The Great American Nuclear Renaissance
With the introduction of the Inflation Reduction Act, U.S. policy makers have reset the landscape for nuclear energy. Ed is joined by Benton Arnett from the Nuclear Energy Institute to walk us through the details.
Ed Coyne: Hello and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott Asset Management. I'm pleased to welcome Benton Arnett, Director of Markets and Policy at the Nuclear Energy Institute (NEI) out of Washington, D.C. Benton, thank you for joining Sprott Radio.
Benton Arnett: Yes, thanks for having me on, Ed.
Ed Coyne: Benton, before we dive into the world of nuclear energy, being a new guest on Sprott Radio, please tell us a bit about yourself and the work you are doing at the Nuclear Energy Institute.
Benton Arnett: Yes, happy to. I'm the Director of Markets and Policy at NEI. I manage a lot of our interaction with what we call non-traditional applications for nuclear. When we start thinking about process heat and hydrogen production and many behind-the-meter applications, I help create those strategic partnerships and put our members in contact with new customers. Then another big focus of ours has been outreach to the investor community – helping to educate the financial community and investors so they understand what to expect on the horizon for nuclear.
Ed Coyne: Expectations are everything, particularly when you're talking about Wall Street. They love trying to get ahead of the curve. Before we dive into some of these topics though, we all know about nuclear energy, but I think it would be helpful to define nuclear energy and talk a little bit about what a reactor is and how it works. Give us a bit of that before we dive into some of these other topics.
Benton Arnett: When I talk with folks about nuclear energy, I think it's one of those topics that can sometimes be hard to approach. We think about all the science that goes into it and all the very complex physics, but at the end of the day, when we're looking at a nuclear power plant, it's essentially a large water boiler. It works very similarly to other thermal power plants on the back end when it produces steam and turns a turbine to produce electricity.
How we create that energy is different. In a traditional thermal plant, you're looking at combusting some type of fuel, through that combustion process, you get heat and also have emissions associated with that. In nuclear, we're taking atoms and splitting them. Through that process, we can get this massive amount of energy without a lot of the byproducts you see in other combustion-focused thermal plants.
Ed Coyne: We can't cover nuclear without first and foremost discussing the safety of nuclear. I think for many years, right or wrong, people have that concern. Where are we right now from a technology standpoint? Where are we from a safety standpoint as relates to nuclear?
Benton Arnett: Nuclear has always been one of the safest ways to produce electricity. Many folks don't realize that looking at the incidents that get a lot of news coverage, but when you look at the massive amount of energy that nuclear produces per megawatt hour, it is the safest way to produce energy in the world. We see that trend continuing and improving with some new reactors coming online.
Ed Coyne: You talk about safety and as we look to get to this carbon-neutral future, 2050, 2030, it's clearly also one of the cleanest energies out there. Talk about that a bit and about nuclear's environmental impact.
Benton Arnett: I love that question because I think nuclear is one of those silent contributors. Many folks don't realize it's producing 20% of our national electricity consumption here in the U.S. and has been doing that quietly for decades. When we look at the carbon emission side of that and the environmental benefits, it is the country's largest carbon-free power generator.
I think a lot of folks are struck by that. We hear a lot about new deployments of renewables which is wonderful. We're going to need a lot of new renewables in this country. Still, even with all those renewables, nuclear is our number one carbon-free generation source.
Ed Coyne: In the late 1990s or early 2000s, if you look at just the consumption of nuclear or electricity produced by nuclear, it seemed to peak back then, but it seems to be growing again. What kind of growth or enthusiasm have you seen over the last decade regarding nuclear?
Benton Arnett: Yes, you're right. We saw a large build-out of nuclear reactors in the U.S. in the 1970s and the early 1980s. We've had a bit of a lull in that build-out. We have been able to match some new production increases through uprates, so taking our existing power plants and making them produce more power through some technological advancements, and increasing the plants' capacity factor through process improvements.
We're seeing new nuclear [plants] starting to get built in this country, which is an exciting thing. Your listeners have probably heard a little bit about the Vogtle plants in Georgia. Vogtle 3, which just produced its first power earlier this year is expected to come online shortly and then Vogtle 4, which will follow later this year or early next year. Those will be the first truly new plants built in this country in several decades.
