Nuclear Power With DOE Loan Director Jigar Shah

In the latest episode of Cowen’s Energy Transition Podcast Series, Jigar Shah, Director of the DOE’s Loan Programs Office (LPO), joins Industrial Gas & Equipment and Energy Oilfield Services & Equipment Analyst Marc Bianchi to discuss LPOs vetting process, expanded authorization, and what it will take to get small modular and advanced nuclear reactors to commerciality.

Press play to listen to the podcast, and please join the DOE at the Global Clean Energy Action Forum in Pittsburgh from September 21-23. Learn more at www.gceaf.org.

Transcript

Speaker 1:

Welcome to 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:

Marc Bianchi here from the Cowen energy team with another installment of our energy transition podcast series, where we’re now focused on nuclear power and small modular and advanced nuclear reactors. Today, we’re speaking with Jigar Shah, who is the director of the department of energy’s Loan Programs Office or LPO as we’ll talk about it today. He started there in the beginning of 2021 after various entrepreneurial roles, perhaps most notably starting Sun Edison, and essentially creating the power purchase agreement market or PPA first solar.

Marc Bianchi:

If you followed Energy Twitter, or the podcast Circuit, you’re probably very familiar with Jigar. He’s got quite possibly the perfect professional background to be leading LPO and helping shape the energy transition. So Jigar, thanks so much for joining us today. Maybe you could start with giving us a little bit of background on yourself and how you came to LPO, and sort of what the refined mission is of that office now under your direction.

Jigar Shah:

It’s a real pleasure. And thanks for that kind introduction. Look, I think that when I started Sun Edison in 2003 and joined BP Solar in 1999 and worked at Astro Power in 1995, the solar industry was this tiny industry that served off grids sort of towers on mountains because it was cheaper than helicoptering in diesel fuel. I remember we had just broken 100 megawatts of global sales. And the question before us was, this technology has been stable and ready to go since 1992, right? That’s when we really invented the modern crystal and solar Silicon sandwich that lasts for 20 to 30 to now 40 years or longer. And what does it take to really get to scale right after the technology is ready to go?

Jigar Shah:

And in the intervening years, it’s not just solar and wind that have done that, but lithium I and battery storage has accomplished that through Tesla’s investment and then EV manufacturing. Today, we’ve made huge strides in renewable natural gas and really reduced the cost of processing manure and food waste and other things and producing that. I think we’ve really gotten a few other places to scale. And so now the question becomes, if there are 25 different sectors that we actually have to get to scale to have all the tools that we need to decarbonize the grid by 2035 and decarbonize the economy by 2050, does the government and private sector investors and growth companies understand each other’s roles?

Jigar Shah:

Do they understand how to work together in harmony to achieve these massive goals that we’ve set for ourselves? And the answer is, of course they don’t. They don’t even know where each other lives. So part of the reason I took this job was to figure out how to bring that connective tissue to these three really important groups. Venture capitalists are important. Don’t get me wrong. Corporate growth equity is important, but those guys have been DC creatures for a long time. The folks who haven’t been are the growth CEOs and then the institutional infrastructure investors.

Jigar Shah:

Those are the folks who have six to 10% cost of capital for the equity in these 30 year assets. And figuring out how to get them to share what’s holding them back, right? Here are the three risks we can’t get past. We need the government to take care of these risks. That conversation is remarkably weak, and we’re strengthening it now. And that is what America’s industrial strategy really means. That is the unique approach to industrial strategy that America’s brought to the four here.

Marc Bianchi:

So one of the things that I’ve been asked as we were sort of preparing for this is department or the office LPO has been reinvigorated now under this administration, which is great. And you guys have a lot of great plans in front of you, but what happens in 2024 if we have a different administration and they’re not as supportive of the LPO. Are there things you can be doing right now to sort of… Is it a matter of building bipartisan support? It seems like there already is a lot of bipartisan support. What can be done to make sure there’s continuity here for several more years?

Jigar Shah:

Yeah. Look, I think that the first thing we have to acknowledge is that the office has been dormant since 2011. So whether it’s a democratic administration or Republican administration, it’s been dormant. So we have spent the better part of 16 to 18 months really rebuilding and strengthening the foundation. The people that are working at LPO are amazing. So that has never been the problem. Our ability to manage risk, our ability to do the processing of the loans, that all existed before I got there, but figuring out how we actually convinced these growth companies to use our office was a problem, a real challenge.

