NUCLEAR ENERGY:

DOE funding for small reactors languishes as parties clash on debt

It's not just wind and solar projects that are waiting for federal help as Congress duels over the importance of putting taxpayer dollars on the line for cutting-edge energy projects.

Some of the nation's largest nuclear power companies are anxious to hear whether they will get a share of a $452 million pot from the Department of Energy for a new breed of reactors that the industry has labeled as a way to lessen the safety risks and construction costs of new nuclear power plants.

The grant program for these "small modular reactors," which was announced in January, would mark the official start of a major U.S. foray into the technology even as rising construction costs -- especially when compared to natural-gas-burning plants -- cause many power companies to shy away from nuclear plants.

DOE received four bids before the May 21 deadline from veteran reactor designers Westinghouse Electric Co. and Babcock & Wilcox Co., as well as relative newcomers Holtec International Inc. and NuScale Power LLC. Now the summer has ended with no announcement from DOE, even though the agency said it would name the winners two months ago.

As the self-imposed deadline passed, companies started hearing murmurs that a decision could come in September, or perhaps at the end of the year. To observers within the industry, it seems that election-year calculations may have sidelined the contest.

"The rumors are a'flying," said Paul Genoa, director of policy development at the Nuclear Energy Institute, in an interview last week. "All we can imagine is that this is now caught up in politics, and the campaign has to decide whether these things are good for them to announce, and how."

Small modular reactors do not seem to be lacking in political support. The nuclear lobby has historically courted both Democrats and Republicans and still sees itself as being in a strong position with key appropriators on both sides of the aisle.

Likewise, top energy officials in the Obama administration have hailed the promise of the new reactors, and they haven't shown any signs of a change of heart. DOE spokeswoman Jen Stutsman said last week that the department is still reviewing applications, but she did not say when a decision will be made.

"This is an important multiyear research and development effort, and we want to make sure we take the time during the review process to get the decision right," she wrote in an email.

That the grants haven't been given out during a taut campaign season, even as President Obama announces agency actions ranging from trade cases to creating new national monuments to make the case for his re-election, may be a sign that the reactors are ensnared in a broader feud over energy spending.

Grant recipients would develop reactor designs with an eye toward eventually turning those into pilot projects -- and the loan guarantees that these first-of-a-kind nuclear plants are using today to get financing would be blocked under the "No More Solyndras" bill that passed the House last week (Greenwire, Sept. 14).

Congress has given the grant program $67 million for fiscal 2012, shy of the amount that would be needed annually to reach full funding. If the "sequester" kicks in at year's end and slashes DOE funding or the balance of power changes in Washington, the amount of money available could dwindle yet again.

Even the staunchest supporters of the federal nuclear program are acknowledging it is a tough time to promise a $452 million check.

Former Sen. Pete Domenici, a New Mexico Republican who pushed for new reactors as chairman of both the Senate Energy and Natural Resources Committee and the Energy and Water Appropriations Subcommittee, said during a brief interview Tuesday that well-designed loan guarantees won't cost too much because they get repaid over time. The cost could be borne by a "tiny little tax" on the nuclear industry, he said.

But when it comes to straight-up spending, like the grants that would support getting these cutting-edge reactors ready for their first demonstrations, the solution may not be so clear. While some Republicans remain staunch supporters of funding for the nuclear power industry, there are others who label the government subsidies as a waste of taxpayer dollars.

"It's awful hard, with the needs that are out there and the debt that haunts us, to figure out how you're going to establish priorities," said Domenici, who has advocated for the deployment of new nuclear reactors as a fellow at the Bipartisan Policy Center. "I can't stand here and tell you that I know how to do that."

Four bids

The grants, which the industry has sought for more than a decade, would take an unconventional approach. Rather than helping the industry replicate a technology at larger scale to make it more cost-effective, they would help to scale it down.

The industry's future hangs in the balance. A new U.S. nuclear power plant has not come online since 1996, and the 104 reactors in the U.S. fleet are all scheduled to retire over the next several decades.

