Navigant Research Blog

mPower Pullback Stalls Small Nuclear

— April 25, 2014

Asbestos_webNuclear technology supplier Babcock & Wilcox (B&W) has slashed funding for its Generation mPower program, an effort to develop a small modular reactor (SMR) for power generation and other applications.  The pullback represents a major blow to the development of SMRs, which have been hailed as the next step forward for the nuclear power industry.

B&W, which had a cost-sharing agreement with the U.S. Department of Energy (DOE) and a reactor construction contract with the Tennessee Valley Authority (TVA), has cut funding for the program from $60 million to $80 million per year to less than $15 million, let go the head of the mPower unit, and will lay off up to 200 employees who worked in Tennessee and Virginia on the project.  The TVA mPower reactors were to be built at the Clinch River site in northern Tennessee, once slated to be the home of the similarly ill-fated Clinch River Breeder Reactor, which itself was terminated in the 1980s after around $8 billion in investment.  Clinch River has become the place where nuclear power innovation goes to die.

Smaller, Simpler, Safer

For nuclear power advocates who point out that nuclear is the only generation technology that can supply low-cost, zero-carbon baseload power, the demise of mPower is keenly disappointing.  SMRs offer several advantages over traditional large-scale nuclear power: they could be manufactured in factories, assembled onsite, and arrayed in multiple reactor configurations to scale up capacity incrementally.  Small enough to be deployed in remote locations, they are nominally safer than big reactors because they can be built in sealed underground chambers.

With lower upfront capital costs and an easier path to licensing, SMRs should, in theory, offer a more attractive proposition for investors – which proved not to be the case with mPower.

In our report, Small Modular Reactors, Navigant Research developed two forecast scenarios for worldwide SMR capacity in 2030. Under the base scenario, total capacity would reach 4.6 GW in 2030; the conservative scenario projects 18.2 GW by the same year.  Even the lower forecast seems optimistic now.

Dead End

All told, B&W, the DOE, and partners have spent around $400 million on the mPower program.  Another $600 million was needed just to get the technology ready for application to the Nuclear Regulatory Commission for licensing.

mPower was done in by investor mistrust of nuclear power, low prices for natural gas in North America, the backlash from the Fukushima Daiichi disaster in Japan, and the difficulty of licensing unconventional nuclear technology in the United States.  B&W said last year it would seek a majority investor in the project but was unable to secure a buyer.  The company had also hoped to secure additional utility customers, but power utilities in the United States are focused on low-cost generation from coal and natural gas in an era of flattening demand for electricity.

B&W plans to continue low-level R&D on the mPower technology with a view to commercial deployment in the mid-2020s, said CEO James Ferland.  But without a major shift in the business environment and in investor perceptions of the risks and rewards associated with nuclear power, that seems fanciful.

 

China’s ‘Solar Bubble’ a Coal Bubble in Disguise

— March 14, 2014

Tremors rippled through global financial markets this week after Shanghai Chairo Solar Energy Science and Technology defaulted on its corporate debt.  The first Chinese company to default on domestically issued bonds, Shanghai Chairo is seen as a signal of the over-inflation of China’s red-hot solar market – and, worse, as an indication that the whole edifice of “shadow banking,” shaky corporate debt, excessive property lending, and unsustainable economic growth in China could come crashing down, leading to another global financial meltdown.

That seems overly alarmist.  China’s leaders have for some time been forecasting a modest slowdown in economic growth for 2014, to the 7%-8% range, which would still be the envy of any Western economy.  And Chinese premier Li Keqiang warned on Thursday that future corporate debt failures are “unavoidable” as the country deregulates its financial markets and the government stops propping up unprofitable enterprises.  China’s economy is maturing beyond export-led growth based on cheap commodities, and some regrettable bankruptcies aside, that’s good not only for the Chinese people, but also, ultimately for the stability of the global financial system.

At least that’s the official, reassuring line.  In the energy sector things are slightly more complicated.