Then we're seeing a lot of interest come in from advanced reactors. We have a whole new generation of reactor technologies that operate differently than our previous reactors have operated and can do some cool things that unlock industrial applications and some new areas for production that didn't previously exist. We are seeing a huge opportunity for nuclear to have an upswing here in the next decade.
Ed Coyne: Let's dive into that because you hear about the existing reactors out there that are productive and creating energy. I think you said 20% of the electricity in the U.S. comes from nuclear today. We're also hearing about existing reactors having extended lifespans and then some are being decommissioned. Then to your point, all these new reactors that are coming online, I wonder if you could break down each one. Let's start with the active ones and then work our way through that list, giving us a little insight into each category.
Benton Arnett: Yes, happy to. As you mentioned, we've historically been around 20% of the electricity production. We're down to about 18% now, but that varies a bit based on the seasonal grid mix. With the current fleet, one of the trends we saw over probably the last 15 years was a rise in what we call early retirements.
That means these plants were operational, their equipment was good, and they could, in theory, continue operating for a long time, but they had faced some economic issues. This was mostly due to low prices of natural gas but also due to some market dynamics that were created by subsidies for wind. There were a lot of areas in the U.S. where we would see power prices dip negative.
I always tell folks selling anything at a negative price is a bad business. What we've seen, though, and I know we'll talk a little bit more about it later, is nuclear is finally starting to get credit for the value it provides to the grid as a base load resource and starting to be recognized by policymakers as a necessary contributor to combating climate change. With that, we've really seen that tight turn. I expect a lot of our existing reactors to continue to operate for a long time.
When we look at the licensing of reactors, they're licensed on an initial basis for 40 years. That's not really based on any technical requirements. It's just the NRC saying, "After 40 years, we need to take a look at this and make sure you're good to go." Once you've received that approval, you get an additional 20-year license and you can continue to do those subsequent license renewals indefinitely. We think a lot of our plants are going to operate out into the 2050s and continue to provide that great amount of carbon-free power that we desperately need.
Ed Coyne: When you hear the term extended, it's not as scary as it sounds. Not like some old rickety plant just getting taped together. These are simply – technology's still there, the quality's still there, the safety's still there, they're just extending the licensing it sounds like.
Benton Arnett: That's right. They are constantly going in and doing operation maintenance, replacing components as they wear out, and ensuring that these plants are operating at the absolute highest safety standards. When we start thinking about license extensions, that's just a regulatory formality, not something folks should be concerned about at all.
Ed Coyne: That's very clear and good to know. Let's talk about the new ones. I think that's probably where the most excitement is coming in from, whether it's from an energy creation standpoint or from an investment standpoint, from Wall Street's point of view. Talk about some of the new reactors that are happening, what they look like, and how they're different from maybe the reactors we know today.
Benton Arnett: Backing up a little bit, when we think about our current reactor fleet, it operates as what we call light water reactors. That just means they use water as both their coolant and their moderator. That's a really great technology and has worked well for us for a long time and we still see a huge value case for that going forward. One of the limitations that having a light water reactor results in is a little lower temperature output.
The current fleet operates around 300 degrees Celsius, which is perfectly good for electricity production. You can do some great thermal applications for that too on the lower end but when we start looking at these industrial applications and things like process heat or some advanced forms of hydrogen production, you're really going to need a much higher temperature outlet. Some of the reactors that we're seeing being developed today are shifting away from using water and they use things like high-temperature gas or a liquid sodium or molten salt.
Switching over to those new types of moderators and coolants can result in temperature outputs up to 600, 700 and 800 degrees Celsius. That, suddenly, is producing high-quality steam and we see industrial users looking at that and saying, "Well, I can go take my facility that currently uses natural gas to provide all of that heat and I can switch it over to using nuclear instead."
One thing I think is important to put in context around the conversation when we think about industrial applications is about 25% of emissions in the U.S. come off from grid electricity. There's a ton of focus on decarbonizing the grid, but 30% of our emissions come from industrial applications. If we're going to decarbonize that sector, we need to build out almost an entire other grid worth of power. It's just a massive opportunity and we're really excited about these new designs and the opportunities they have there.