Jigar Shah:

And we’ve been able to fix that, and we’ve gotten 77 applications in seeking almost $81 billion worth of loan proceeds representing roughly $150 billion worth of projects to use our office, which is pretty amazing, really amazing, a big turnaround. And now the Congress believes that we’ve really turned this office around. And so they’ve given us additional resources in the inflation reduction act. And so that’s been a huge boost to the morale of the team. We’ve really been able to turn the page from our past and now we’re building a new future. And that I think has also sent very positive signals to institutional investors and growth companies that yes, you’ve received real validation for the work that you’ve done to really transform the office, which I think has been fantastic.

Jigar Shah:

And I think that part of what we’ve been doing under the secretary’s leadership is really making sure that this office is agnostic. So whether you’re a CO2 pipeline or a blue project that sequesters CO2 out of your process, or whether you’re a green project or whether you’re a transmission line or an electric vehicle. The advanced technology vehicle manufacturing program is not just electric vehicles. It can also be used for advanced ethanol or advanced dimethyl ether, or dimethyl methoxy or other fuels. And so making sure that we’re playing everything straight and anyone who has a great technology can come to the office and get the same experience is something we’ve prided ourselves in.

Jigar Shah:

And I do think we’ve developed a reputation now of playing everything straight and making sure that people who are ready to use this office, people who have all their paperwork in get serviced right away, no matter what technology you’re representing, whether it’s viewed as in favor or out of favor, we play it straight for everybody. And hopefully, that translates into people recognizing that we’re here to serve America’s best innovators and entrepreneurs and not picking one side or the other.

Marc Bianchi:

So you mentioned the IRA and how that increases your authorization. Can you talk a little bit more about that? I think I saw somewhere that could be going from $40 billion plus another $250 billion, but maybe just level set that for us.

Jigar Shah:

Yeah, it’s something that we’re still working through honestly. We’ve got about a hundred billion of new capacity in our existing programs. So that’s 1703, which is the innovative, clean energy program. We’ve got additional credit subsidy in the advanced technology vehicle manufacturing program that we think will stretch that office to another $40 billion worth of loans. And then we’ve got the tribal energy loan guarantee program that’s increasing to $20 billion of authority. So those are very clear. I’d say the new 1706 program and then the CIFIA program, which is the CO2 pipeline program that we got in the bipartisan infrastructure law. We’re still working out the details there. So we’re going out for public comment. We’re getting a lot of external review. And so we’ll have more to talk about there once we’ve gone through that stakeholder process.

Marc Bianchi:

Can you set some expectations for timeline for when your authorization actually has gone up, and we could be seeing this deployed? Is it like a three month or a six month or a 18 month process?

Jigar Shah:

Yeah. So for the $100 billion of additional authority we got for our existing programs, there’s no timeline there. That’s immediately in place as soon as the president signed the IRA on Tuesday. And so people can access that money today. We issued an RFI request for information for the title 17 program, that ended on August 1st. We got thousands of pages of comments, which was wonderful. That is then informing our ability to put together a notice of proposed rulemaking, which will hopefully be in the beginning of October. And that we’re going to get additional thousands of pages of comments, I’m sure.

Jigar Shah:

We’ll read through them all, and then we’ll finalize our rulemaking early next year. And the 1706 program will be done through that as well as we have a lot of additional authorities that we got out of the bipartisan infrastructure law. And we got additional requirements that were put on the office out of the energy act of 2020. And so all of that will get finalized and adjudicated during that process. And so we’re excited. This is how you build a very stable and strong foundation for government programs is by going through the hard work of getting stakeholder feedback and not short cutting the process.

Marc Bianchi:

When you were talking about the applications before, it sounded like you’re sort of technology agnostic, or you’re not looking to have a certain kind of technology per se in the portfolio, but I do think there are some guidelines at least as to where the funds get allocated. I think there was $11 billion authority for nuclear loans and there’s some other numbers around the other categories.

Jigar Shah:

Yeah.

Marc Bianchi:

Can you just help us understand that dynamic?

Jigar Shah:

So I’d say that those numbers are less relevant today because we got an additional $40 billion of loan authority that’s mixed use across all three of those categories, right? Fossil nuclear and renewable energy and efficient energy. I would just view it as one big pool of innovative, clean energy. And so if we get a whole bunch of nuclear applications, that money will go there. And if we get a whole bunch of fossil applications, that money will go there.

