Small Modular Reactors with NuScale Power

On the seventh episode of Cowen’s Energy Transition Podcast, Chris Colbert, Chief Financial Officer of NuScale Power, joins Industrial Gas & Equipment and Energy Oilfield Services & Equipment analyst Marc Bianchi to discuss NuScale’s small modular reactor technology.

Press play to listen to the podcast

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:

Hey, everyone. Marc Bianchi here from the Cowen Energy Team with another installment of our Energy Transition podcast series where we’re now focusing on small modular and advanced nuclear reactors. In today’s episode, we host Chris Colbert, who is the CFO of NuScale Power. NuScale’s our third SMR developer to join the podcast, the others being TerraPower and X-energy. NuScale is interesting because they’re using a light-water reactor, which is the same technology that’s been in conventional reactors for decades, so very familiar technology with a well-established fuel supply, but packaged in a very different manner. They’re also the first SMR with NRC design certification.

In the discussion, we cover the history of NuScale, going back to their origins in the early 2000s, the differences in the NuScale SMR with other next gen designs, particularly as it relates to producing electricity, industrial heat, and clean hydrogen. Chris mentions in his words how the phone has been ringing off the hook after the Inflation Reduction Act. We also discuss the involvement with Fluor, who’s a major investor in NuScale and their eventual plan to wind down ownership. So sit back and enjoy as we spend some time learning more about NuScale.

All right, Chris, thanks so much for being here. To kick us off, could you start with a little background on yourself? What brought you to NuScale? And set the table for what NuScale is all about.

Chris Colbert:

So background for me, I graduated from MIT with a bachelor’s in electrical engineering, did five years at GE, worked in the corporate audit staff, went and got an MBA from Cal Berkeley, came out of there and then spent about 20 years and independent power project development and financing, so large fossil plants, coal and natural gas. And came to the nuclear world in 2007 in part to assist in the deployment of large reactors leveraging the provisions and the Energy Policy Act that was passed in 2005. I did that for a company called Unistar. It was a joint venture between Constellation and EDF. I did that for about four years and then came over to small module reactors in 2011, joining NuScale as a chief operating officer. Did that role for three years, became the chief strategy officer, did that role for about five years, and then in 2021 moved over to be the chief financial officer for NuScale at that time.

And really what has really driven me throughout my career is just the belief that energy is a great enabler of a modern lifestyle that allows people to realize their full potential, and always doing it with the goal of doing it more affordably, safer, cleaner with each iteration that we do, which is really kind of what led me to NuScale in the end. The brief stent with large reactors, really kind of an eye-opener just from the perspective of the technology, realize that those large stick-built reactors on site we’re going to be very difficult to implement in the United States given their complexity, their cost, and the time it would take to get them into fruition. And I saw the small module reactors as really providing a solution that was better adapted for the US market, but also many markets overseas where you just can’t put a large reactor.

So for all those reasons, I came over to NuScale back at that timeframe. And since then, been part of a very exciting period of accomplishment by NuScale, including a design certification or actually design approval received in September of 2020, the design certification, which is slated to be issued November of this year and everything else that we’ve done in the interim of maturing the product and being able to, at the end of this decade, to deploy NuScale plant for our first customer, the Utah Associated Municipal Power Systems on the Idaho National Laboratory site in Idaho. So that’s been a sort of short run through of me, a little bit about the company, and I’m happy to go onto your next questions.

Marc Bianchi:

Yeah, yeah, so maybe just a little more on the background of the company. So just the history of the company, how the time it took to get to the point that you’re at now, the capital that’s been invested. I know there’s a significant amount of capital that went towards the development and also licensing approval that you’ve gotten to this far along. And then talk about the involvement with Fluor because Fluor is a significant investor that still holds a large stake in the company.

