William Magwood / NEA Head Says Cost Is Driving Nuclear Industry Towards SMRs

By Kamen Kraev
3 June 2020

NuScale reactor could be on market by end of year ‘as a real product’, says agency’s Director-General
NEA Head Says Cost Is Driving Nuclear Industry Towards SMRs
William Magwood: ‘the nuclear sector needs to evolve to reflect the market’. Photo courtesy NEA.
Competition in the nuclear industry – including from China and Russia – is leading to more choice in terms of reactor technology, but financing and contract terms are often the determining issue for many customers, with small modular reactors attracting attention because of their affordability, Nuclear Energy Agency Director-General William Magwood told NucNet.

Mr Magwood, who has been Director-General of the Paris-based agency since 2014, said building large nuclear plants can be expensive and customers need to find a way to finance projects. “And that’s something that all suppliers have to take into account,” he said.

He said the industry’s calls for market reforms that would reward the security of baseload nuclear energy are legitimate, but warned that the nuclear sector needs to evolve to reflect the market. “The market is not going to change overnight,” he said. “It’s going to take a long time for it to be reformed.

“It would be to the nuclear sector’s advantage to have products that fit the budgets of current customers under current circumstance.”

Cost is one of the issues driving the market to consider smaller reactors. This is because the initial capital needed is so much less than for traditional large light-water reactors (LWRs) of the kind that have been under construction and faced delays and cost overruns at Vogtle in the US, Flamanville-3 in France and Olkiluoto-3 in Finland. Instead of talking about an investment of $10bn or more, small modular reactors, or SMRs, might make it to market for around $1bn billion, Mr Magwood said. That is much more “in the affordability range” for a lot of customers and has inevitably created a lot of interest.

However, Mr Magwood said he does not agree with the notion that the industry has seen the last of the large reactors. If SMRs are as successful as a lot of people hope, the first examples could begin construction by the mid-2020s and replace some large LWRs in the future. “But until they [SMRs] are on the market, until they are real, it’s hard to say,” Mr Magwood said.

Last month the author of a think-tank report said the Vogtle-3 and -4 nuclear power plants under construction in Georgia could become the last large-capacity reactors to be built in the US, with SMRs and other Generation IV advanced reactors taking over as key technologies.

Jane Nakano, a senior fellow specialising in energy security and climate change at the Washington-based Center for Strategic and International Studies, said she “would not be surprised” if the two Westinghouse AP1000 units were the last large commercial units in the US.

But Mr Magwood said technology like the AP1000 being used at Vogtle is "excellent" and “probably the safest large reactor technology that’s been built”.

However, the Vogtle project has shown that for any first-of-a-kind project you are going to run into some issues, Mr Magwood said. “The good news on all of this is that Vogtle-3 and Vogtle-4 plants are almost complete and we will see this technology in operation.”

AP1000s have already been built in China and are operating extremely well. “I have talked to Chinese officials about the AP1000 and they are operating extraordinarily well, they are very pleased with the plants. The question is, what’s the market for the future?”

A lot depends on what demand looks like. In some countries, particularly emerging economies like China and India, there is very large growth in electricity demand. More people are moving from rural areas to urban areas. Factories are being built. The need for electricity increases. In Western Europe and North America, electricity demand is flat, increasing by about one percent or less a year.

In contrast to the large LWRs like the AP1000s at Vogtle, SMRs fit into systems where electricity demand is not as large, Mr Magwood said.

“In countries like the US, the question is not really of meeting growing demand, but more of switching to modern technologies to replace old coal plants that are going offline,” he said. The issue is mostly one of replacing existing capacity, not meeting increased demand.

“And that kind of market doesn’t lend itself to very large investments in plant equipment like it used to. Which makes SMRs more attractive than in markets where large reactors are needed to meet growing demand.

“This is still somewhere where I think the large reactors play a role,” Mr Magwood said. “They play a role where there is large demand growth, but they also play a role in situations where you need to retire very large facilities.

“If there are large coal plants that have to go offline because they are too old, or even old nuclear plants, that presents an opportunity to replace that capacity with new large capacity.

“And in those cases, the traditional large plants might fit. But that's something that has to decided on a case-by-case basis.”

Generation IV SMRs are still in the design stage, but construction and operation are coming. In the US, NuScale’s SMR – a fully factory-fabricated module capable of generating 60 MW of electricity using a scaled-down version of PWR technology – is the first to be going through the regulatory approval process in the US and could be on the market by the end of the year “as a real product”. That will be the first step to see what the small reactor revolution might look like.

Mr Magwood also addressed the issue of financing new nuclear, saying that if the market was completely open and took into account the full system costs of all technologies, nuclear would probably be better off. But he pointed out that “it’s always important to recognise that it’s not exactly a free market anywhere”.

Market imbalances make investing in nuclear power very unfavourable in many countries

He said many electricity markets are “heavily distorted and dysfunctional” because of selective subsidies. “These market imbalances make investing in nuclear power very unfavourable in many countries,” he said.

According to Mr Magwood, business models for utilities have changed and selling electricity is generating little profit, or even a loss, in many countries.

“A situation has been created where a mechanism, which had been so successful for so many years, where revenue is generated through the sale of electricity to enable investment into future plants and equipment, is breaking down. That’s not a sustainable situation.”

Utilities today, for example, are expecting nuclear equipment vendors to come up with ready designs for plants, but are unwilling or unable to pay for this element of new-build projects. At the same time, Mr Magwood said, vendors often do not have the financial resources to cover the cost of getting a design ready for deployment.

Mr Magwood said there are some policy approaches, including the regulated asset-base (RAB) model being considered in the UK, that could be more favourable to large capital projects and be an incentive to nuclear. Large wind farms have large capital costs and could also benefit from “reforms to the market”.

“On the other hand, the nuclear sector needs to evolve to reflect the market,” he said. The market is not going to change overnight. It’s going to take a long time for it to be reformed.

“It would be to the nuclear sector’s advantage to have products that fit the budgets of current customers under current circumstance.”

And so we come back to SMRs and to microreactors that can be built quicker and more easily than the large LWRs.

“And I think that’s one of the things that’s really driving this interest in small reactors – the idea that instead of investing in 2,000 MW you can build 300 MW now and add another 300 MW when it’s needed, until you get to the 2,000 you’re looking for,” Mr Magwood said.

“And that way, every time you install a 300-MW system and put it on the grid, you are making money back and starting to recover your costs, while you start constructing the next module.

“I mean, that's a model that is very attractive to a lot of people. And I think that’s something that the nuclear sector is going to have to do if it's going to survive over the next decade or so.”

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