Jigar Shah:

And so to me, it’s really about the two main criteria out of title 17, which is innovation. We want to be helping technologies that are misunderstood by the commercial debt markets and greenhouse gas emission savings, which we want to make sure that we’re saving at least 10% greenhouse gas emissions versus the baseline. And so those are really the two big criteria. And if you meet that criteria, we really are agnostic to the fossil nuclear versus renewable energy and efficient energy title.

Marc Bianchi:

So I think I saw you mention something on Twitter, about being able to help Diablo Canyon out. And that’s obviously a facility that California is potentially closing, and there’s a lot of effort to prevent that, but how do you balance doing stuff like that, keeping existing facilities going versus supporting new technology?

Jigar Shah:

This is the thing is that the government has to be able to do both. And so what we can’t do is spend a bunch of time on people who aren’t going to fill out the paperwork to use our program. I can’t want it more than they do. So I can’t keep begging someone to use our program if they’re not going to fill out the paperwork. And so if people fill out the paperwork and make the effort and they get their paperwork in, we play it straight. We’re like, “Your paperwork’s all in place. We’re going to allocate a team of people to start evaluating your paperwork, and we’re going to start underwriting the loan, just like a commercial bank would.” A commercial bank operates exactly the same way. If they say, “Here are the 43 pieces of information we need in the data room to get started,” then you only supply 21 pieces of information.

Jigar Shah:

They say, “Why would we start the team on working on an incomplete application? What the hell? Fill it out.” I don’t think we’re actually any different than a commercial bank. The only difference is we have this innovation requirement and this greenhouse gas emission requirement on title 17 and then an advanced technology vehicle manufacturing program, we have a different set of requirements around saving fuel, but in general, whether it’s Diablo Canyon or the Palisades Nuclear Plant that’s recently been shut down in Michigan, or whether it’s other plants, if they want our assistance to be able to make sure that they can upgrade the plant so they can last for the next so many years, we’re here to serve.

Marc Bianchi:

Okay, great. Maybe switching over to some of the new technology. So the focus of this podcast series is on SMRs and advanced reactors, and there’s this advanced reactor demonstration program known as ARDP. That’s already in place. It’s supporting a couple SMR projects, notably X energy and TerraPower. How does support for those projects from ARDP either limit eligibility for LPO, or how does LPO fit into any efforts that are already happening from ARDP?

Jigar Shah:

Yeah, it’s a good question. There’s no limitation for us. I think the difference is that there’s this thing called the federal support restriction. And what that means is the federal government wants ultimate flexibility. So if in two years time the US Congress decides that they’re going to pull all the money for the ARDP that has not yet been dispersed, it can’t cause our loan to fail, right? So we have to assume that money doesn’t exist when we do our loan work. So there’s a couple ways of getting around it. So one is for the TerraPower project, for instance, that money is going to TerraPower, but Rocky Mountain Power is the one that’s buying the plant.

Jigar Shah:

So Rocky Mountain Power can actually borrow money from us to buy the plant from TerraPower. And then that doesn’t violate the federal support restriction because Rocky Mountain Power is the one that would make the decision to move forward or not move forward. And if TerraPower doesn’t receive the rest of the money for the ARDP, then Rocky Mountain Power could put up more equity to be able to make that number work. And so, as long as there’s a separation of church and state there, then they can use our money. If our due diligence and our reasonable prospect of repayment is dependent upon a government subsidy from the federal government existing and being paid out in the future, then that violates the federal support restriction.

Marc Bianchi:

Is that sort of the most likely type of model where the project developers, the asset owners are the ones that are going to be applying for money from LPO for SMR projects, or where’s the sweet spot for your involvement in sort of SMR build out?

Jigar Shah:

Well, it really depends on the situation. So I think the two that you highlighted were TerraPower and X-Energy, but you can imagine there’s been big announcements made by TVA with the GE Hitachi design. And they’ve partnered with the Ontario Power Group, as well as with Saskatchewan Power. You’ve got separate large announcements that have been made by new scale with Uamps. And then you’ve got separate announcements that have been pre discussed by Holtec in their newsletter that’s pretty widely available with their partnership with energy. And so part of this is really just figuring out each individual situation.

