DOE, Kairos Unveil Milestone-Based Funding Agreement for Advanced Nuclear Demonstration Project

Kairos Power will secure $303 million from the Department of Energy (DOE) under a novel performance-based, fixed-price milestone approach to support the design, construction, and commissioning of its 35-MWth Hermes molten salt “non-power” demonstration reactor, which the firm has proposed to build at the East Tennessee Technology Park Heritage Center (ETTP) site in Oak Ridge.

The approach “wherein the company will receive fixed payments upon demonstrating the achievement of significant project milestones,” will be implemented under a newly signed Technology Investment Agreement (TIA) between Kairos and the DOE as part of the agency’s Advanced Reactor Demonstration Program (ARDP) risk reduction award, Kairos said on Feb. 21.

Announced in December 2020, the ARDP award’s total value for the Hermes project over seven years is $629 million, with $303 million, or about 48%, coming from the DOE.  The TIA—a special assistance instrument the DOE uses to increase commercial firm involvement in research, development, and deployment programs—represents an “innovative contract” designed to incentivize “efficiency, drives performance, and establishes credibility to deliver,” Kairos noted.

Kairos told POWER the agreement includes numerous milestones, “some of which have already been reached, including: receipt of the Hermes construction permit from the [Nuclear Regulatory Commission], and completion of pumped salt operations with Engineering Test Unit (ETU) 1.0.” Additional milestones include (but are not limited to) submission of the Hermes operating license application to the NRC and “various milestones related to the construction and operation of the Engineering Test Unit series and the Hermes reactor,” it said.  

An Evolving Federal Contracting Approach

The funding approach derives from an innovative model NASA deployed to carry out its Commercial Orbital Transportation Services (COTS) program. The NASA program that ran from 2006 to 2013 boasts significant successes, including the development of SpaceX’s Falcon 9 rocket and Dragon spacecraft. NASA considered that because the government is obligated to pay additional costs for unforeseen slips in scheduled development, contractors faced little accountability for less efficient work, knowing they would not be financially responsible for delays and cost overruns. 

NASA suggests a 2004 market research study proposed the idea of “milestones with actual performance establishing credibility for future funding.” The approach championed payment guarantees after predefined objectives were completed—“not on a continual basis as is customary under the system of a cost-plus contract in which companies are awarded a contract for the total cost of the work performed, plus an additional amount of profit.” 

The Department of Defence adopted the performance-based concept in 2014 and set out to streamline it in 2018. The DOE in October 2023 proposed a comprehensive revision of its acquisition regulation, in part, to refine its own performance-based contracting.

An Incentive to Boost Contractor Performance 

The approach may serve as an important lever for the ARDP, which banks on $3.2 billion in  Congressionally appropriated funding to help accelerate the demonstration of new advanced reactor technologies through cost-shared partnerships with industry. Initially funded with $230 million by the 2020 Further Consolidated Appropriations Act, the 2021 Infrastructure Investment and Jobs Act appropriated $2.477 billion through fiscal year 2025 for the ARDP, in addition to annual appropriations.

The DOE’s Office of  Clean Energy Demonstrations (OECD) is spearheading the program’s two primary funding awards through its demonstration pathway under 50% DOE cost-shared contracts.  X-energy, which will demonstrate its to demonstrate its Xe-100 high-temperature, gas-cooled reactor design to provide process heat and electricity at an industrial facility in Seadrift, Texas, is set to receive $1.2 billion in DOE funding, while TerraPower, which will demonstrate its 345-MW sodium-cooled Natrium Reactor near a retiring coal plant in Kemmerer, Wyoming, will get up to $1.6 billion.

In addition, the ARDP seeks to support five potential future reactor demonstration projects through cost-share awards under its risk-reduction pathway—a combined $600 million of DOE funding over seven years. Along with California-based Kairos, these awards are allocated to Holtec for its SMR-160 reactor, Southern Co. for its Molten Chloride Reactor Experiment, BWXT for its advanced nuclear reactor, and Westinghouse for its eVinci microreactor. 

“As with all our financial assistance, DOE is ensuring stringent oversight of the federal investment in the ARDP awardees. Together with its industry partners, DOE has developed appropriate terms and milestones that the ARDP projects must satisfy in order to receive DOE reimbursement for allowable costs,” Kathryn Huff, assistant secretary of the DOE’s Office of Nuclear Energy, told the U.S. House Committee on Oversight and Accountability in January.

“Funding for projects is evaluated near the end of each budget period to ensure maximum insight into project progress.” The DOE has also “undertaken independent reviews of each of the ARDP projects to ensure accuracy in project costs and timeline expectations,” her testimony notes. “These projects will also be monitored by the Department’s Demonstration and Deployment Advisory Board (DDAB), which provides advice to ensure risk management and accountability for large projects that DOE supports.”

