Nuclear Liftoff With LPO

Male electrical engineer with digital tablet.

In this episode of the Energy Transition Podcast Series, Julie Kozeracki, Senior Advisor at the U.S. Department of Energy’s Loan Programs Office, joins Marc Bianchi, Industrial Gas and Equipment and Energy Oilfield Services and Equipment Analyst. Julie oversees the nuclear vertical and was one of the lead authors of their liftoff series report on advanced nuclear, which gives an overview of advanced nuclear and discusses what’s needed for commercial success.

They go through the findings of the report, how the analysis as done, and feedback they’ve received since its publication. They also discuss implications and learnings from the recent UAMPS termination and how the industry order book is shaping up.

Press play to listen to the podcast.

Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Marc Bianchi:

Hey everyone. Marc Bianchi here from the TD Cowen Energy team with another installment of our Energy Transition podcast series where today we’re speaking with Julie Kozeracki, who is senior advisor to the DOE’s Loan Programs Office or LPO. Listeners may recall, we had the director of LPO, Jigar Shah on about a year ago. Julie reports to Jigar and among other responsibilities, overseas their nuclear vertical and was one of the lead authors on their liftoff series report on advanced nuclear. If you’ve not seen that report, I’d highly recommend you check it out. It gives a great overview of advanced nuclear and discusses what’s needed for commercial success. So the podcast goes through the findings of that report, how the analysis was done, and feedback that they’ve gotten since they released the report earlier this year. We also discuss the recent UAMPS termination and thoughts on the back of that, as well as how the industry order book is shaping up, which I thought was quite encouraging.

Thanks for listening and hope you enjoy our discussion with Julie Kozeracki. Hey, Julie, thanks so much for joining us. So just to get some introductions going, you’re a senior advisor to the DOE’s Loan Programs Office. What do you advise on?

Julie Kozeracki:

Sure. So it’s a phony little title that really allows me to have two jobs. So one of those is on nuclear because the Loan Programs Office was created by Congress with Nuclear in its original mandate, the Energy Policy Act 2005, but LPO doesn’t yet have the applications we’d need to see for successful new deployment at scale. So a lot of my role is around figuring out what the path is for folks to be able to get to a place where they are ready to apply to the LPO for new nuclear projects. And then I have a second role broader than nuclear on our investment process because particularly with the passage of the Inflation Reduction Act, which created Section 1706, our Energy Infrastructure Investment program, LPO now not only has much more money and authority, but also has many different authorities. So for example, a 1703, which was our existing program requires innovative technologies and 1706 now allows us to finance projects for proven technologies as well. So that has a lot of implications for the types of applications we can handle and the diligence we do on those applications.

Marc Bianchi:

Correct me if I’m wrong about this, but you’re not a nuclear industry veteran, but you’ve ramped up your understanding seemingly to a very high level in a short period of time. So maybe just talk about how you did that and maybe what some of the learnings are versus perhaps your initial perceptions.

Julie Kozeracki:

Sure. So before I joined the DOE, I had spent my whole career with the Boston Consulting Group, and so you learn very quickly how to learn quickly. And it sounds a little pokey, but the biggest skill that you walk away from consulting with is the ability to add structure and prioritization to ambiguous problems. And helping to figure out a path forward for the nuclear industry has been not only probably the most ambiguous but the most compelling problem that I’ve been able to work on and I’ve been really thrilled to be able to do so. And I was fortunate at BCG that I was able to do a huge diversity of projects. So I had worked on a uranium enrichment project. I had worked with the Navy on the supply chains for among other things, the nuclear powered submarines and aircraft carriers. But I did everything from work with the Philadelphia Fire Department to the Gates Foundation.

So it was really all over the map, and I think that broad base was very helpful in actually approaching the problem from a fresh perspective. And I think that a couple of things really surprised me. One of those is that I am shocked that a lot of people still don’t realize nuclear’s full value proposition, that particularly as we think about moving towards a decarbonized resilient grid, that nuclear has all these benefits around not only providing carbon-free electricity, but around being reliable and resilient, around using land really efficiently, using transmission efficiently. And a lot of these things that just seemed so inherent in nuclear’s definition in this power, I’m surprised that folks often aren’t able to compare effectively with other generation sources. So that still surprises me. I think I was also surprised that there isn’t really a nuclear development industry. We have a really successful nuclear operations industry, but we have a couple of the pieces.