Already, the government has lent its support to the AP1000 from Westinghouse, a new design for a large reactor that won approval from the Nuclear Regulatory Commission in December, but the design has yet to produce the "nuclear renaissance" sought by the industry. Two reactors in Georgia and two in South Carolina are under construction so far, though more could follow if those power plants are successfully built.

Experts continue to argue whether the small modular reactor approach will really reduce costs, but supporters have won the day for now, and DOE has embraced a statistical model that says the new power plants will get cheaper as more of them are built.

Critics say that is the opposite of what has happened with past nuclear reactors. There's a term for it in the scholarly literature: "negative learning," as one researcher put it when trying to explain why the cost of building a new reactor roughly tripled in France over two decades as the French government devotedly invested more and more into their construction.

"It's an idea. People think it's neat. And they try to think of an excuse for why they should do it," said Edwin Lyman, a senior scientist at the anti-nuclear Union of Concerned Scientists. "But there are a lot of disadvantages. They haven't really come up with a good argument for why moving to smaller reactors would be economical."

To build a large nuclear plant with two reactors that produce more than 1,000 megawatts apiece, a power company now needs about $11.7 billion, according to a paper that Robert Rosner of the Energy Policy Institute at the University of Chicago and Stephen Goldberg of Argonne National Laboratory submitted to DOE late last year.

That is nearly an entire year's revenue for the average U.S. nuclear utility, making it a "bet the farm" risk for any one of these companies, as the credit rating agency Moody's has warned. Historically, most companies that have built a nuclear plant have had their credit downgraded -- sometimes more than once -- during construction.

These nuclear plants can run all day and night with a relatively small fuel cost, so they're quite profitable once they're up and running, but the upfront cost is a barrier; a new coal plant with modern pollution controls costs $2.4 billion to build, and a new natural gas plant costs $1.1 billion.

By phasing in six 100 MW "modules," each one a separate reactor, a company could lower costs to a more manageable $3 billion to $5.5 billion, Rosner and Goldberg wrote. They say the industry should drive down costs as more of the reactors are built, making them competitive with natural-gas-burning plants, provided that gas doesn't stay at today's low prices.

The nuclear industry has set a goal of deploying the first small reactors by 2020 or 2022, and some utilities remain convinced that it is a promising way to go. Westinghouse has partnered with Ameren Corp., which would think about building one or more of Westinghouse's 225 MW reactors at its Callaway Energy Center in central Missouri.

Others see the government as a partner. North Carolina- and Virginia-based Babcock & Wilcox has signed a memorandum of agreement with the federally run Tennessee Valley Authority to supply power to Oak Ridge National Laboratory in Tennessee, while the waste storage specialist Holtec and the Oregon startup NuScale have both aligned with a South Carolina group with hopes of building their reactors at the Savannah River Site, a nuclear cleanup area.

All four companies are proposing a smaller version of light-water reactors, the type that is used today. Their designs are somewhat similar with the notable exception of NuScale, which proposes to place several of its smaller, 45 MW reactors -- perhaps even a "12-pack," as the company calls it -- in an underground cooling pool that contains 4 million gallons of water.

Should the grants be made, no one's sure how DOE would justify its picks.

Would it go with Westinghouse and Babcock & Wilcox, the larger companies that have a longer history of working with the government on reactors? Would it hedge its bets and develop two rather different designs by giving one of the grants to NuScale? Does it want to see the reactor built for a publicly owned utility such as Ameren, or in South Carolina, where lawmakers have rolled out the red carpet with hopes that a company like Holtec could build small reactors for export?

Despite the uncertainty, the industry still sees it as a question of when, and not if. Alex Flint, senior vice president for governmental affairs at NEI, told reporters last week that though the group sees small differences between Republican presidential candidate Mitt Romney and Obama on nuclear energy, it doesn't think the small modular reactor program will be affected.

Career employees at DOE and the White House Office of Management and Budget have supported the new reactors, and so have the key staffers on the House and Senate appropriations committees, Flint said. Nuclear companies have skin in the game, too, having promised to pay at least half the cost of developing the designs -- a commitment that could total $450 million or more.

"We definitely expect that multiyear program to continue as envisioned," Flint said.