Chris Colbert:

Yeah. NuScale was formed in 2007 by our co-founder and chief technology officer, Dr. Jose Reyes. It grew out a technology that was originally funded by the Department of Energy going back to 2000. From that, sprang forth the company, had three patents, Dr. Reyes had maybe a handful of employees at the time, and really grew that into an entity that as we mentioned, received their design approval. In ’20, invested about $1.4 billion. That funding coming from a mix of Fluor at about 600 million, US government at 500 million, other investors at about $300 million, 500+ employees now, over 600 patents pending or approved, and a lot of work done to make sure that everything that goes into the NuScale power module and the NuScale plant is readily available from the marketplace, preferably domestically out of the US, but if not from friendly countries like Japan and Korea to make sure that we can deploy on time NuScale Voyager plants for us.

So very exciting growth, and as you noted, we came public in May, which was really the final way that we went out to raise the capital we needed to complete what we call a commercialization, but where we expect by 2024 to be cash flow positive after spending another $200 million. So lots of cushion in what we raised and the ability to move the product forward and with a need to go back out to the market for additional capital raise.

Marc Bianchi:

Yeah, I’m curious about that decision because I’m sure you guys were considering all options and maybe there was a private capital option that was on the table. And just curious how you ultimately decided on choosing to be a public company. Because one of the questions we get is, well, here’s this public company but free cash flow in 2024, and significant revenues maybe a few years after that. Is the timing too soon? So how did you guys settle on the decision to come public versus other alternatives?

Chris Colbert:

Yeah, so we had a number of successful private capital raises over the years, but that $1.4 billion invested all out was from private raiser, from DOE cost share. But what we found in the last round of the private capital raise, which we raised $192 million in July of 2021, was our intent to do a spec merger really facilitated those folks who had really the question about where was the liquidity going to come from and a commitment to going public at some point in time.

So providing that pathway was really mutually reinforcing is that as we discussed the intentionality to do a merger, the amount of interest in that last round of private capital increased dramatically. And in fact, not only funded 192 million but of the pipe that went into the spec merger. And we did have a goal for that final capital raise and the spec merger was to fund what we saw was about $200 million of need in ’22 and ’23 and part of 2024 to get us to that free cash flow standpoint. And we were very successful. We raised net about $340 million. So I think it provided a number of advantages to us, but sitting here as the chief financial officer for a company that has the funding it needs to be successful is a great position to be in. And it was a combination of both the private and the intention to do the spec merger that made all that possible.

Marc Bianchi:

Can you talk a little bit about the Fluor stake? So they’re a 60% holder right now and they have said publicly that they want to get that down to a minority stake, which they’ve classified as 20 to 30%. Obviously, it’s a decision that’s up to them around timing and what that looks like, but curious how you guys are responding to that. I suspect it’s a regular question from investors asking you guys, “What do you think about how this thing plays out?”

Chris Colbert:

As you noted though, it should have been no surprise because Fluor’s always been very clear about what their intent has been in terms of they’re holding for NuScale, but Fluor has been a very patient investor, and I expect them to be patient as they look at ways of monetizing the investment that they made over the last 10 years really in NuScale, that they’ll do it in a way that’s mindful both for what the company needs, their fellow shareholders. But quite honestly, just maintaining the value that they have.

So I don’t know exactly what Fluor’s going to do. I’ve read public statements that you’ve seen earlier in your question, but things have gone very well with all our partners, not just Fluor, but the other strategic partners we have, where they’re all very invested in an interest and interested in the new scale of success because of the opportunity to represent to their core businesses, whether it’s doing EPC work, building voyager plans, supplying the pieces in part that NuScale needs or providing plants, they need the power, they’re societies with affordable, secure, carbon-free energy.

So for all those reasons, we see that with not just Fluor, who does happen to be the largest of our strategics, but it’s not the only one. And we think that people are pretty sensible in how they look at things, and nobody’s in a rush. Right? I mean, people are looking to do it in a way that makes sense for them. And we expect that to be how not just Fluor, but any other similarly situated investor is thinking about it.

Marc Bianchi:

Let’s switch over to talk about the reactor technology for a bit. So you’re using light-water, which is the same thing that’s been used in the conventional reactors for decades, but you’ve obviously got a different design, and then there’s these other small modular and advanced reactor designs that are using different fuels and different coolants. So maybe you could kind of compare the NuScale design to the conventional fleet, and then what else is out there on the small and advanced reactor side.