We have nuclear reactor designers, so folks like Westinghouse or GE Hitachi, and then we have larger utilities who operate those reactors. And then in between utilities have been using general EPC firms to help do a lot of that construction, but there isn’t really a fully coherent nuclear industry that’s primed to deliver some of those new nuclear projects. So I think that was surprising to me that we can have some of the brightest minds, physicists, nuclear engineers, really successful operators, but there isn’t really yet a structure or a set of businesses in developing new nuclear projects. So I think that was somewhat surprising to me. And then the final piece was that we have this fleet of reactors in the US but they aren’t really a fleet because we have 93 operating reactors. But it turns out they’re almost all special snowflakes because we’ve had a habit of customizing and specializing.

And so there are a couple of plants where there might be two reactors at a site and a sister site with very similar reactors. But largely we haven’t yet given ourselves the chance to reach nth of a kind cost or nth of a kind benefits because we kept jumping around. So I think I was surprised by the composition of the current fleet.

Marc Bianchi:

That’s all stuff that I can attest I didn’t appreciate until I started following you as well, so good points there. So let’s talk about this liftoff report and maybe to set it up, what is the liftoff series and what’s the mission of it? And talk about the process in putting the reports together and how those are maybe different from some of the reports you did at Boston Consulting or other consulting reports that we might be familiar with.

Julie Kozeracki:

So the liftoff reports are a shared fact base with the private sector where they share what they need to be successful. And so they are very much in the spirit of us being, and I know we’ve all heard Jigar say this, private sector led and government enabled, and they also represent a really successful cross DOE collaboration. So the nuclear report in particular was a collaboration between the Loan Programs Office, the Office of Clean Energy Demonstrations, which manages the ARDP projects, the Office of Technology Transitions, as well as the Office of Nuclear Energy. And I think that’s really important because historically, the DOE has had a really strong R&D mandate, and with the passage of the bipartisan infrastructure law and the Inflation Reduction Act, we have seen an increased mandate from Congress around demonstration and deployment, which is a different set of muscles for the department.

So it’s really important that we have been pulling together multiple offices across the department as well as incorporating the incredible amount of data that the DOE gets from the private sector. LPO in particular interfaces with hundreds of companies and has incredible data around what those companies need to be successful, the challenges they’re facing, what capital allocators are looking for. So I think this was a recognition of the fact that DOE has access to all this incredible data from the private sector, but there wasn’t yet a synthesized distilled version of what that meant about the path forward for these technologies. And so I am really thrilled that we were able to launch that first wave this year. There’s been subsequent technologies released including virtual power plants, and we are really hoping that these will be living documents that get updated, but I think the other…

You asked how they came about, so part of this was also doing dozens and dozens of interviews with stakeholders and also helped me move from not being a nuclear industry veteran to knowing enough to be dangerous because this was a terrific excuse to call up all of the experts in the nuclear industry and ask them all the questions around what it would take for nuclear to be successful going forward.

Marc Bianchi:

I think we had one of those initial calls with you and maybe revealed our ignorance a little bit at the time. So maybe can you give an example of what some of that unique information was from the DOE’S data sets or just some anecdotes around what those look like so people have a flavor of what’s special in these reports?

Julie Kozeracki:

I think that the DOE has historically been in a position to support a lot of really exciting research and earlier stage technologies. And I think that particularly in nuclear, there is really no question that the US is at the forefront of nuclear research and development, but that the challenges facing new nuclear are not technological, that we have pretty powerful R&D, pretty powerful programs supporting these earlier stages, but that there are real questions around constructability, which I think was not necessarily special insight to the DOE, but that there are a number of practices that can be supported by different kinds of R&D, not just around the technology, but hey, can we actually figure out how to build these things in a way that the DOE complex and the lab infrastructure can really support? And I think that the nuclear piece in particular was less about uncovering these really unknown insights and more about pulling together the framework of what it was going to take for everyone to move forward.