Ed Coyne: Where are we from a timeframe on it? Is that a year from now, 10 years from now? What's that looking like?
Benton Arnett: There are three projects in the U.S. right now that are all supported through the Department of Energy. The first is a project with NuScale partnered with UAMPS deploying their reactor technology in Idaho. That project is set to be online by the end of the decade. We also have two projects that were awarded under what's called the Advanced Reactor Demonstration Program at the Department of Energy. One is a TerraPower Reactor, liquid sodium reactor looking to be deployed in Kemmerer, Wyoming. That's also set to be online towards the end of this decade.
Then there is another project under that same Department of Energy Program with X-energy and their high-temperature gas reactor. They have a partnership with Dow to decarbonize a Dow facility in Texas. That facility is also set to be online before 2030. Sitting here in 2023, we think we're going to have these things online in the next five to seven years.
Ed Coyne: That's amazing. You mentioned something about decarbonizing. If I'm hearing this correctly, are you saying that there are existing plants, maybe coal plants or other types of plants that are being converted to nuclear plants?
Benton Arnett: Yes. I'm glad you brought that up. We’ve been working a lot on that and have identified as a huge opportunity, in what we call coal-to-nuclear transition. That TerraPower project I mentioned earlier in Wyoming, they identified this opportunity to cite their plant in the same area as a retiring coal plant.
They went out to the community in Wyoming, and they said, "We want to do as much of a consent-based siting approach to this as we can." They ended up with four coal communities competing to host this first facility. In the infrastructure world, that's unheard of. Communities are usually the first in line to push back against these types of projects. What we find is these coal communities see this as a huge opportunity for jobs, and a huge opportunity for economic opportunity and advancement.
They're also willing to dive into the facts and the figures and really understand the technology. Once they've done that, they're very comfortable with it and excited to move forward. We're seeing that already taking place in Wyoming, andwe expect to see more of those projects announced around the country in the coming years as well.
Ed Coyne: From an outsider not totally plugged into this world, that seems like a game changer to me. If you're getting those types of transitions and that type of job creation, that's just got to be incredible to be part of that.
Benton Arnett: Yes, it's huge. It's huge for the nuclear industry, but it's also huge for these communities. As these coal plants retire, we see a huge economic driver for a lot of these areas. They employ most of the workers, and they provide a significant amount of the tax base. A lot of these communities are facing a lot of uncertainty and nuclear really provides them this hope that they can continue to have this economic prosperity that they've seen for previous decades.
We're excited about it from the perspective of deploying new nuclear, but also really excited at the opportunity to help these communities and make sure that they're able to continue with the livelihood that they've known for so long.
Ed Coyne: Benton, talking about policy and about tax base, and you guys are front and center working out of Washington, D.C. You get to hear about all the policies that are going on out there. How impactful was the Inflation Reduction Act to the world of nuclear? What did that mean for you all?
Benton Arnett: I can’t overstate how important the Inflation Reduction Act (IRA) was. It is probably the single largest piece of legislation to advance nuclear energy that we've seen since the '50s or '60s. One of the issues that we've faced for a while is a lack of recognition of the contributions that nuclear energy provides to the grid. It's base load, it's carbon-free, and it provides reliable clean power 24/7.
Inflation Reduction Act is the first time we've seen nuclear reach parity with other energy technologies that have similar characteristics. One of the things that Congress did in that act was provided a production tax credit to help support the existing fleet, recognizing that those operations are going to require continual investments. As I mentioned earlier, there are some market dynamics that unfairly punish some of the existing fleets. This production tax credit for the existing fleet is going to help us keep those reactors online out to the 2050s.
The other piece is that we were finally included in a technology-neutral approach to production tax credits and investment tax credits. Previously, you had credits for various energy technologies and Congress said, "Really, we need to be focused on what the output of those technologies are." We see nuclear finally receiving the same level of tax credit as wind and solar, geothermal and hydro. That's going to be huge as we look to build new plants.
