Small modular reactors are gaining momentum as a potential new technology for America's energy future. Is NuScale Power an opportunity investors should consider?
October 16, 2023
The Massachusetts Institute of Technology recently hosted its 2023 ClimateTech conference, where innovators gathered to discuss the progress they’re making in combating climate change. It was yet another excellent event this year and I would highly recommend attending future MIT conferences.
One of the technologies that got a lot of attention at ClimateTech is small modular reactors. These mini-nuclear power plants are still largely in development — but they would provide reliable, emission-free power that could be dispatched on a 24-hour basis wherever it is needed.
Nuclear today accounts for around 20% of America’s overall power supply. There are 54 total nuclear power plants in 28 states, and on average they are quite large and are 42 years old.
Nuclear power has a capacity factor of 92.7% — which means the plants are producing power at 93% of their designed capacity. This means nuclear is extremely efficient, and it’s ideal for providing baseload power either for the grid or for industrial operations. This always-on capability also differentiates nuclear from other renewables, which aren’t producing power when the sun isn’t shining or the wind’s not blowing.
Small Modular Reactors are a new development in the nuclear engineering world. SMRs would be about one-third of the size and cost of traditional nuclear power plants and would also produce around one-third as much power. Their lower costs and faster construction times could make them a viable solution in America’s energy future, which is heavily geared toward deploying new renewable energy technologies. In addition to serving the needs of America’s grid, several companies such as Dow Chemical (NYSE: DOW) and Microsoft (Nasdaq: MSFT) have shown an interest in SMRs to displace the natural gas they are currently using to provide process heat or to power their data centers.
One investing idea to play in the SMR space is NuScale Power (Nasdaq: SMR). NuScale is an independent power producer whose focus is exclusively on SMR technology.
In July 2022, NuScale became the first company to receive certification from the US Nuclear Regulatory Commission (NRC) for its small modular reactor design. The company won its very first municipal power contract in Utah and then its first commercial customer contract with Standard Power. Both contracts are expected to come online in 2029.
You’ll notice that 2029 is still another six years from now. The technology, permitting, and regulatory endorsement of nuclear is a long-winded process that takes place on a state-by-state basis. There are also national security interests involved, which could make for a fragmented international opportunity. NuScale has already signed 18 ‘memoranda of understanding’ agreements in a dozen other countries who are allies of the United States — such as Canada, the United Kingdom, and Poland. Yet as you might imagine, nuclear is closely regulated the government, and any projects abroad would require the Secretary of Energy’s approval.
Just like several other renewable technologies, small modular reactors are in the early stage of their learning curve. As they win regulatory approval and commercial acceptance, it is likely their fixed costs will scale across a larger output of power generated.
That could hold promise for early investors. But it will also require significant patience.
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