SMART

According to James Conca, a nuclear enthusiast who writes for Forbes, the nuclear industry in the US is "abuzz" with the potential of small modular reactors (SMRs).¹

Conca promotes pseudo-research from the 'Small Modular Reactor Research and Education Consortium', according to which a single SMR has the potential to result in US$892 million (€844m) in "direct economic benefits". In other words, the capital cost estimate is US$892 million. The Consortium estimates that the potential economic benefits from the establishment of an SMR construction business in the US could range from US$34−250 billion (€32.2−236.7b) or more.

Better grounded in reality is a report produced by Nuclear Energy Insider, drawing on interviews with more than 50 "leading specialists and decision makers". The report attempts to put a positive spin on the future development of SMRs, but an air of pessimism is all too apparent, even in the report's title: 'Small Modular Reactors: An industry in terminal decline or on the brink of a comeback?'²

Pessimism is also apparent in comments by the report's lead author, Kerr Jeferies: "From the outside it will seem that SMR development has hit a brick wall, but to lump the sector's difficulties together with the death of the so-called nuclear renaissance would be missing the point."³

In the US⁴:

• Babcock & Wilcox has greatly reduced its investment in SMR development, despite receiving US$111 million (€105m) from the Department of Energy. B&W CEO Jim Ferland said that he sees the future of SMRS as "still being up in the air."

• Westinghouse abandoned its SMR development program in February 2014.
• Warren Buffet's MidAmerican Energy abandoned plans to build an SMR in Iowa after consumer groups prevailed in a legislative battle over 'construction work in progress' legislation that allows utilities to charge higher rates to cover reactor construction costs, even if the reactor is never built.
• NuScale is the only company in the US with any forward momentum − it is aiming to submit documentation to the Nuclear Regulatory Commission in 2016 for design review.

Glenn George from KPMG recently discussed SMR development in the US with Nuclear Energy Insider: "I think that investors are in a wait-and-see mode regarding development of the SMR market. ... Investors will want to see SMR learning-curve effects, but a chicken-and-egg situation is at work: Decreased cost comes from production of multiple units over time, yet such production requires investment in the first place. So it's not surprising that, in the absence of commercial orders, Westinghouse and Babcock & Wilcox have slowed SMR development."⁵

Outside the US, just a few first-of-a-kind SMR projects are under construction − in Argentina (CAREM-25), Russia (KLT-40S) and China (HTR-PM).

The Nuclear Energy Insider report restates the familiar SMR rationale about mass production and streamlined supply chains bringing down costs. But it also calls into question the underlying logic: "SMR concepts face a real challenge in ensuring cost and energy efficiency. Making a power unit smaller also increases the need to have five, ten or even twelve modular reactors working in unison to create the same level of base load electricity as the large PWR's and fossil fuel plants they will replace. In reducing the size of reactor modules you also reduce the amount of thermal energy produced, if an SMR only has an energy efficiency of 30−40% then you require even further units to make up the shortfall."

The report also qualifies the usual SMR rhetoric about economies derived from mass factory production: "Factory assembly of small reactors is one of the core benefits of SMR's. They can be built off site in 'bulk', easily transported and then plugged into an infrastructure network promising a far quicker and cheaper alternative to large PWR's. However, in order to ensure a smooth transition from the drawing board to the construction site there are key questions to be faced in separating the expertise held in a reactor factory and the expertise required to install an SMR when it arrives on site. For an effective SMR supply chain to be developed it will need to be localized − despite the reactors being built off site, a great amount of the on-site infrastructure and materials will still require precision assembly."

If there was any remaining doubt that SMRs are not the 'game changer' they are so often portrayed to be, the report concludes: "Six decades of nuclear development have shown that nuclear energy can only be progressed if 'long-term' strategies are employed across the industry. In an economic climate where there are alternative energies offering far quicker returns on investment, clear questions need to raised and frank discussions held in order to ensure that SMR's do remain a realistic alternative for energy provision."

The report states that notwithstanding the "pervasive sense of pessimism" resulting from abandoned and scaled-back SMR programs, "we believe a more accurate picture is that 2014 has been a teething year, and that the SMR story hasn't even really begun."

Therein lies the problem − the story hasn't begun: no supply chains, no factories churning out identical reactors, and precious few customers. And another familiar problem that has long plagued the nuclear industry: a bewildering array of proposed designs.

