What Went Wrong with SMRs?

At the graveyard wherein resides the “nuclear renaissance” of the 2000s, a new occupant appears to be moving in: the small modular reactor (SMR).

This is a statement that might have appeared nonsensical even a year ago. SMRs looked to be the Next Big Thing in nuclear, a way to circumvent the biggest obstacle to new nuclear generation: the enormous up-front costs for conventional nuclear plants. Instead of the billions required for multi-gigawatt projects (Georgia Power’s 2.2-GW Plant Vogtle expansion is projected to cost nearly $15 billion, for example), SMRs would be much smaller—on the order of 50 MW to 200 MW—much simpler and more standardized, and much cheaper.

Most of the momentum for SMRs has come from the Department of Energy (DOE), which has been throwing out hundreds of millions of dollars in cost-shared funding intended to jump-start the industry. The DOE launched its SMR Licensing Technical Support Program in 2010 with the goal of “[advancing] the certification and licensing of domestic SMR designs that are relatively mature and can be deployed in the next decade.” Congress duly appropriated $452 million for the initiative.

The first recipient of the DOE’s largess was a joint venture between Babcock & Wilcox and Bechtel, which got an unspecified amount of 50-50 funding for its 180-MW mPower design. This May, the DOE awarded another $217 million in matching funds to Corvallis, Ore.–based NuScale—majority-owned by Fluor—to help develop its 45-MW SMR.

Folks in the nuclear industry were excited about SMRs, seeing them as a way to break the decades-old logjam that had stalled new nuclear development, as well as a more cost-friendly means of deploying all sorts of high-tech, high-performance operating and safety features nuclear engineers have been dreaming about since Three Mile Island.

Where’s the Market?

But something happened on the way to that promised land. Over the past year, the SMR industry has been bumping up against an uncomfortable and not-entirely-unpredictable problem: It appears that no one actually wants to buy one.

In June last year, MidAmerican Energy scuttled plans to build an SMR-based plant in Iowa, saying the project was premature given the state of SMR technology. (When Warren Buffett backs out of your project, that’s generally not a good sign.)

This spring, Babcock & Wilcox appeared to scale back much of its SMR program. It wants to revise its cost-sharing agreement with the DOE to cut its annual spending from around $80 million to just $15 million. Then it took the ominous step of laying off 100 workers in its SMR division.

Babcock & Wilcox insists mPower is still going forward, but its most recent projections still put first operation a decade away, and plans to submit the design for Nuclear Regulatory Commission (NRC) licensing have been delayed.

Meanwhile, having lost out on the second round of funding, Westinghouse announced that its SMR program was simply closing up shop. CEO Danny Roderick neatly encapsulated the problem facing SMRs: This company that helped create the nuclear energy business, and that has built reactors around the world, was unable to find any prospective customers.

Economics 101

What went wrong? The problem has really been lurking in the idea behind SMRs all along.

The reason conventional nuclear plants are built so large is the economies of scale: Big plants can produce power less expensively per kilowatt-hour than smaller ones. The SMR concept disdains those economies of scale in favor of others: large-scale standardized manufacturing that will churn out dozens, if not hundreds, of identical plants, each of which would ultimately produce cheaper kilowatt-hours than large one-off designs.

It’s an attractive idea. But it’s also one that depends on someone building that massive supply chain, since none of it currently exists. According to Westinghouse’s Roderick, “Unless you’re going to build 30 to 50 of them, you’re not going to make your money back.” Which means that building that supply chain would require a lot more than the $452 million the DOE has to hand out. That money would presumably come from customer orders—if there were any.

Unfortunately, the SMR “market” doesn’t exist in a vacuum. SMRs must compete with cheap natural gas, renewables that continue to decline in cost, and storage options that are rapidly becoming competitive. Worse, those options are available for delivery now, not at the end of a long, uncertain process that still lacks NRC approval.

How Much Support?

The DOE, theoretically, could do more than hand out money. Renewables, after all, were a niche market until governments began enacting mandates for generation. The biggest current markets for nuclear are countries like China, where top-down energy planning is the norm. Countries like the U.S. with open energy markets are seeing viable plants shut down in the face of competition (the Vogtle units, not insignificantly, are being built in the most tightly regulated market in the country).

Short of some sort of “Nuclear Portfolio Standard,” it’s very difficult to see SMRs getting the traction they need to reach those hoped-for economies of scale. But with much of the enthusiasm for renewable mandates waning—world leader Germany, for example, scaled back its renewable subsidies in June—the prospects for a completely new SMR mandate would seem, at best, remote.

As a nuclear veteran myself, I’d love to see those high-tech reactors get built. But the question has to be answered: Who will pay for them? ■

Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).