Because I think in nuclear, there’s a lot of very specialized but somewhat siloed information and a lot of that can feel like a black box. So in particular, the calls that we did with investors on nuclear were really powerful because it helped uncover those sorts of questions that make people nuclear skeptics or a little unclear about what the path forward looks like. So I think a lot of that was about identifying the specific hurdles that nuclear reactor designers or other developers would take to potential customers and why those customers were saying no, I think that was probably the most valuable data. And so the way we flipped that question was, okay, what would it take? So what would it take for a customer to commit to a new project or for a customer to take a chance on this? And so I think synthesizing what some of those hurdles had been and turning that into what the path to success would look like helped pull that data together and identify a path forward.

Marc Bianchi:

And that gets into some of the stalemate topic that we’ll get to in a little bit ’cause I think that is a big hurdle. Some of the findings of the report, so one of them was that the US needs 550 to 770 new gigawatts of clean firm power to get to 2050 net zero and 200 that’s going to be nuclear. So that’s another 200 on top of the 100 that we already have, which is interesting because we just heard a COP that we were one of the countries committing to tripling our nuclear capacity by 2050. But maybe talk about where you got those numbers. What are some of the major assumptions being made? One of the things that I think about is you’ve got nuclear only 200 of the 550 to 750 or so, what’s the rest of it? Can we really get that much clean firm power out of other sources of new generations? So talk to us about that.

Julie Kozeracki:

And first of all, let me say how excited I am about the COP pledge and the tripling number, and I hope that the liftoff report helps provide a path to exactly that what actually tripling nuclear capacity in the US would look like and what it would require. But on the modeling front, so we did do some bespoke modeling for this effort, but we also referenced a number of recent modeling efforts because no modeling is ever going to be precise and they’re not meant to be a prediction. It’s meant to be a blunt force tool to inform the direction we’ve got to be heading. And I think it is very helpful to do system modeling that points out that even though the LCOE of solar and wind by themselves, and I’m so excited that we have gotten solar and wind to a place where they are that cheap on an LCOE basis, that actually doing a system that is all renewables without clean firm power is more expensive.

And I think that can be counterintuitive for folks. And so a lot of the benefit of system modeling that identifies that if you have clean firm sources, call it on the order of 20 to 40% of your grid, that meaningfully changes the amount of long duration storage that you need, of transmission that you need, of land that you need to use. And so there are a number of other sources for clean firm generation, not a lot. The ones that standalone are geothermal and hydropower. And then the ones that you can do in combination are solar, wind paired with long duration energy storage or natural gas with carbon capture. And I think that one piece that goes back to folks understanding the value proposition of nuclear is I don’t know that most people realize that energy is largely consumed as it’s generated and that energy storage is actually very difficult and expensive.

I think that a lot of people have an intuition that we have these large stores and we can use it when we need it, and folks usually don’t realize that there is something powering these light bulbs right now. And so I think there is often an under-appreciation of the value of firm capacity that is always there or there when you need it. And so the system modeling really helps show the economic value proposition and that you can move these system costs down by investing in resources that are both clean and firm. Particularly when we talk about the 200 gigawatt number, and by that I mean 200 gigawatts, a new nuclear in the US by 2050 a tripling up our capacity, we say in the report how that is really a midpoint from a lot of modeling exercises that represents something that’s ambitious, yet achievable and hopefully helps underscore the direction of the vector, which is we need a lot more nuclear and we need it quickly.

Marc Bianchi:

That’s great. And I just want to go back, I didn’t quite get it. You mentioned 20 to 40%. How much intermittent generation can a grid handle?

Julie Kozeracki:

An incredible amount. And let me be clear, we need all of the solar and wind that we can build as quickly as possible and then you still need the nuclear. So we do actually show two scenarios in the report, one where you build a lot of renewables and one where you build a crazy amount of renewables. And in the scenario where you build more solar and wind, you have to so overbuild the capacity to make up for the intermittent generation that that ends up coming with its own costs. But there certainly are ways and we will of course move to a system that supports many more intermittent renewables and that’s okay, but it’s a matter of having balancing. And I guess from my perspective, I would much rather have those renewables complimented by nuclear than by fossil fuels because I think that that is really the trade-off that we’re going to be faced with. And so I see nuclear as a necessary compliment to increased renewables at scale, not as competition.