SMR push in the UK

The UK has been bitten by the SMR bug. The National Nuclear Laboratory (NNL) has produced a feasibility study which argues that SMRs might eventually prove cheaper than large reactors, while also noting unresolved 'detailed technical challenges'. The House of Commons Select Committee on Energy and Climate Change has urged the government to spend public money to develop a demonstration SMR.⁶

Academics Gordon MacKerron and Philip Johnstone from the Sussex Energy Group write: "It [NNL] then suggests a potential UK market of between 7GW and 21GW in 2015, the latter number being frankly not credible under any conceivable circumstances. These hoped-for UK markets are also linked to the idea that the UK could become a major technological player in SMR technology, a view that seems tinged almost with fantasy, given that all significant SMR development to date has been outside the UK."⁶

South Korea's SMART reactor

South Korea may have found a model to unlock the potential of SMRs: collaboration with a repressive Middle Eastern state, extensive technology transfer, and if that fans proliferation risks and tensions in a volatile region, so be it.

On March 3, the Korea Atomic Energy Research Institute (KAERI) signed a memorandum of understanding with Saudi Arabia's King Abdullah City for Atomic and Renewable Energy (KACARE) to carry out a three-year study to assess the feasibility of building two first-of-a-kind 'System Integrated Modular Advanced ReacTor' (SMART) reactors.⁷

SMART is a 100 MWe pressurized water reactor design which could be used for electricity generation and desalinization. The cost of building the first SMART reactor in Saudi Arabia is estimated at US$1 billion (€947m).⁷

Among other obstacles, the development of SMART technology has only lukewarm support from the South Korean government; it is no longer financially backed by Korea Electric Power Co. (Kepco); there is no intention to deploy SMART reactors in South Korea; and plans to build a demonstration plant in South Korea stalled.

South Korea launched 'SMART Power' on January 29 − an organisation tasked with marketing SMART technology overseas, conducting joint feasibility studies with interested customers, and continuing design work to make the reactor technology "more economically feasible".

KACARE says that SMART intellectual property rights will be co-owned and that, in addition to the construction of SMART reactors in Saudi Arabia, the two countries aim to commercialise the technology and to promote it world-wide.⁸

KACARE states: "Undisputedly, human capacity building for the production of nuclear power within the Kingdom of Saudi Arabia is a national pursuit of paramount importance as it will essentially contribute to the sincerely devoted endeavors to devise a sustainable development future for Saudi generations."⁸

Failing that, the joint partnership − and the extensive technology transfer and training it entails − will take Saudi Arabia a long way down the path towards developing a latent nuclear weapons capability. Saudi officials have made no secret of the Kingdom's intention to pursue a weapons program if Iran's nuclear program is not constrained.⁹

Wall Street Journal reporters noted on March 11: "As U.S. and Iranian diplomats inched toward progress on Tehran's nuclear program last week, Saudi Arabia quietly signed its own nuclear-cooperation agreement with South Korea. That agreement, along with recent comments from Saudi officials and royals, is raising concerns on Capitol Hill and among U.S. allies that a deal with Iran, rather than stanching the spread of nuclear technologies, risks fueling it."¹⁰

A bilateral nuclear trade agreement between the US and Saudi Arabia has stalled because of the Kingdom's refusal to rule out developing enrichment or reprocessing technology. "We've been pressing them to agree not to pursue a civilian fuel cycle, but the Saudis refuse," said Gary Samore, a US government official working on nuclear issues during President Obama's first term.¹⁰

References:

1. James Conca, 16 Feb 2015, 'Can SMRs Lead The U.S. Into A Clean Energy Future?', www.forbes.com/sites/jamesconca/2015/02/16/can-smrs-lead-the-u-s-into-a-...
2. Nuclear Energy Insider, 2014, "Small Modular Reactors: An industry in terminal decline or on the brink of a comeback?", http://bit.ly/smrscomeback
3. March 2015, 'SMRs "back on the agenda next year", says new report by Nuclear Energy Insider', www.prweb.com/releases/2015/03/prweb12549421.htm
4. Dan Yurman, 1 March 2015, 'Be careful about rose colored glasses when viewing the future of SMRs', http://neutronbytes.com/2015/03/01/be-careful-about-rose-colored-glasses...
5. Peter Taberner, 3 March 2015, 'SMRs: private investors call for track record and big government orders', http://analysis.nuclearenergyinsider.com/small-modular-reactors/smrs-pri...
6. Gordon MacKerron and Philip Johnstone, 2 March 2015, 'Small modular reactors – the future of nuclear power?', http://blogs.sussex.ac.uk/sussexenergygroup/2015/03/02/small-modular-rea...
7. WNN, 4 March 2015, 'Saudi Arabia teams up with Korea on SMART', www.world-nuclear-news.org/NN-Saudi-Arabia-teams-up-with-Korea-on-SMART-...
8. KACARE, 3 March 2015, 'MOU's Signature', www.kacare.gov.sa/en/?p=1667
9. 18 Sept 2014, 'Saudi Arabia's nuclear power program and its weapons ambitions', Nuclear Monitor, Issue #791, www.wiseinternational.org/node/4195
10. Jay Solomon and Ahmed Al Omran, 11 March 2015, 'Saudi Nuclear Deal Raises Stakes for Iran Talks', www.wsj.com/articles/saudi-nuclear-deal-raises-stakes-for-iran-talks-142...