Jigar Shah:

For instance, in the GE Hitachi situation, you’ve got money that’s been allocated by the federal government of Canada to help Ontario Power Group fund those first four reactors there in Ontario. And then there’s separate reactors in Saskatchewan Power. And so they’re going to pay for some of the first time costs for those reactor deployments in exchange for teaching their staff how to build these reactors and some of the supply chain benefits from BWRX, right? And then you’ve got TVA doing a similar situation on their side. And so the way that we support those projects could be through supply chain and standing up the supply chain. You’ve got a limited amount of capacity globally for building the pressure vessels, but ultimately, as you know, it’s a lot different from a huge 1,000 megawatt nuclear facility versus a 300 megawatt nuclear facility.

Jigar Shah:

So the US’s ability to build those in the United States or in Canada is quite a bit easier than replicating what the Japanese have for the big pressure vessels for the large reactors. And so we could play a very large role in supply chain. Separately, for TerraPower and X-Energy there’s a HALEU fuel component there. So we could help fund standing up of HALEU fuel production, and then separately there’s an LEU fuel stand up that’s going on here in the United States because Russia supplied 28% of all of our low enrichment uranium last year. And so figuring out how to separate from that supply chain is something that’s the top priority, standing up that supply chain here in the United States. So there’s lots of different components and some of them are relevant to TerraPower and X-Energy. Some of them are relevant to the lightwater reactor SMR designs. And so I think we have to get super granular about what we’re talking about.

Marc Bianchi:

Yeah. And I guess on the fuel supply, because that was another topic that I was going to hit on a bit while we’re there, broadly, what do you see as the biggest problems for the fuel supply right now? Certainly with halo, for those that may not be as familiar, these advanced reactors are using a higher enrichment starting point for their fuel. So that’s the halo, but we don’t really have domestic production of that right now. But then as you mentioned, Russia, just on low industry uranium, what are we going to do about that just broadly as you look at legacy nuclear and the future of nuclear, what are the biggest challenges from a fuel supplies perspective? And then we can dig into some of the HALEU stuff in more detail.

Jigar Shah:

So when you look at the global LEU supply, starting there, almost all of the supply comes from state owned enterprises. And so when you look at the prices that our nuclear plants pay for LEU fuel, it’s generally a subsidized price from one of those state owned enterprises. So it’s not surprising that a private sector player in the US just deciding to build LEU capacity can’t compete because they’re competing against subsidized prices from other countries. And so there’s a strategic decision that has to be made here in the United States around whether we want that capacity to be done here and how we’re going to pay for the non-cost effective portion of the fuel from the private sector’s point of view.

Jigar Shah:

And that could be done through tax credits. It can be done through direct grants that are provided. There was 700 million of funding in the inflation reduction act for HALEU fuel. And so you could imagine that some of those programs can pay for that non-cost effective portion of the cost. And depending on how that money is paid, there might be a federal support restriction that limits our ability to play a role if it’s a grant or something from the federal government. And then there are other approaches where there is no federal support restriction from the federal government. And so we have to see what approach the federal government takes to standing up these local fuel supplies and what corresponding restrictions they might have from being able to import fuel from some other countries. And then that framework gives the private sector the comfort to invest heavily in capacity here in the United States

Marc Bianchi:

On the HALEU side, so you mentioned the $700 million in IRA, but that’s not coming from your office. How would your office be involved in maybe alongside that $700 million, and what do you think is the total capital that’s going to be required if we’re going to stand up HALEU capacity in the US?

Jigar Shah:

So I don’t know that I have answers to your questions on that. Look, I think HALEU in general is not a commercial fuel, right? So we can talk about a couple of nuclear batteries that want to use HALEU. We could talk about next generation technologies like TerraPower and X-Energy, but they currently don’t exist. And so if I were to say, “What is the turtle market size for HALEU fuel sales this week?” The answer’s pretty low. And so we’re projecting that these technologies are going to need HALEU fuel to be successful by 2027 or 2028 or 2030 or 2032. And so by definition, there isn’t actually a market for HALEU fuel that my office can fund. Because someone would say to me, “Hey, Jigar, you’re going to put a loan into halo, fuel production next week.”

Jigar Shah:

And TerraPower hasn’t even gotten NRC approval or X-Energy. And so I’m like, “Well, that’s a good point.” So we’re watching it very carefully, but I think it is firmly in the phase of the office of nuclear energy’s purview right now to stand up HALEU fuel. And it is very linear. So you can have this many centrifuges making HALEU fuel, or you could have 10 times as many that make HALEU fuel. So you could make X amount of HALEU fuel that just gets warehoused every year, waiting for TerraPower and X-Energy and some of the nuclear batteries to use them. Or you could create a lot more capacity, only run it at 20% utilization until the market for HALEU fuel comes about, right?