On Wednesday, Huff suggested the DOE’s partnership with Kairos models “a significant role in making advanced nuclear technology commercially competitive.”

Kairos also suggested it would benefit from the new approach. “With the use of fixed-price milestone payments, this innovative contract provides real benefits to both Kairos Power and DOE to ensure the successful completion of the Hermes reactor,” Mike Laufer, Kairos Power co-founder and CEO, noted in a statement. “It allows us to remain focused on achieving the most important goals of the project while retaining agility and flexibility to move quickly as we learn key lessons through our iterative development approach.”

The penalty for not delivering on a milestone is “Kairos Power does not get paid,” Kairos explained to POWER. “With this fiscally responsible approach, Kairos Power has real skin in the game. The company bears the upfront risk, taking financial responsibility for any work required to complete a milestone. This incentivizes efficiency, drives performance, and establishes credibility to deliver,” it said.

As for accountability, the “DOE will have significant insight into project performance through regular project briefings and reports and can raise concerns if it feels like the project’s overall objectives are not being achieved,” it said.

Kairos Is Making Notable Headway on Licensing, Development

Kairos said in addition to public funding, it has “substantial private investment” in the Hermes project and supporting infrastructure and is making “steady progress” on its pathway to demonstration. For now, Kairos plans to break ground on Hermes at the Heritage Center in 2024, and it is targeting mid-2026 as an initial commissioning date for Hermes. On Thursday, Kairos noted it expects “additional operational milestones expected in 2027.”

In December 2023, notably, the company secured a construction permit from the Nuclear Regulatory Commission (NRC) to build the non-power demonstration reactor in Tennessee. The approval marks the NRC’s first green light for the construction of a non-water-cooled reactor in more than 50 years. Kairos, however, must first secure a separate NRC operating license before it can begin operating the Hermes demonstration to comply with the regulatory body’s two-step, 10 CFR Part 50 licensing process.

To achieve more certainty, the 2016-founded firm has embarked on a unique developmental approach, which it says is inspired by the success of space exploration technologies firm SpaceX. The approach involves using iterative hardware demonstrations and in-house manufacturing “to achieve disruptive cost reduction and provide true cost certainty for commercialization.” While Hermes, a scaled advanced reactor demonstration plant, will not produce power, it will support development of Kairos’s KP-FHR, a 140-MWe advanced reactor technology that uses a flexible steam cycle to produce and then convert heat from fission into power. 

As POWER has reported, Kairos’s KP-FHR comprises a graphite-moderated, “randomly packed” pebble‐bed reactor with molten fluoride salt coolant (a chemically stable molten fluoride salt mixture of 2LiF:BeF2 [Flibe] enriched in Li‐7), operating at high temperature and near‐atmospheric pressure. The fuel in the KP-FHR is based on tri-structural ISOtropic (TRISO) particle fuel in pebble form with a carbonaceous‐matrix coated particle design.

The iterative process has kicked off with the substantial development of Kairos’ Engineering Test Unit (ETU), a non-nuclear, unenriched Flibe-wetted and isothermal integrated test at the company’s KP-Southwest research and development facility in Albuquerque, New Mexico. Kairos is already producing Flibe for the ETU program at its June 2022–commissioned Molten Salt Purification Plant (MSPP) at specialty materials company Materion’s campus in Elmore, Ohio.

Kairos Power, a privately owned nuclear engineering, design, and manufacturing company that says it is “singularly focused” on the commercialization of its fluoride salt-cooled high-temperature reactor (KP-FHR), is pursuing a pathway that addresses technical and regulatory risks. Courtesy: Kairos
Kairos Power, a privately owned nuclear engineering, design, and manufacturing company that says it is “singularly focused” on the commercialization of its fluoride salt-cooled high-temperature reactor (KP-FHR), is pursuing a pathway that addresses technical and regulatory risks. Courtesy: Kairos Power

Hermes, located within the ETTP—on the building site of a former Department of Energy gaseous diffusion plant (K-33)—will produce 35 MWth and feature coolant operating temperatures of between 550C and 650C. The demonstration’s key objective is to “prove Kairos Power’s capability to deliver low-cost nuclear heat,” but it will also help shed more light on cost and a supply chain, along with reducing risks through testing and a licensing approach, the company has said.

In July 2023, the NRC also formally accepted for review a construction permit application (CPA) for a new iteration, Hermes 2, a two-unit 70 MWth demonstration that would produce “low-power” electricity. If Kairos commits to building Hermes 2, it will be deployed in Oak Ridge on the same site as the first Hermes reactor “to further de-risk technology, construction, supply chain, and licensing for a multi-reactor plant,” Kairos said.

Sonal Patel is a POWER senior associate editor (@sonalcpatel@POWERmagazine).

Updated (Feb. 22): Adds details and comments from Kairos Power. 

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