In the midst of all the news in recent weeks over the deal with Iran, it would have been easy to miss the news that another Middle Eastern state is moving towards acquiring its own nuclear reactors − Saudi Arabia.

In March 2015, following a meeting in Riyadh between South Korean president Park Guen­hye and Saudi's newly­crowned King Salman bin Abdulaziz al Saud, the Korea Atomic Energy Research Institute and Saudi Arabia's King Abdullah City for Atomic and Renewable Energy (KA­CARE) signed a memorandum of understanding to, inter alia, carry out a preliminary study to review the feasibility of constructing Korean Small Modular Reactors in Saudi Arabia.¹ Later the same month, along with Argentina this time, Saudi Arabia set up a joint venture company to develop nuclear technology for Saudi Arabia's nuclear power program.²

Saudi Arabia has had a long-standing, although limited, interest in nuclear technology and these agreements are just the latest developments in that history. Other countries that have signed agreements with Saudi Arabia include France and China. Many more in the nuclear industry are hopeful of profiting from the Gulf country's interest. As Westinghouse chief executive Danny Roderick remarked in 2013, "We see Saudi Arabia as a good market for us."³

The stated arguments for nuclear construction are mostly familiar. As a royal decree from April 2010 put it in the case of Saudi Arabia: "The development of atomic energy is essential to meet the Kingdom's growing requirements for energy to generate electricity, produce desalinated water and reduce reliance on depleting hydrocarbon resources."⁴

Economic comparison

One further argument that is sometimes offered is economic competitiveness: as the President of KA-CARE stated in 2012, "nuclear energy is in many respects competitive with fossil fuels for electricity generation though the initial capital expenditure might be high."⁵

This is a somewhat strange argument to be making. Nuclear power has been struggling to compete in electricity markets around the world and it is hardly likely that in a country with no experience in building nuclear reactors, this world wide trend will suddenly be broken. Therefore, we decided to evaluate these arguments by examining the economics of nuclear power in the case of Saudi Arabia.⁶ Here we summarize our results.

We compared the electricity generation cost from nuclear reactors with three alternatives: natural gas based power plants, solar energy from photovoltaic cells and concentrated solar power stations. What we found was that unless natural gas prices rise dramatically, that would remain the cheapest source of electricity generation − nuclear electricity would be more than twice as expensive than that produced by gas. The reason is simple: the very high capital cost of constructing a nuclear reactor, typically running into several billions of dollars. For example, the latest estimate for one of the three ongoing projects in the United States, in which two new 1,117-MW reactors are being built near Jenkinsville, S.C., is $11 billion.⁷ Electricity from gas would continue to be cheaper even if a relatively high carbon cost (even above $150/ton-CO2 in some scenarios) were imposed.

This large cost difference also negates the oft-made point about the foregone opportunity cost that is said to result from Middle Eastern countries consuming their natural gas resources instead of exporting these. It turns out that when the costs of liquefying and shipping of natural gas are taken into account, a country like Saudi Arabia should be assured of prices well above the current and historical global average for decades before replacing a natural gas plant with a nuclear reactor becomes an economically sound choice. The downward pressure caused by U.S. shale gas expansion and the volatility of the natural gas market does not allow for reasonable confidence in such a high gas price − certainly not enough to sink in billions of dollars into nuclear reactors and natural gas liquefaction facilities.

But in the case of oil, our analysis showed that it does make economic sense to shut down oil based power plants and replace those with nuclear reactors − or natural gas. But Saudi policy makers may have already realized that and nearly 100 percent of installed capacity in recent years is based on natural gas.

Solar power

The surprising result that came out of our analysis was that solar technologies are very competitive with nuclear reactors. The key point is that it would take at least a decade, quite possibly more, for a country like Saudi Arabia to generate its first unit of nuclear electricity, even if the decision were to be made tomorrow, and solar photovoltaic and concentrated solar technologies have both been experiencing dramatic declines in prices.⁸ Based on current trends, the cost of electricity from solar plants would become cheaper than from nuclear plants around the end of this decade or soon after in areas like the Middle East with ample sunshine.

Nuclear reactors, in contrast, are not becoming cheaper. Some studies⁹ find evidence of "negative learning" wherein nuclear costs rise as more reactors are constructed.¹⁰ Past reactor construction projects have often taken longer and have cost more than initially projected; indeed, significant escalation can be taken as inevitable given the nuclear industry's tendency to under-estimate costs and construction times. The best recent example comes from Olkiluoto in Finland, where just the losses that Areva has accrued when compared to the initial contract price exceeds 5 billion euros.¹¹ Commissioning of the reactor has been delayed by nearly a decade compared to initial projections.

