NuScale Power and more broadly Small Modular Reactors (SMRs): A horse-and-buggy business model in the age of the automobile.
Once the darling of the purported small modular reactor renaissance, the company has had its pilot project cancelled after costs soared. Former UAMPS partner to now focus on wind and solar.
Several weeks ago Iceberg Research published a report on NuScale (SMR) calling into question the credibility of a Stratton-Oakmont (yes, the same real-life firm highlighted in the movie Wolf of Wall Street that was involved in Pump and Dump schemes) related customer, as well as their pilot project. The stock subsequently has dropped over 50% after the report and a prediction within it coming true, the cancellation of their major project.
Iceberg’s report focused on the viability of a contract with Standard Power, which was loudly announced after an over 50% decline in the share price. Iceberg reached the conclusion this contract was fake and only promoted to pump the share price, after which, their former CFO dumped his remaining shares. This follows a long trend of insiders dumping shares with over $35 million in insider sales, and only $800k in insider buys.
The Iceberg article also highlighted the ballooning cost estimates for the NuScale pilot project (CFPP), and the fact that the project was under-subscribed with a major cliff coming soon, where the municipalities who signed on with the CFPP have the contractual ability to withdraw. Which with projected costs of the NuScale project being $89/MWh (+$30/MWh without a government subsidy through the Inflation Reduction Act) it was in these municipalities best interests to do so. Despite an initial response from NuScale describing the Iceberg Report as: “The inaccurate and deceptive "research" is riddled with speculative statements with no basis in fact”, several weeks later the CFPP was cancelled. NuScale has since been laying on the PR thick and heavy since the cancellation but we believe its entire business model is as non-credible as its response to the initial short report.
Lets dig in.
First, from their own promotion materials the unsubsidized LCOE (Levelized cost of energy) from the (former) NuScale CFPP project will be $119/MWh. Over the last several years, utility solar and onshore wind prices have reached as low as $36 and $38/MWh respectively
The price of solar, per MWh is already almost only as much as the subsidy being given to NuScale. However yes, for a certain subset of those reading this, yes, we know the sun goes away at night. This does not matter.
Electricity through the day under traditional models of electricity grids can be modeled through what is known as the ‘duck curve’ (for no reason other than it kind of looks like a duck)
What this is showing is the electricity demand through the day, and the creation of a ‘belly’ on the duck during the day, due to the growth of rooftop solar year over year.
If history stopped in 2020 and grid electricity sources remained static, the traditional baseload model of nuclear energy use would allow it to run at the daily minimum as baseload
In this role, SMR’s might have merit. Well, if you wanted to pay that much for baseload when other fossil baseload sources are cheaper: baseload nuclear, and then the use of flexible generation sources (currently gas, slowly becoming battery storage) to take up the residual demand.
But what happens as solar grows? The duck’s belly keeps getting closer to the ground, meaning what was called the duck curve, is now increasingly becoming a canyon curve (Source:powermag.com)
Thus, what happens to the previous nuclear baseload as midday demand drops to zero due to solar? Well in the middle of the day, the consumer has the choice (in a free market economy) to either use solar at $ 36/MWh, or a hypothetical NuScale SMR at $89/MWh. Of course this is a simplification, as it is utility-scale solar plants outputting at these costs, but this is the the issue faced by grid operators in the present.
So what about using the hypothetical SMRs to provide load outside of when it is sunny?
This is how nuclear operates in traditional grids to meet demand (example from the UK)
Nuclear likes to run flat out, at all hours. While some countries like France do use it for some minor load following, it it not capable of being throttled from full to zero during the day when it is sunny, and then back to full again at night.
Furthermore, even it it was possible the costs of nuclear are largely resultant of interest, construction, and maintenance, with fuel only a very minor part of it. Thus, shutting it down won’t stop fixed expenses because of fuel savings.