Chris Colbert:

Yeah. So talking about similarities, let’s talk first about the large light-water reactor designs that are out there. The similarities that we’re using the same technologies, materials, fuels that go into those designs, we’re leveraging 50 years of operating experience and a supply chain system to make up all those things. So we don’t have to invest in manufacturing facilities. They exist because they exist for the large reactors.

Where we differentiate from the large reactors is that we’ve greatly simplified the design by eliminating about two-thirds of those [inaudible 00:11:07] components that you find on a larger reactor and making it smaller so that we can build the whole on the NuScale power module, which includes the reactor nuclear steam supply system, and containment in a factory so that you have that all done in a factory setting. And then once the site is ready, you can just ship by rail truck or barge, or a combination of those things, the NuScale power modules to the site, install them in their operating bays and you’re producing power. And that allows you to get the economies of replication doing it in a factory in a controlled environment, as well as shortening the amount of time that you’re in the field with the workforce for maybe five or six years for a large reactor to three years for our design. And limiting the number of people you have to site from say 8,000 to 9,000 for a large reactor deployment to maybe 1300 folks for a NuScale deployment. So those are all the things that we see both advantages, leveraging what’s been done before, and differentiators, the large light-water reactor designs.

When it comes to the small light-water reactor designs really are, we think that there’s going to be a need for all the designs. We just think that we’re further along because we have the approval from the NRC that we received in 2020 from them. So really it’s the timing, but truth be told, the demand that we see for carbon-free energy resources is just so huge that no one company and no one technology is going to be able to meet it. But we do want to be first. We want to get out there, we want to set the shape of the space out there. But having said that, we fully expect that other people are going to be successful. And in fact, we do want to see other people be successful out there because it proves the case that it’s not just a one-trick pony, it’s a vibrant industry. It’s nice being alone out there as the sole pure play, but ultimately, we’d like to see others in the space as well.

Marc Bianchi:

Yeah.

Chris Colbert:

Compared to other designs, just finally to round it out, there’s non light-water reactor designs. And not only do we see the advantage in terms of having NRC approval, but those designs are going to need to prove to the NRC and to customers that they have access to the fuel types, the fuel forms, the materials, the technologies that they will need for those technologies to work. Not that I expect that they wouldn’t work, but it’s a really… you have to go through the rigor of doing that.

And if we spent a billion four doing that for our light-water reactor design, then they’re going to have to do something comparable to get to the same level of comfort for their design, and probably have a little bit of a higher hurdle in just that people will not have been operating their particular non light-water reactor designs for the 50 years or so that has been going on in the commercial fleet globally, not just the US, but globally over hundreds of reactors.

So those are kinds of the things that we see as comparables, advantages, deltas, but all in all we expect there to be a very strong demand, and we think that if we can do what we say we’re going to do, not only NuScale but our peers, we’re all going to be very successful.

Marc Bianchi:

Yeah. And I want to come back to the licensing in a bit, but just on the differences with some of these advanced reactor designs, so one thing that sticks out to me is just the level of heat that’s generated. I think you guys, I’d assume you’d be similar to conventional light-water reactors, which are running around 300C, and some of these other designs are 500 or 800 Celsius, and that might be pretty well suited for an industrial application. Does the heat output of your reactor limit some of the applications that you could be addressing, or how are you guys thinking about the sweet spot in the market for your technology?

Chris Colbert:

Yeah, so really two comments on that. One, when you’re look at producing steam, most of the energy is taken up converting from water to steam. And then increasing the steam temperature, we used to use resistive heaters and it’s not a huge tax on the overall plant output, so it’s not as much of a stretch as you would think it would. Second is, in some of the applications, what we found, and hydrogen production is one of them using solid oxide electrolytic converters or cells, that process is pretty exothermic. So you can recapture that energy and put it back into raising the temperature of our steam so that you really don’t even need to use resistive heaters to increase the temperature of our steam. So a process that was originally thought like, ah, might not work, what we’re finding is that it works, it’s just a question of how much additional heat do you need to provide to that steam to bring it up to the temperature that people are looking for?