Then the third piece I would add in there is there's a large amount of financing support. The IRA provided a lot of loan authority to the Department of Energy through their loan programs office to help do loan guarantees for new carbon-free projects, which nuclear qualifies for. When we look at nuclear and we look at how that capital allocation works, it includes large upfront capital, but then a very long, long operational lifetime. If you're able to get that borrowing cost down just a little bit, it can really change your project economics dramatically. We think that's going to be a huge piece of the puzzle as we move forward as well.
Ed Coyne: I think the final piece of the puzzle will be Wall Street. You've got government support. Using Wyoming as an example, you've got community support, which is spectacular. How about Wall Street support? Are you starting to see capital flow into this space? Are you starting to have conversations with an investor base showing interest in this space? From Wall Street's point of view, where are we?
Benton Arnett: Wall Street has been a great partner in recent years moving forward with these projects. One of the things we've seen that has really changed is the view of nuclear from a sustainable investing standpoint. Previously, nuclear was in the “bad” category. We were lumped in with tobacco and firearms and all the exclusionary categories for ESG investing.
We're really starting to see folks re-envision that. They look at the government efforts, they look at all the government support, and they look at the models that show how much nuclear is going to be needed to meet our climate goals. The Intergovernmental Panel on Climate Change (IPCC) released a report last year that said, we are going to need $100 billion of investment every year in nuclear energy if we want to meet our goals.
The financial community has taken notice of that. I think the first step was, as you mentioned, is showing the policy support. The EU, including nuclear in their green taxonomy, was huge. In Canada, we've seen green bonds start to come out for nuclear, which were a first. That's created a lot of confidence among the investment community that this is something sustainable. At the end of the day, Wall Street wants to make money. I mean, that's the name of the game.
They need to see those economic returns that are possible. As they start to dive into the technologies and look at not only the technological advancements that have happened but also the massive amounts of carbon-free power that we're going to need here in the coming years, they see that value. We've seen several nuclear energy companies go public over the last couple of years.
NuScale went public through a SPAC merger last year. X-energy is in the process of going public through another SPAC merger. We saw Brookfield Renewables purchase Westinghouse, and so we're starting to see a lot of deals developed in this space. We did an analysis that looked at nuclear-related Wall Street deals over the last approximately 5 to 10 years. What we found was, in the last five years, we've had about a 400% increase in those types of deals. The numbers show it, the anecdotes show it and I think that trend is going to continue here in the future for quite some time.
Ed Coyne: I know Wall Street loves to hear the word 400% increase. That's always a good number to throw out there. Before we sign off, are any topics or points that I didn't ask that you think the listeners would find interesting? Anything else out there that you want to leave us with?
Benton Arnett: I think one of the things I would want everyone to recognize is that we've had so much technological advancement in this space. When we think about nuclear traditionally, and about these very large gigawatt-scale reactors, that's not where the world's headed, and that's not where a lot of these technology advancements are headed. Don't get me wrong, we are absolutely going to have a need for those gigawatt-scale reactors going forward, but we've also developed a lot of these small modular reactors.
We have microreactors coming down the pipe. Any shape, size that you might need, there's a technology solution being developed for that along with any temperature you need. As we mentioned before, the applications are just growing, and the ability for nuclear to meet that process heat need and those other technology applications are only increasing by the year. If you've looked at nuclear in the past and maybe weren't convinced, I encourage you to come back and take a second look because we've changed quite a bit over the last couple of decades.
Ed Coyne: That's clear on your website. I encourage all our listeners to go to the Nuclear Energy Institute website, which is nei.org. The first place I would go is the resource section. I spent a lot of time on that preparing for this podcast. There are some cool stats and facts there.
Look at it at your state level. It shows you on a state-by-state level what percent of energy, if any, is coming from nuclear in your state. It's just a cool, informative website to check out. I encourage you to do that. Benton, really a treat to have you on, and hopefully we'll have you back as this continues to progress.
Benton Arnett: Ed, always happy to come back, and thanks for having me on.
Ed Coyne: Once again, I'm your host, Ed Coyne. Thank you all for listening to Sprott Radio.
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