Marc Bianchi:

And how much of the 200 or whatever number, I guess that’s a midpoint, so it’s not, but just proportionally new nuclear would be coming from advanced and small modular reactors? Because I think the report, it was about advanced reactors, but you’re supportive of all kinds of nuclear. So help us sort that out.

Julie Kozeracki:

Absolutely. So I think that’s to be determined because small reactors may play an especially important role in getting folks confident in new nuclear builds again, but it’s going to be very tough to meet our decarbonization goals without large reactors. And so you can look at Vogtle, so the new nuclear power plants in Georgia with a long guarantee from the Loan Programs Office, first new nuclear power plants constructed in generation, and you can look at that as the Georgia Public Utility Commission having approved two reactors or 2200 megawatts, and so they approved two 1100 megawatt reactors. But you could imagine that if they instead had done that with 300 megawatt reactors, we would currently be at seventh or eighth of a kind costs. So SMRs may provide an easier way to actually recognize those seventh and eighth of a kind costs because they represent smaller investments upfront and also that a percentage overrun on a smaller reactor may be easier to handle on a balance sheet than an overrun on a large reactor.

But I do want to be clear that we scaled up to large reactors for a reason. This wasn’t an accident. We made reactors increasingly bigger and bigger to benefit from economies of scale, and it is really, really tough to beat the economies of scale on a 1100 megawatt reactor. So there are especially other reactors as you mentioned. So we cover all types of reactors in the report and generally we consider advanced to be Gen III+ plus. So those are lightwater reactors with passive safety as well as Gen IV, which are non-lightwater reactors. And in particular, some of the non-lightwater reactors are going to have really important business cases, value propositions outside of traditional utility scale electricity generation, things like industrial decarbonization where you may naturally have smaller reactors serving the industrial load, but perhaps providing really high quality steam or very high temperature heat that’s tougher to get from a lightwater reactor.

So you can imagine that there are probably three big niches. There’s your big utility scale electricity generation, there’s also your industrial processes, really high temperature heat, steam. And then third, there’s your true micro reacts, your remote applications where folks are paying crazy amounts for diesel generation. And so those are your true one to 20 megawatt micro reacts that have a slightly different value prop.

Marc Bianchi:

You’ve mentioned this a couple times already, the first of a kind to nth of a kind, and we see that in other industries as well. But one of the conclusions from the report is that I think you expect to lower the first of a kind cost by 40% and it’s going to take 10 to 20 deployments of the same kind with five to 10 orders by 2025 of the same kind. So just walk us through what all that means, how you came to the conclusion, and what analysis was done to support that.

Julie Kozeracki:

Absolutely. And I also mentioned that we have, since the publication of the report, new data that we’re hoping to incorporate into an update because something that’s particularly important to understand for nuclear is how much can get wrapped up in the true first of a kind costs, so costs that you will never have to deal with again. And so I think we’ve seen some really exciting data on this out of Vogtle. So for example, hot functional testing at Vogtle unit three took 94 days. Hot functional testing at unit four took 42 days. So you are talking about huge drop-offs in time for key processes. And there are a number of other costs around finalizing the AP1000 design for example, or completing all of the work packages for construction that you have done after the first of a kind that you never have to pay for going forward.

So I think that one of the challenges with our traditional utility led focused on their own reactor model is that it hasn’t given you multiple reactors to spread those fixed true first of a kind costs. It would be equivalent to someone trying to load up the first house in a neighborhood with all the fixed cost infrastructure or all of the designs for every other house in the neighborhood or all of the water utilities serving everyone else. So I think that there is a clear distinction between your first of a kind costs and then what you expect going forward. And then we walk through in the report a couple of the areas where you expect to see those costs come out, and I think there are two big things to consider. One is how much you can actually factory assemble and modularize, and then two, how much better you can get at mega project construction.