But generally speaking, we haven’t found it to be a real hindrance or obstacle to the, at least what we see as the economics, because generally the economics are a comparison to doing it with natural gas through other processes. And once you look at what natural gas prices are today and then factor in the potential for carbon taxes on it, at least in this country, or limitations on it, you start seeing that break even coming in into play. But that’s how we’ve been seeing it from our standpoint. So we’ve been relatively surprised by the fact that as we’ve done the studies, it turns out it’s not the hindrance that many people thought, including ourselves, thought initially it was going to be.

Marc Bianchi:

Okay. Great. Well, maybe you could talk a little bit more about the timeline for commercial operation. Just what are those key milestones between now and I guess, towards the end of this decade? How are you seeing that if it’s any different in the US versus some of the other international markets that you guys are pursuing?

Chris Colbert:

We believe we’re on a timeline as NuScale to deliver our NuScale power modules. That’s the hardware that we provide. We could start delivering those in 2027 if a customer wanted them. And that’s just going through the continuation of the program we have to mature the design, work with our vendors, and put out orders to make that happen.

Now, they want the megawatts on the grid in 2029, that’s UAMPS for their carbon-free power project. And they’re going down a process now of maturing the design and putting together the license application so that they can apply to the NRC in January of 2024 and then be in construction in 2026 and have the first module operating in ’29, and the rest of them, which would be a six-module plan, in 2030. If people wanted to accelerate that, clearly they need to start moving now because that’s when UAMPS is going to start moving. But there really is some opportunity to accelerate maybe the timeline, but I think there’s even a better opportunity to increase the number that are being deployed in the early years. Right now it’s relatively modest for us. We start at 16, then 19, then 35, and then I think it’s 63, and then increasing number of modules per year going into operations starting from 2029. But you could actually accelerate some of that so you could have more.

And we are seeing an interest in that from other countries where particularly overseas people were thinking, “Oh, maybe mid-30s,” and even in this country they’re now saying overseas like, “Well gee, given the issues with the Russia invading Ukraine and the desire to have energy security and clean energy, I’m looking now at 2029, 2030.” That’s our sort of customers in Romania, Poland standpoint. And in the US with the passage of the Inflation Reduction Act, the potential is to have 30 to 50% off the cost of an installed plant, which is a huge incentive by way of an investment tax credit, but it is limited in duration where you have to have the plant operational by the later of 2032 or the US getting down to 75% de carbonization, one of those two dates.

So you could see that pulling dates forward in the US. I think people are still digesting the Inflation Reduction Act and what that means for them in terms of planning, but I think over the next year we’ll see that really kind of turn the corner. And that’s not too surprising. When I think about it, I came into the industry initially on the strength of the incentives that were in the 2005 Energy Policy Act. I didn’t get into the industry until 2007, and that’s where things started to really take off to start moving forward. The deployments, which at one point there were some 32 license applications, I believe, in front of the NRC. Now, only two of them went forward and only one of them is going to completion. That’s the BOGO plant. But that’s the sort of timing and how things have played out historically. So I see it being kind of the same way this time around as well.

Marc Bianchi:

Yeah, that’s an interesting parallel to go back to the ’05, ’07. Can you talk a little bit more about the supply chain and how you’re going to be delivering the modules? So you’re not going to be doing any manufacturing, but you have these supply chain partners, you’re working with Fluor on project development. Can you just walk through how all that works? What’s Fluor’s involvement? What are the supply chain partners doing, and just how does all that fit together?

Chris Colbert:

Yeah. So when you look at a voyager plant and just take for an example, a voyager six or 12-module plant, and 20 $20 pricing overnight capital costs, the scope’s about $3.3 billion in total. About a third of that is NuScale’s, the other two-thirds is Fluor’s. All our stuff is being predominantly done in a factory, and then we come and install commission tests and turn over the modules to the customer once Fluor, or whoever the customer has chosen, has completed building the facilities on the plant site. So that’s how the kind of scope splits up.

Now, with respect to NuScale, you’re right, we’re not building or manufacturing anything because frankly those facilities already exist. I alluded to sort of 2005 when EPACT was passed, you had a lot of companies investing in their manufacturing capabilities for those 32 applications that were going forward in the US. Now, that didn’t come to fruition, but that capacity has not gone away. And so we’re able to use that capability of folks, which include Doosan, IHI, BWX Technologies, other companies to do the manufacturing of the pressure vessels, provision of the valves, control rod drive mechanisms.