King Dethroned

There’s no question that the Chinese solar industry finds itself in a situation of overinvestment and overcapacity.  The spectacular bankruptcy of Suntech, previously headed by China’s “Solar King,” Zhengrong Shi, signaled clearly that the dot-com phase of China’s solar power boom is officially over and a period of sober reassessment – and disinvestment – must inevitably follow.

Still, overseas solar markets, particularly the United States, are enjoying sustained growth, largely thanks to innovative leasing models.  And last month the Chinese government upped its target for new solar installations for 2014 to 14 gigawatts (GW) – a mark that would surpass last year’s total of 12 GW, which itself was the most any nation had added in a single year.  China’s solar industry must adjust to market realities going forward; but the market is growing.

That’s not necessarily true of the coal sector, which could be the real bubble now threatening China’s sustained economic growth.  Nearly 40GW of new coal-fired power generation capacity was added last year, and it’s no longer obvious that demand will continue to grow to soak up all that power.  China has actually closed down more than 80 GW of coal capacity in the last dozen years, and the government reportedly plans to shutter another 20 GW in the coming years.

Wobbly Steel

Indeed, within 5 years there may well be a nationwide cap on coal consumption in China – an extraordinary development in a country whose economic miracle of the last 20 years has been powered almost completely by coal. The less-noticed default of Haixin Steel, a steelmaker based in the coal-producing region of Shanxi Province, China’s Appalachia, could be a more troubling episode than Shanghai Chaori.  Haixin was involved in “triangular debt” arrangements with coal producers and other investors, and its failure could forebode turbulence in China’s heavy industry – and its commodities markets, including coal.

“The truth is Chinese coal consumption is peaking,” writes Justin Guay, of the Sierra Club, “and its plans to build the world’s largest coal pipeline is a bubble that may have already burst.”

If the coal/steel nexus that has fueled China’s growth turns into a bubble, concerns over solar companies going belly up will look minor by comparison.

 

The Climate Change Gap Narrows on Policy

— March 3, 2014

That Americans are polarized on issues around energy, the environment, and climate change is not news.  What’s interesting is the degree to which the gap between those views narrows when it comes to actual policy and funding decisions – in other words, to what should be done.

Former The Wall Street Journal Washington, D.C. bureau chief Alan Murray, now president of the Pew Research Center, kicked off the Vail Global Energy Forum with a discussion of the center’s recent polling data on energy and the environment.  The decline over the last 2 decades in the percentage of Americans who support stricter environmental laws and regulation, who view the environment as a top priority for the nation, and who see global warming as a major threat to the country’s security and prosperity has been striking.  In 1992, 90% of Americans favored stricter environmental regulations; by 2012, that number had fallen to 74%.  Much of this change has happened in the last decade.  In 2006, 79% believed global warming is a serious problem.  That percentage fell to 65% in 2013.  Today, the economy and jobs are the highest priority for most Americans; climate change ranks at or near the bottom of the list of problems demanding attention and resources.  Most of these declines have occurred among Republicans, Murray said; Democratic responses on these questions have stayed remarkably consistent.

Untapped Opportunity

In general, these findings correlate with those of Navigant Research’s Energy & Environment Consumer Survey, which has tracked a small but noticeable drop in favorable attitudes toward clean and renewable energy concepts in the 3 years the survey has been conducted.  (That decline, however, reversed in 2013,  as favorability ratings for a number of these concepts, particularly solar energy, wind energy, hybrid vehicles, and electric cars, rebounded significantly from their 2012 levels.)

Also not surprising is the Pew data comparing attitudes in other countries to those in the United States.  In Western Europe, 54% of those surveyed ranked global warming highest on their list of major threats in the 21st century.  It’s at the bottom of Americans’ lists.