Jigar Shah:

And so we watch HALEU fuel carefully, and some of the LEU fuel suppliers are thinking about creating sort a separate division that produces HALEU fuel in the same facility. So you could imagine there’s some role that we play there, but we’ve got to wait for the market to play out. We’re commercial debt. So as much planning as I do at some point, someone’s got to come to me with a loan application and actually say, “Hey, I’d like to produce HALEU fuel, and here’s my business plan.” So until that occurs, it’s all pure speculation.

Marc Bianchi:

So that’s an aspect of a hurdle is having HALEU supply, as you rank the hurdles that exist to building out. So on that point, as you think about bigger picture, HALEU obviously is a hurdle. When you look at the hurdles for really seeing the SMR and advanced reactors become a big part of the market in the 2030s and beyond, what are the top two or three hurdles that need to be overcome?

Jigar Shah:

Yeah. So I think as we discussed before, I don’t think we can answer that question across all SMRs. I think we have to answer that question for each individual design. Then there’s some similarities, of course, for the lightwater reactor designs. I mean they can use existing fuel supply chains with LEU. But more importantly, I think there’s a misnomer that small means more expensive for nuclear reactors. When I think when you look at, for instance, an SMR in the lightwater reactor side versus an AP 1000, some of those valves are 34 inches, which are custom made for AP 1000s. The valves for SMRs in the lightwater reactor designs are eight inches, which are standard valves that are made for natural gas units, right?

Jigar Shah:

And so they’re 90% cheaper. And so you’ve got to map the supply chain for the lightwater reactor designs and because of the nuclear navy and because of lots of other designs, it looks like 90% of all the components can be made by existing supply chain providers, and only roughly 10% have to be stood up as new. And so that’s one set of challenges. And I think what they need to stand up that supply chain is orders. So whether it’s new scale who has a 77 megawatt module and they don’t really want to sell, I think their reactors in less than a four pack and they’d prefer a six pack, right? Then they need 12 to 24 of those 77 megawatt modules to really justify all of those suppliers standing up and creating those units.

Jigar Shah:

I would say for the BWRX 300, they’re saying that they need probably 10 orders to be able to do that. And they think they have them between Ontario Power Group and Saskatchewan Power and TVA, they think they’ve got 10 pre-orders there. And then with Holtec, they have a similar sort of situation where they need 10 orders as well. And they’ve got X-Energy saying that they’re willing to speak for a few and the Holtec talking to a number of other utilities and folks from around the world. And new scale has the same, right? They’ve got interest from Eastern European countries. GE Hitachi has interest from Eastern European countries. And so I think that their biggest hurdles are making sure that they can justify the spend in the supply chain and figuring out where private capital wants to play.

Jigar Shah:

Because private capital has decided to play in new scale spec for instance, but in terms of owning these nuclear actors long term, where does the equity come from, right? In the case for Ontario Power Group or Saskatchewan Power, those are largely sort of quasi monopoly, public utilities, right? And then TVA is federal government owned. And so there’s some recognition that there needs to be a lot of federal government interest and support to build those first 10 reactors. I think for the TerraPower and X-Energy designs, we’re very excited by the RDP and the role that it plays there, but they’re building their first reactor, and they’ve got to get through the NRC, which is a long process.

Jigar Shah:

I mean the NRC likes historical reference points, which all of the lightwater reactor designs have. So GE Hitachi has announced that they think they can get through the NRC within two years because most of their components have already been reviewed by the NRC before. And new scale obviously has just made it through the NRC and Holtec believes that they can leverage new scale and GE Hitachi’s sort of benefit. Whereas the new approach that TerraPower and X-Energy represent will probably take a longer amount of time to get through the NRC. I think new scale’s application took six years to get through the NRC. So that’s probably a good guidepost of how long those technologies might take to get through the NRC.

Jigar Shah:

GE Hitachi separately believes that they can get through the Canadian regulator faster, because the Canadian regulator is more outcomes based than historical based. And so they think they can get through the Canadian regulator faster and build those reactors faster. And so when you think about long poles in the tent, there’s lots of long poles in the tent. And so we’ve got to go through each individual one and then you’ve got the HALEU fuel piece, which I think that $700 million out of the inflation reduction act is helpful for the office of nuclear energy to start the process to solve that long poll. And then the other big long poll that we have to talk about, which is the elephant in the room is trust. There’s a lot of regulators and a lot of utilities who are smarting from the vocal experience.