So I will say that factory modularization has perhaps been a bit overhyped in the larger SMR space because realistically if you’re building a 300 megawatt reactor, that’s going to be a lot of onsite civil works construction. That’s okay because then that just means that a lot more of the value has to come out of overinvesting in that pre-construction planning in having the resource loaded schedule done, in having real benefits from just repeat deployments of a standardized balanced plant, which is a slightly different value proposition. But we do have good data outside the US largely. So I think South Korea has probably the best data set here where South Korea stuck with one design, the APR-1400 and they got really good at it and they have been building four of the APR-1400s in the UAE. And you see the same learning curves even between units one and four in the UAE, pretty monumental differences in cost and timing.

So although as I mentioned earlier, we have a little bit of a fleet of snowflakes in the US such that we don’t have a huge data set on how to come down the cost curve with reactors there, when folks have stuck with the design and gotten really good at it, you see really substantial productions. One other piece I will mention just because we mentioned some other folks earlier is that anytime Jigar or I talk about nuclear, folks are in our comments asking why we’re wasting time and money on nuclear because don’t you know how cheap solar is today? And folks seem to forget that people were signing PPAs for solar at 170, $180 megawatt hour pretty recently, call it 2011, 2012, and you saw really monumental price reductions from just repeat deployment and a number of other factors, but I think that nuclear is worth the same investment. The first projects are going to be expensive, but first of a kind anything is expensive, and it’s about identifying those core categories of where you expect to see cost reductions and showing folks what that path looks like.

Marc Bianchi:

I guess one of the other conclusions of the report was that once you get to that nth of a kind, it would translate into I think it had either 65 or $66 a megawatt hour, but that included some of the IRA subsidies. So if you take that out and try to look at it on an unsubsidized basis, we’re talking about maybe an LCOE of $75 a megawatt hour. Which LCOE is imperfect because it doesn’t take into account the round the clock nature of nuclear and all that stuff, but I think when investors hear $75 a megawatt hour and they hear the solar numbers or they hear other solar plus storage or whatever it may be that they think is on a path to something that’s substantially lower, they don’t think 75 can hunt. So what analysis have you guys done or what gives you confidence that that’s a viable number?

Julie Kozeracki:

So I will take that a little further to say that I think LCOE is doing us all a disservice because I think that it is not framing the decisions and the trade-offs that we have to make appropriately. And I really hope that there is some way that we can move towards something that captures more of a system cost of electricity. I was really thrilled to see Lazard including the cost of farming intermittency and their LCOE analysis this year, but you have to account for both decarbonization and resiliency benefits. We mentioned earlier, and I won’t belabor that nuclear doesn’t need to compete with solar by itself. It’s got to compete with solar paired with long duration storage, which puts those about on par. But when it comes to why that cost is worth it, I think that we have to look at the business case particularly for tech companies and hyperscale data centers because companies like Microsoft and Google and Amazon are going to need an incredible amount of electricity to power AI, data centers, and those are things you need powered around the clock.

And they are simply not going to be able to grow their businesses to the potential that they could if they don’t have the power that they need to operate. I am so thrilled that they have already made commitments to clean electricity, and so if it’s a matter of needing the power in order to be able to operate and grow your business I think that makes a lot of sense. I think that we are also not necessarily accustomed to thinking about prices appropriately because we haven’t had new growth in so long. I encourage folks to look at the recently updated projections from Georgia Power and Duke around just how much new load growth they are expecting because we largely as a result of things like energy efficiency and have not had much load growth for the last 15 years or so. So a lot of folks in the positions making these decisions have not really had to manage through really serious growth.

And if we are talking about situations where we are doubling or tripling the amount of electricity we need to support EVs, to support AI, to support a number of other sectors and economic growth, that’s going to require building a lot of new generation. And some of those first and early ones are going to be more expensive, but it’s a very different mindset through eking out efficiencies on a flat load growth versus really investing to double or triple our electricity.

Marc Bianchi:

So we talked about the stalemate earlier, this commercial stalemate, and I think about it as an investor, why would I sign up for the first of a kind when I know that a kind is going to be a lot cheaper? And that’s a very obvious challenge. So maybe talk about some of the potential solutions that the report discussed, and are there any examples we’ve seen or are there any discussions underway? Maybe it involves a loan from LPO, but just help us see how that’s going to unfold.