The thirteen years or more that it could take to get the Olkiluoto plant to generate electricity is exceptionally long, but the average period it takes to construct a nuclear reactor anywhere in the world is about eight years. This does not include the time spent before construction on building infrastructure, regulatory activities, and so on. In general, one can assume that it would take a decade or even two for a nuclear plant to go from planning to commissioning.

Small modular reactors

The specific reactor design that was the subject of the recent agreement between Saudi Arabia and South Korea is called the SMART, one of the many designs that are called small modular reactors (SMRs). SMRs, with power outputs of less than 300 MWe, are being promoted by nuclear establishments in many countries.

The term small is used to indicate that the power level is much lower than the average power delivered by currently operating reactors. Modular means that the reactor is assembled from factory-fabricated parts or "modules". Each module represents a portion of the finished plant built in a factory and shipped to the reactor site. Modularity is also used to indicate the idea that rather than constructing one large reactor, the equivalent power output will be generated using multiple smaller reactors that allow for greater tailoring of generation capacity to demand.

SMRs such as the SMART are likely to be even more expensive ways of generating electricity than the large nuclear reactors being built today. Small nuclear reactors are cheaper in absolute terms, but they also generate less electricity. When the two factors − smaller overall cost and smaller generation capacity − are taken together, the cost per unit of electricity for small reactors generated turns out to be higher that for large reactors. This is why reactors became larger and larger over the 1960s to the 1980s/1990s. Thus, it seems likely that SMRs will lose out on the economies of scale that standard sized (roughly 1000 MW) reactors benefit from.

SMR proponents claim that because new reactor designs are different, the comparison with traditional reactor costs is invalid and the scaling law does not hold. They also claim that even if there are diseconomies of scale, these can be compensated by the economic advantages accruing from modular and factory construction, learning from replication, and co-siting of multiple reactors.¹²

Despite these claims, detailed and carefully conducted interviews showed that even experts drawn from, or closely associated with, the nuclear industry expect these reactors to cost more per kW of capacity than currently operating reactors.¹³ Therefore, if nuclear power based on large reactors is likely to be expensive, then electricity from the SMART project in Saudi Arabia will be even more non-competitive.

Unless, of course, there are large subsidies involved. In the case of South Korea's deal with the United Arab Emirates, South Korea seems to have subsidized the project substantially; some have estimated the deal with the UAE at being about 20 per cent beneath the industry average.¹⁴ Not surprisingly, the deal was criticized within South Korea as commercially weak and that future customers will demand similar terms.¹⁵

While there is a long history of systematic under-bidding in nuclear projects, especially in the case of countries with ambitious nuclear programs, this sort of subsidization can be done only for the first one or two projects, and cannot be the basis of a large-scale expansion of nuclear power in Saudi Arabia.

In addition to all the problems of nuclear power, solar power is also very appropriate to Saudi Arabia. There is substantial overlap between the electricity demand and solar insolation patterns¹⁶, and there will be little or no need for constructing expensive storage facilities to deal with the fact that the Sun doesn't shine at night.

In summary, the economic case for Saudi Arabia to build nuclear reactors is non-existent unless natural gas prices shoot up or there is some climate agreement that introduces very high carbon costs. To the extent that countries desire to move away from fossil fuels, switching to solar power makes much more financial sense, and one that might seem naturally suited to local conditions.

Now, if only some other Prime Minister or President were to make a visit to Saudi Arabia to meet with King Salman bin Abdulaziz al Saud and explain why solar power might be a better bet than nuclear reactors, small or large.

References:
1. www.world-nuclear-news.org/NN-Saudi-Arabia-teams-up-with-Korea-on-SMART-...
2. www.world-nuclear-news.org/NP-Saudi-Arabia-and-Argentina-form-joint-vent...
3. www.upi.com/Business_News/Energy-Resources/2013/11/22/Westinghouse-eyes-...
4. www.neimagazine.com/opinion/opinionnuclear-power-in-the-middle-east-wher...
5. www.arabnews.com/node/408839
6. www.sciencedirect.com/science/article/pii/S0360544214003284
7. www.thestate.com/news/business/article14658584.html
8. www.mckinsey.com/client_service/sustainability/latest_thinking/solar_pow...
9. www.sciencedirect.com/science/article/pii/S0301421510003526
10. www.sciencedirect.com/science/article/pii/S0301421507002558
11. http://uk.reuters.com/article/2014/02/28/tvo-olkiluoto-idUKL6N0LX3XQ2014...
12. www.sciencedirect.com/science/article/pii/S0149197009001474
13. www.pnas.org/content/110/24/9686.abstract
14. www.ft.com/intl/cms/s/0/0d0122de-7030-11e0-bea7-00144feabdc0.html#axzz2q....
15. www.koreatimes.co.kr/www/news/nation/2014/05/116_81531.html
16. www.icrepq.com/icrepq'10/530-Al-Ammar.pdf