, complex, next-generation EPR reactors with 1,630 MW capacity each. That’s 3,260 MW total capacity. That’s almost five times the capacity of the Last Energy SMRs. For only two times the cost.
The ratio is pretty clear. These SMRs will be about 2.4 times the cost per MWh of the very expensive Hinkley facility. All else being equal — and the only reason we have to think this won’t be equal is that nuclear costs always rise, so the $19 billion is likely to be closer to $40 billion — this is already about $360 per MWh wholesale prices for electricity.
What’s the consumer retail price of electricity in the UK? About $340. What about coal heavy Poland? $181.
Yes, the very first announcement of a nuclear deal, probably well over a decade before anything might be connected to the grid, has wholesale rates well over consumer retail rates today.
This is the first version of new material from Flyvbjerg and his team. They have assembled over 16,000 megaprojects’ worth of data on budget, schedule, and asserted benefits vs actuals over 25 categories of projects. This is a view by likelihood of cost overruns. The top of the chart has the least likely categories to go over budget once the shovel hits the ground. The bottom has the categories most likely to go over budget, often by multiples of the original projections. You’ll note where nuclear lies.
SMRs are attempting to fix that by making a bunch of smaller, repeatable reactors instead of big ones. As I pointed out earlier, they are foregoing the efficiencies of being big enough to receive the benefits of physics for thermal generation in order to hunt for a point where modularity optimizes costs and risks sufficiently to make it economically viable.
However, at 2.4 times the cost per MWh of one of the most expensive nuclear generation projects on the planet, clearly they are nowhere near the field, never mind anywhere near the goal. As Flyvbjerg points out several times, first of a kind projects have massive long-talked risks, and Last Energy’s announcement has first of a kind in big neon screaming signage over every part of the deal.
Already 2.4 times as expensive as very, very expensive Hinkley. First of a kind, so very likely to double or more in price. Very unlikely to be built before 2040 due to long-tailed risks. Who exactly signed a deal like this, and why?
Comments from Lyle Morton, Vice President of Marketing & Communications, Last Energy: Reaching out to clarify an important detail regarding the Last Energy announcement. The $19bn is not a cost figure but the total value of the electricity under contract over the duration of the 4 contracts — which range from 20-24 years.
My take: That’s still a ridiculous $160-$170 per MWh wholesale by the initial terms of the deals before all of the inevitable problems with first of a kind deployments. Even at $160-$170, I’ll believe this only when I see it in operation, at the price point specified, and delivering benefits as promised. I won’t be holding my breath.
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