Julie Kozeracki:

Absolutely. So Chris will help us, we work closely with at LPO and was a co-author on their report. He once distilled it down to everyone says they’d like to be fourth, but no one can be fourth unless you identify who’s going first, second and third. And so I think that it may be as simple as the folks who want to go fourth grabbing three of their closest friends or neighboring utilities and aligning around a shared design. And among the four of them getting to that critical mass of reactors, and working together because I think that those folks are now increasingly at a risk of just not being able to find new sources of generation. And the trade-offs on that are very different than they were even a year or six months ago, again, just because of these load projections. And I think that even though utilities the whole time behind closed doors have been saying, of course you need nuclear to do this. There’s no way to do this without new nuclear, they are finally being forced to try and answer some of these new load growth projections and there just aren’t many other great options.

The other source of a lot of this new growth is manufacturing. And so for example, now that all these folks in Georgia have all this clean, reliable power from Vogtle, manufacturers see that as a really attractive place to cite a new factory. And so that creates a positive feedback loop of where you have the clean, reliable power folks want to go and do business there. So I’m very hopeful that folks are able to band together and figure out a way to get up to that critical mass of reactors. And there will also be an important point in making sure that they even have a spot in line, because if we get to a place where the tide turns and finally there is unanimous agreement that we need to move forward with new nuclear, if everyone has already grabbed spots one through four for the supply chain and for reactor deployment, you’re going to be in a really tough spot if you were planning to go next and everyone has already moved ahead without you.

Marc Bianchi:

Okay, great. And so in terms of the experience so far, or at least what people have to look at for evidence of these first of a kind projects, there was a small modular project that was recently terminated and I saw a lot of media coverage saying, this is a confirmation that nuclear is too expensive. We’re never going to see this really move forward. But I think the project had some very specific issues in addition to cost or maybe that drove the cost, I’m not quite sure, but it might be a unique situation and maybe it wasn’t entirely just due to costs of SMRs or of nuclear. So what’s been the reaction to this DOE or among your network? What do you have to say?

Julie Kozeracki:

So I think that UAMPS and the NuScale Carbon Free Power Project provide us really critical lessons about how to structure future projects for success, and that involves, as we were just talking before, lots of reactors and lots of rate payers and hopefully lots of big credit worthy offtake. Because if we just contrast for example, Vogtle with Georgia Power, there are millions of rate payers who are going to benefit from those costs, but also millions of folks you’re able to divide those costs amongst. And I think it also shows the importance of moving away from one of a kind reactor projects because first of a kind anything economics don’t work. And so we don’t set ourselves up for a success when we look for a first of a kind demonstration of a new technology to meet economic needs that you would expect to see on a subsequent deployment. So I think that it just provides us some really helpful, solvable lessons for how we structure future projects.

And I really hope that that looks like, for example, a minimum of five reactors by design such that you are not left trying to load up one first of a kind reactor with all those unique first of a kind costs we discussed instead of allowing yourself to spread those out. Because for example, when Boeing was trying to sell the 747, they didn’t try to sell one very expensive plane to a customer loaded up with all the costs of designing the plane and setting up the manufacturing line and supply chain, they sold 25 of them to Pan Am. So I think that those are similar constructs that we can take. The other piece, and this ties into the role that I think tech companies have to play is in lining up folks who have an incentive for fleets of reactors and whose business really depends on that clean firm power. So you can also imagine that there is some type of role for industrials or big tech companies like Microsoft, Google, and Amazon in buying the offtake from some of those first units perhaps at a premium price just because they have so much to gain from the success of those projects.

Marc Bianchi:

Do you think we could see a tech company actually owning the generating asset rather than having some intermediary owner that has a PPA agreement?

Julie Kozeracki:

I have not yet heard anyone in that space express a desire to own or operate the asset, but I think that’s okay. I think that if they can provide the offtake and they can provide, again, a lot of that not just offtake, but big credit worthy premium offtake. That is hopefully what it’s going to take to catalyze some of those first and early projects because I think right now utilities are in this tentative space and they’re eventually with these updated load growth forecasts coming to terms with the reality of this much new generation. But I think that tech companies, if they’re able to say, hey, we stand to gain so much from the deployment of these first reactors that we’re able to take a lot of those costs off of rate payers for the first reactors. I think that that is a really workable model that benefits everyone because rate payers, even if a lot of that early output has gone to the tech companies, they still benefit from all of the grid reliability, resiliency benefits from having new nuclear in the mix. So I think that that model has a lot of promise.