Jigar Shah:

And they’re saying, “Do we want to climb this hill? Every single one of our models shows that we have to, that there’s no chance for us to decarbonize the grid by 2035 without nuclear new nuclear. And separately, there’s no chance to get through the political gauntlet of these existing coal plant communities without replacing those coal plants with operating plants that maintain the 200 union jobs.” They’re currently at that coal plant. And while I love solar plus battery storage, solar plus battery storage doesn’t need 200 full-time employees after the construction is completed. And so for many coal plant communities and natural gas plant communities, they are really looking to nuclear to give them another 50 to 80 years worth of that sort of economic development in those communities.

Marc Bianchi:

Do you think there’s a… You mentioned the orders being so critical to having a critical mass for supply chain, but there seems to be a bit of a chicken and egg here, where I would want to see if I would be nuclear buyer, see success for X-Energy, TerraPower, NewScale. What have you before signing up for something, so if those plants are going to commercial operation in 2030 or early 2030s, I may want to not put my order in until the early 2030s. And then it’s late 2030s before we’ve got any meaningful supply coming on. How does that conundrum get solved?

Jigar Shah:

Well, look, I think that there are a lot of smart people around the table and there’s some recognition that the first thing we have to do is to get the country comfortable. That nuclear doesn’t always have to be three X over budget and five years late. And that is what the light water reactor SMR designs are promising is a way to prove that nuclear can come in at budget on a timeframe that’s predictable. That’s a huge milestone. If the light water reactor designs can do that, that paves the way for the gen four and the gen four plus designs to really get to the next level. The second thing is to recognize that this is an evolution. And so we need advanced nuclear designs, not just for 2035, but also for 2050, for 2070, for 2100.

Jigar Shah:

And so this isn’t a fight between the gen four designs and the gen three plus designs. They are a natural evolution of each other. We are going to have a lot of lightwater reactor designs that get deployed in Eastern Europe and the United States and Canada and other places. And then we’re also going to have a lot of gen four and gen four plus designs that come in in the early 2030s and then the late 2030s and then the early 2040s. And so to me, I think each of the designs reinforces the other and it’s not a competition against each other. And I think we have to be smart about saying there are many stakeholders around the table and what do those stakeholders want? What does the community want to hear to say we’re willing to make an order?

Jigar Shah:

What does the utility regulator want to hear to agree to rate base a power purchase agreement? What do the EPC contractors want to hear to be able to invest heavily into building these things? Remember the saga of Vogel with Toshiba and Westinghouse and Shaw Industries, et cetera, you could imagine a lot of EPC contract that in the United States being a bit sheepish. And so we have to get those EPC contractors to understand that this is different, that the amount of civil works here is far lower than the civil works for an AP 1000. That the civil works here is largely… Most of the manufacturing is done in a factory and that the civil works here are 80% less for these designs than for a traditional nuclear power campus. And so all of that trust building has to occur in order to get to the other side. And that might be easier with lightwater reactor designs first.

Marc Bianchi:

Jigar, you mentioned PPAs, and you’ve got a lot of history there and had a lot of success with them in solar. How does this market lend itself to PPAs and how big of a owner of advanced reactor nuclear assets in general do you think we could see that become over time?

Jigar Shah:

Yeah, so look, I think that when you look at the 2008, 2009 experience for nuclear, where we had work in progress rules, we had lots of changes that were made to allow for over $120 billion worth of nuclear plants that were announced in 2008, 2009, many of those regulators are just not comfortable repeating those policies. And so there’s a few that have the stomach for it, but I think that many don’t. And so that’s why I think when you look at the GE Hitachi designs, they have partnered with the government of Canada to provide some of those costs. And then with Tennessee Valley Authority, to be able to provide that level of comfort. TVA is agreeing to basically be the general contractor on the project and is going to manage all of those costs and things, right?

Jigar Shah:

I think when you talk to the investor owned utilities that I’ve talked to, they feel like they would rather pay a higher price per megawatt hour, but make it a fixed price PPA, and then have some of the probably Asian EPCs like Hyundai and others come to the United States and wrap the project and yeah, they might have a larger contingency in there. So that Hyundai makes a lot of money for the first few projects, but they’d rather sign a PPA and have no cost over on risk. And that’s the contract that Rocky Mountain Power has signed with TerraPower, where they’re going to buy that plant for a fixed cost in the future and not take any of the cost over on risk in the schedule over on risks.