More noteworthy was the data Murray presented on policy questions.  By wide majorities, Americans support more federal funding for wind, solar, and other forms of clean energy; better fuel efficiency for all classes of vehicles; and more funding for public transit.  Somewhat surprisingly, that’s true on the Republican side of the aisle.  While the majorities are smaller, most respondents identifying themselves as Republicans support each of those policies – a result seldom reflected in media coverage of news related to these policies.

Theories about the causes of this split between relatively low and falling concern over climate change on the one hand and support for clean energy, fuel efficiency, and public transit on the other amount to speculation.  As Colorado Governor John Hickenlooper said in his opening remarks at the forum, “In the modern world, we don’t all have the same facts.”  But the degree of agreement that government should do more to bolster the development of clean energy and energy efficiency technologies suggests a political opportunity that, for the moment, remains largely unexploited.

 

Proposed Bill Would Revive U.S. Rare Earths Industry

— February 28, 2014

Attempting to solve two energy security crises at a single stroke, Missouri senator Roy Blunt in early February introduced the National Refining Cooperative Act of 2014 (NRECA), which would create a federally chartered corporation to build and operate a processing facility for rare earth elements.  Used in a variety of cleantech, defense, and telecommunications technologies, rare earths have become increasingly valuable over the last decade even as producers in China have established an effective world monopoly on their production.

Until the early 2000s, the United States was the world’s leading supplier of lanthanides, scandium, yttrium, and other rare earths, and the Mountain Pass mine on the border of Nevada and California was the world’s largest producer of the minerals.  Dogged by environmental issues and flat world prices, the Mountain Pass mine shut down in 2002, and rare earths production in the United States evaporated.  As I reported in Fortune in 2011, a Denver-based company called Molycorp has restarted Mountain Pass and is attempting to carve out a place as a significant producer of rare earths.  However, China still controls 95% of the market and has demonstrated its willingness to curtail exports in order to control the world’s supply.

Critical Elements

“We are here to state the importance of the need to bring back the rare earth industry to the U.S. to protect and grow jobs as well as to control our own sources of rare earths that are so important to green technologies, aerospace, and defense, and energy-efficient motors and generators,” testified Robert Strahs, the VP and general manager of Arnold Magnetic Technologies, before a U.S. House Committee on Foreign Affairs hearing in 2011.

Backing NRECA is a loose coalition of developers, miners, and alternative energy activists, including the Thorium Energy Alliance, which for the last 5 years has been promoting the development of nuclear reactors that use thorium, a radioactive element, rather than uranium.  As I documented in my 2012 book SuperFuel, thorium is cleaner, safer, and more abundant than uranium and is effectively impossible to fashion into explosives.  It’s also nearly always found in association with rare earths.  NRECA would create a private corporation that would store the thorium left over from rare earths production and formulate and market it for commercial uses, including energy generation.

Thorium is almost ubiquitous in the Earth’s surface, and the United States possesses enough readily available thorium to produce ample electricity for hundreds of years.  Scientists at Oak Ridge National Laboratory in Tennessee pioneered thorium reactor research in the 1960s, but the program was abandoned under the Nixon Administration.  Other countries are moving forward.  The Indian Atomic Energy Commission recently debuted the prototype of the advanced heavy water reactor (AHWR), which is designed to run on solid thorium fuel.  The AHWR is being developed at the Bhabha Atomic Research Centre, outside Mumbai, which has become one of the world’s centers of thorium reactor research.

The Refining Cooperative bill is designed to end China’s monopoly on strategically important rare earth elements and to provide a consistent supply of thorium to fuel low-risk, zero-carbon nuclear power for generations.  Nevertheless, NRECA’s backers have faced a multiyear uphill struggle just to get the bill introduced.  The current bill, introduced in the Senate, could be matched in coming weeks with a similar piece of legislation introduced in the House as part of the 2014 National Defense Authorization Act, the annual budget bill for the Department of Defense.

“We have strong bipartisan support in the House and on the Senate Armed Services Committee,” Jim Kennedy, a Missouri developer and one of the bill’s leading proponents, told me.

They’ll need it.

 

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