Marc Bianchi:

Do you have a sense or have you seen any analysis of what the tech demand could be? There’s data center demand, we knew that was growing, but now it always seems to surprise expectations and now you layer on AI on top of it and the numbers could get astronomical. Have you seen any projections or have any view on where load growth could go from those two end markets?

Julie Kozeracki:

Folks have been holding those estimates a little close to the vest, but suffice it to say they are shockingly high and they are looking for that power suit. We aren’t talking about 2040, a lot of this is late into the 2020s, early 2030s. And that’s also why I think that even if folks are thinking about, oh, well maybe we don’t need all this new generation until the mid-2030s. When it comes to nuclear, that means you should have started yesterday in looking at designs, citing licensing and all these things. But I think that a lot of these load growth forecasts are, again, in support of doubling or even tripling the amount of peak load that we serve today. And that is not a growth curve that folks in these roles have had to grapple with for the last few years so we cannot get started fast enough.

Marc Bianchi:

I want to shift gears slightly and talk about enrichment ’cause we had Centrus on the pod recently and they were discussing about how the lack of enrichment capability here in the US it’s not only an energy, but it’s also a national security risk. Do you think we can satisfy our enrichment needs without nationalizing our enrichment industry because all the companies are nationalized?

Julie Kozeracki:

I think that we will benefit from a diversity of supply. So if we have folks like Centrus and then folks who as you mentioned are operated by friends, partners and allies like Urenco, which is co-owned by the Dutch, German and British, and Orano supported by the French, those are countries for whom we do lots of business and share lots of common interests. So I think that we all benefit from having not only domestic capabilities, but also making sure that we are getting the most from and contributing the most to our allies and partners in this space as well. I also think that, and I’m really excited about the work that the Office of Nuclear Energy and now with support from the White House have done on ensuring that there is funding for these fuel needs. But I do want to make sure that people don’t think that HALEU is this chicken or the egg issue, because when I have heard folks like Urenco speak about it, they are coming from the what I think is very reasonable position that they don’t yet see the order book.

They don’t yet see the signed contracts or committed orders for new reactors. And there generally is a natural order of things, where if you have signed contracts for new reactors, the supply chain can stand itself up and can confidently make those capital investments. So I think that we have the really strong pillar of government support, and it looks like there may be a path to funding that. But the other piece of that is ensuring that there is really strong commercial demand, and I think that a lot of the supply chain can stand itself up if those orders are there and folks see the path for those.

Marc Bianchi:

One of the criticisms I’ve heard of all the HALEU support is that we don’t even have LEU capabilities. Why don’t we just start with that? That’s where the funding needs to go first because you make HALEU out of LEU. So what are the thoughts on that?

Julie Kozeracki:

We are definitely going to need both to be successful, and so I am excited that there is an increased focus on what the US will have to do to ensure independence and that we can work with our friends, partners and allies on ensuring that we have a fuel supply chain but definitely it’s going to take both. We definitely need both LEU for the existing fleet and new light-water reactors as well as HALEU for the [inaudible 00:40:27] reactors.

Marc Bianchi:

Well, maybe let’s talk about what’s going on at LPO as it relates to nuclear and if there’s also anything on enrichment. That’s why I kind of wanted to ask that enrichment question before we got onto LPO. Just what’s the involvement right now? What’s supposed the application list look like? What types of projects are you seeing? What types of projects are you not seeing that you would like to be seeing?

Julie Kozeracki:

So we do have on the order of $16 billion in nuclear applications at LPO, but I will say that we really need to see applications from utilities who are planning to move forward with new nuclear projects. Because as I mentioned, there is a natural order of things where if we have plans for the reactors, the supply chain will be able to scale up. And so LPO, our nuclear authorities allow us to support not only new generation assets like new nuclear power plants, but we can also support manufacturing supply chain in support of those. So we can really finance the whole nuclear value chain, and so we have some interesting applications on more of that manufacturing side, but we are mandated to meet a reasonable prospect of repayment. And so in order to ensure that there is a path to repayment for the supply chain or for manufacturers of SMRs, you’ve got to have the offtake and you’ve got to have folks like utilities.