Jigar Shah:

We’ll see where it plays out and how receptive the EPC contractors are to taking this risk. I mean, these projects are only $2 billion each instead of $30 billion each. And so for a lot of these contractors, $2 billion is a very comfortable place for them to be, but they have to get there. And so my sense is they’re going to probably look over the shoulder of TVA as they build their facilities and then get comfortable that this is not so scary as they were led to believe. And they actually can get comfortable with these risks and wrap the projects.

Marc Bianchi:

I want to shift gears a little bit here. We’ve just got a few more minutes. In terms of applications outside of power generation for where the focus of the plant is not to produce electricity for consumption, it’s to produce electricity for an industrial application, and maybe there’s an angle to make clean hydrogen. Maybe there’s an angle to use nuclear for direct air capture. How are you thinking about how that evolves and are you seeing any movement in terms of applications for those types of projects?

Jigar Shah:

Well, we were certainly very excited to see the announcement that Dow made with X-Energy and certainly are very carefully watching our colleagues over the department of defense who have project pay, where they’re building a nuclear battery. I think that my answer’s probably the same between the gen three plus and the gen four designs as it is for this, right? Which is that I don’t think this application will get off the ground unless the nuclear industry is able to build trust with all of the stakeholders in the power sector.

Jigar Shah:

I think when you look at the light water reactor designs, whether it’s GE Hitachi or whether it’s NewScale or whether it’s Holtec, I think we need to see some of those reactors get built on time and on budget or close to it. And then that delivers the level of confidence in the industry and the approach because remember we’re talking about a new approach. We’re not giving the nuclear industry a free pass for its previous transgressions. We’re saying to them, “Have you learned from what occurred in the last 15 years?” And the nuclear industry has said, “Yes, we believe that we have to build airplanes, not airports. We need to have a 100% finished design before we start construction, not a 15% to 30% complete design before we start construction, we’ve done in the past.

Jigar Shah:

We need to make sure that we do most of the work in a controlled environment in a factory just like offshore wind, the cells get built or airplanes get built or other things that are of industrial scale.” And so that is the new thesis that the small modular reactors and the nuclear batteries are pitching to everybody. And so once you have one success in that field, then I think the design modifications that are more attuned to creating industrial heat or attuned to creating green hydrogen or other things absolutely will be given a chance to thrive. But it’s all about trust building.

Marc Bianchi:

One thing that we haven’t discussed, but is on everybody’s mind, just a general public as it relates to nuclear is the whole waste situation. And I think people that follow this closely know that every gram of waste that has ever been produced in the US is carefully accounted for, and we’ve got robust program to make sure that it’s kept safe from the public, but there is a long term concern. The directive is it all has to go to Yuca Mountain and we don’t have that project moving forward. What are their thoughts on the long term waste solution and what can LPO do to help?

Jigar Shah:

Well, again, LPO is a loan authority, so we’re on the infrastructure side. So we evaluate people’s waste plans. We’re not in charge of fixing the issue. And so we have colleagues at ARPA-E we have colleagues at the office of nuclear energy. They have funded next generation approaches to dealing with nuclear waste. But today, the way nuclear waste is handled is in casks, largely made by Holtec that are kept on site. And those casks are so good that a coal fly ash pond is many, many more times more radioactive and putting many, many more times of radioactive particles into the atmosphere than nuclear waste. And there’s so little nuclear waste created every year that there’s tons of room to just store it. And so that is the current plan. Now, as you know, there are future designs for both nuclear batteries and SMRs that use nuclear waste as their fuel.

Jigar Shah:

And so we’re very excited about where innovation is headed in this space. And I do think that nuclear waste is something that we have to pay attention to, which is why our colleagues at RPE as well as at the of nuclear energy are on top of it. But I don’t think it is the long pole in the tent here. I think the long pole in the tent is actually getting the nuclear industry to recognize that it’s actually in the trust building industry and that we have to figure out how to help get the EPC contractors that are likely willing to take this risk there. We’ve got to get public service commissions, we’ve got to get investor on utilities. We’ve got to get governments and others believing that the nuclear industry can deliver on time and on budget.