Throttling the reactors to zero (whether possible or not) just means the remainder of the day when it is not sunny, the reactor operator will need to charge more for electricity during the remaining hours, meaning that $129/MWh the SMR would be charging, now increases for the remainder of the day, making it even less competitive. If it is sunny for 30% of the day, bump the nuclear costs up 30% to $167/Mwh
Thus to keep nuclear operating at its lowest costs in a competitive environment, competitors need to be prevented from operating, leading experts to conclude that nuclear energy is no longer compatible with free-market economies. And that is what is largely seen, a study by the German Institute for Economic Research and the German Nuclear Industry Association showed that even traditional large nuclear plants have already been economically noncompetitive and SMRs are unlikely to escape this paradigm.
Now what happens with wind added to the mix, again a cheaper source at $38/MWh? This just creates additional canyons in the remaining demand through the day, whenever it is windy, further making competitive operating conditions for SMRs tougher.
Thus, intermittent generation technologies like wind and solar, because of their lower costs and resultant growth make up the majority of all new generation.
The rise of renewables is destroying the old paradigm of electricity grid operation, where flexible resources once matched demand on top of baseload generators. Instead, the new paradigm is increasingly flexible resources around intermittent resources, with no function served by baseload. Thus being a baseload generation technology is ultimately a liability, given that NuScale’s first plant was slated to be online (according to their promotional material) in 2030, and with the CFPP cancellation, significantly later now. Other commenters and industry experts have observed similar such as Jérôme à Paris. This is only increased as current trends continue, such as wind and solar getting cheaper. That just makes the canyons broader, the same thing with the growth of battery storage. While battery storage is often derided as insignificant by those expecting a SMR renaissance, battery storage is growing faster than nuclear is. The window of time for a baseload generator to have an economic chance is closing, and by the time and SMR company gets a plant operational, it will likely be closed.
That was just the best case scenario for NuScale. But not only is their business model (and the business model of the wider nuclear industry) non-credible, it would be a mistake to take their current cost estimates as remotely reliable.
Using the Wayback Machine (archive.org), we can look at claims their website made in previous years.
2011: NuScale projects that the first plant can go into operation as early as 2018.
2016: claiming their plant will cost 3 Billion
Using the WayBack machine you can view other old statements by NuScale, which show increasing timelines and budgets over the years, of course culminating this year with the final increase mentioned above, when only a few years prior, was claiming prices comparable to natural gas (2020). The net result is a company that seems incapable of delivering on its promises, which to be fair is not unique to it within the nuclear industry: the average nuclear plant cost overrun in the US has been 241% since 1970 and only 52% of proposed plants were ever built. Those claims of being cheaper than gas and renewables, have entirely evaporated. UAMPS, NuScale’s former partner for the CFPP announced after its cancellation:
Validating everything written above.
Undeserved hype for the nuclear industry is nothing new, however NuScale was the embodiment of their talking points in a publicly-traded package. Those talking points, when they are so at odds with reality have now been considered as misleading by several law firms, which have announced potential class action suits targeted at NuScale including Pomerantz, the Rozen Law Firm, Glancy Prongay & Murray, as well as Law Offices of Howard G. Smith and Kirby McInerney LLP. The latter’s basis for the suit is:
The lawsuit alleges that, throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose that: (i) due to the impact of inflationary pressures on the cost of construction and power, the Company and UAMPS would be unable to sign up enough subscribers to fulfill the CFPP; (ii) Standard Power did not have the financial ability to support its agreement with NuScale; and (iii) as a result, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
Amid the collapse in NuScale’s stock price, and the legal investigation fallout, another upcoming SMR company X-Energy chose not to complete its SPAC merger with Ares Acquisition Corp. They cited ‘challenging market conditions’. Those challenging market conditions are that every SMR project, and more broadly, every nuclear project, is just a slightly improved horse and buggy when the automobile (renewables) is already on scene.
For all the NuScale shorts like Iceberg, one hopes other SMR companies SPAC soon, as they are likely to meet the same fate.