It doesn’t have to be exclusively utilities, but big credit worthy offtake and folks who are able to manage these projects and pull ahead the whole supply chain with them. So I think that folks are taking the right steps, and I think increasingly with the support and business need from industrials and from tech companies and from manufacturers, it’ll be easier for utilities to start moving along that path. But we are really excited for utilities to take a few more of those steps. For example, I was very excited to see that Duke announced publicly recently that they’re looking at new nuclear at a retiring coal facility, and I really hope that we see many more of those announcements from other utilities going forward.

Marc Bianchi:

So just to be clear I got you, in this case if Duke were to build new nuclear at this facility, they could get a loan for that project and as long as it had… Does it need to have a PPA or it just needs to go into their rate base and we know that they’re credit worthy because of that?

Julie Kozeracki:

Of course them getting a loan would be subject to the rigorous LPO due diligence process, but I would love nothing more than to see applications from utilities like Duke. And exactly as you mentioned, that provides such a clear and compelling case for repayment in the case of Vogtle, for example, right? There are multiple owners of that project, but Georgia Power is one of them, and we’re really excited at the perseverance and grit they’ve shown in seeing that project through. And there is real credit worthy strong offtake with the millions of rate payers that are able to help support that project. And so I think we’re really hopeful that a lot of folks are able to take advantage of the tools at the loans programs office and pair them with the tax credits. So if someone like Duke or someone else were to apply to LPO, they would also be able to pair that with the 30% investment tax credit that can go up to 50% with the adders or the production tax credit.

So I think that that is a really compelling package for new nuclear. I think a lot of folks may not know this, all assets eligible for the ITC for example, can also use the five-year makers, the modified accelerated cost coverage. So you can depreciate an entire nuclear power plant in five years. So there are a number of really compelling benefits for folks taking advantage of the IRA and other tools, including the new LPO authorities.

Marc Bianchi:

That’s great. And what types of projects can’t you do? So if we were to think about what’s not ever going to qualify for a loan, what do those look like?

Julie Kozeracki:

So right now we are financing projects that are physically located in the United States, but I will note that for example, if we were to finance a module manufacturing facility for nuclear reactors, the products of that could be exported. So it’s just that the actual projects, so whether that be a nuclear power plant or a new manufacturing facility, that’s got to be located in the US so it can’t be outside of the US. And then right now, and I will say this is something you would be surprised how often I have to qualify to folks that it is the Loan Programs Office and not the grant programs office. So there is some discussion in the report of cost over and insurance, and there’s been some discussion around a partially forgivable loan and whether that could act as cost over an insurance, but that would require direction from Congress in order to change the LPO authorities.

So right now, we are only able to make loans that have to be repaid now with interest, very competitive interest rates in many cases, US treasuries plus three eights, but right now if we were to be able to act on something like a partially forgivable loan or cost overrun protection, that would require some action from Congress and would be outside our current authorities.

Marc Bianchi:

I want to wrap it up with one of the prescriptions that we talked about earlier was having five to 10 real orders by 2025. How are we doing there, and do you think we can hit that given we really haven’t seen much since you guys put that out?

Julie Kozeracki:

Yes. So I will say that there is a flurry of activity, I don’t want to say behind closed doors, but it’s just not yet at the level of press releases and I think it is a combination of all the factors that we just discussed. And I think in particular as a result of the role the tech companies can play, of the incredible amount of new electricity that we are going to need, and actually of utilities willingness to work together and figure out how if they form some type of consortium or buyer’s club, that none of them really have to be first. That they really can all be forth if they go together. I think that a lot of those pieces are coming together. So I am very hopeful that over the next few months there will start to be a more public facing version of what that path to success looks like. And I do think that we are starting to see some of those pieces come together, so I’m hopeful.

Marc Bianchi:

Awesome. Well, Julie, thank you so much. This has been great, and look forward to chatting again sometime.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.


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