Marc Bianchi:

Maybe to wrap it up, and you’ve mentioned a lot of these points throughout the discussion so far, but just at a really high level, as we think about energy transition and sort of the decarbonization effort that the US is trying to achieve broadly, what are the major items that are out of your control at LPO and maybe out of DOE’s control that just need to be solved? It’s high level open ended question.

Jigar Shah:

So there’s nothing out of our control. This is the whole new posture of the US government. How do you solve climate change? How do you solve climate change? You don’t solve it by saying, “These things are out of our control.” You solve it by saying, “Here is what the best science tells us we need to do. We need to build more transmission. We need to integrate more solar and wind into the grid. We also need clean firm generation that’s nuclear. Great. Now, we need new nuclear in this country and in the world. There is not a single person in the world who believes that we can actually decarbonize China, India, Brazil, South Africa, Eastern Europe at the scale and speed that we need to decarbonize them without nuclear.

Jigar Shah:

So now we need nuclear. What does that entail? That means that we need to build trust. What does that mean? That means that we actually have to map out this entire thing so that investors understand it.” That’s why I’m so obsessed with what TVA is doing with OPG and SaaS Power because the government of Canada is directly involved and the government in the United States is directly involved and we are literally building that back. And the same thing’s true with NewScale, the government is involved directly with the deal with NewScale and UAMS, right? Same thing with Holtec. The government is directly involved in that design and the work that Entergy and others are doing to support them. And what are the steps? What exactly can investors expect from the NRC, right?

Jigar Shah:

What exactly can investors expect from us building up our low enrichment uranium fuel as well as our HALEU fuel supply chains? What exactly should the government do to stand up supply chains? We are mapping all of that out into demonstration and deployment pathway documents. That’ll be published next year. And we are showing investors exactly what the roadmap is and which milestones they should be following to know that we’re on track, right? And yeah, sure. Some of it requires innovation. Some of it requires these companies to be able to raise corporate capital. Some of this requires all sorts of things, but to me, the government has to be in full control on the nuclear side of things. The notion that the government is going to just spend a bunch of money on design work and then let the market decide, sure the market will decide which technologies they care the most about, right?

Jigar Shah:

If every electric utility picks one light water reactor design over the other two, it doesn’t matter what I think. It doesn’t matter whether I think one design was better than the other two and the utilities pick the wrong design. The utilities will pick whatever design they want to pick, and then we are going to stand up the supply chain for that design. But in general, the government has to make sure that by a date certain, there are technologies that have reached 10, 15, 20 reactors deployed so that the private sector feels that we’ve actually proven that we can hit the milestones, hit the targets, hit the price points, hit the schedules. And if they feel that, then I think there’s a trillion dollars waiting to flow into this sector.

Jigar Shah:

Just like we got into the solar sector, just like we got into the wind sector, just like we got into lithium ion batteries, just like we’re on track to $100 billion into renewable natural gas. We’re on track to $100 billion into all these other sectors right now, hydrogen advanced geothermal. There’s just so much good news happening across the spectrum. And that’s why we’ve got 12 sectors highlighted for the secretary’s global clean energy action forum in Pittsburgh, September 21st to the 23rd. And we’re basically bringing together all of the institutional investors, we’re bringing together the growth companies, and we’re telling them to tell us, “What is it that you need for the government to do, to get you to $100 billion of capital deployment?” Because that’s what we found was required for the solar and wind industry to cross the bridge to bankability.

Jigar Shah:

It’s what we found that the EV manufacturers and Lithion batteries needed to do. And so we are mapping that out technology sector by technology sector and nuclear is in the first batch that we’re doing right now. And look, we have an absolute target we have to hit, the science demands it. And so I just think this notion where everyone’s passing the buck and pointing fingers at other people, that’s not where we are today. The Congress through the inflation reduction act told us that we are in charge of making sure that this happens on an absolute timeline, and we are going to do our damnedest to make that happen.

Marc Bianchi:

Well, that’s a great place to leave it, Jigar. Really thank you for joining us and thank you for everything you’re doing to really have the country finally have a really strong energy policy. So thanks a lot. And look forward to chatting again with you soon.

Jigar Shah:

Thanks for your interest. You guys play a super critical role in making sure that everyone knows what we’re doing and how they can actually contribute to what we’re doing, and how they can set us straight. We get things wrong all the time. If you’ve got better ideas, set us straight so we can make sure we’re doing it the right way.

Marc Bianchi:

Awesome. Thanks so much.

Speaker 1:

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


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