In all, probably about 85 procurement packages that go into a NuScale module that we just provide the procurement specs and we provide the integration spec to a company like Doosan and they’ll do a bulk of the work and do the assembly and test, and then finally ship to the site. Much in the way that Apple does with Foxconn, right? Apple doesn’t build an iPhone. They say, “Here’s what an iPhone is,” and then they give that build the print and the material list or provides the parts themselves, to Foxconn to manufacture what needs to be manufactured, and then install a symbol and test the iPhones and then ship them out with the Apple logo on them. We see it being very similar to that kind of a structure. And fortunately, there’s a number of places that can do that currently, but if we hit the success that we want, at some point there’ll be a need for additional facilities. But when we talk to our supply chain, we’re pretty comfortable that the order book is there. They’ll make the investments to expand their capacity, and it’s not something that necessarily NuScale would have to do.

Marc Bianchi:

What is your responsibility from a risk perspective? So when people think of big projects, and you mentioned Vocal, right? There’s a long history of cost overrun and time overrun, and the SMR you have is specifically designed to avoid those things, but investors still worry, “What if cost overrun? What if time overrun?” How are you exposed to that, if at all, or is it all in the supply chain partners? Just explain that a little bit if you could.

Chris Colbert:

Yeah, so I mentioned sort the one-third, two-thirds split for the NuScale scope versus the Fluor scope. The Fluor scope is the heavy civil stuff, or whoever the EPC partner is out in the field. So all the construction risk is partitioned between the customer and their EPC provider. So we’re not involved in that part of it. Our responsibility is to deliver the modules per schedule and that those modules when installed will provide a certain volume of steam and a certain temperature and a certain pressure, so the performance of it.

In terms of the schedule of delivery of things, we’re working now with their supply chain so that when it comes to delivery guarantees we’ll be largely back-to-back with those folks that will be comfortable that what we sign up to is backstop by our supply chain. When it comes to the performance, clearly that’s our responsibility. I mean, we designed it overall, but I think we feel very comfortable that given the testing we’ve done and the knowledge that’s available, and rarely the accuracy of the codes that are used to predict performance having been developed over 40 or 50 years and proving to be very accurate, that we’re going to be very comfortable with the margins that we have for performance. But that’s where we’ll be really focused on is one, making sure we get them there on time when we say we will. And then two, once they start up, they produce the amount of steam at the temperature pressure and quantities that we guarantee in the contract. But in terms of if somebody’s having a hard time pouring concrete in the field, that’s not a NuScale risk.

Marc Bianchi:

Maybe you could walk through a typical project timeline. I think you can earn revenue up to nine years, eight or nine years ahead of commercial operation. But just sort quickly walk us through that timeline and what the revenue profile and profitability profile looks like, just so people can kind of understand what’s involved.

Chris Colbert:

Yeah, so just looking at, for example, just a project of a nine NuScale power module plant. Not that everything is going to be a nine-module plant, but on an average if you look at our projections and number of plants, it ends up being nine, and that’s just a mix of six and 12-module plants, maybe some four-module plants, but just saying it’s nine. For the first three to four years we’ll be providing services to a customer to assist in the design of the plant based upon the standard plant design we’ve invested in but adapting that to be specific to the site.

That’ll be in the five to 10, maybe $15 million per year, 15% type margins, gross margins on it for three to four years. And then we move into a phase where we’re receiving, for lack of a better term, progress payments on the NuScale power modules, the physical stuff that could be in a couple of hundred to $250 million a year for four years, as well as continuing services. Right? So we’re building the modules, we’re in the factory, but we’re also continuing to support the customer and training their people to receive, install, operate the NuScale power modules, answer any questions that the NRC might have or the regulator might have on the license application. And those margins are in the kind of 20 to 25% range we’re projecting.

And then finally, once you get into the operating period, in the US the license is good for 40 years, typically they’re re-upped for at least 20 more. And we’ve seen a lot of people go a further 20, but we’ll be looking to provide services that could be anywhere from 50 to $150 million per year to a customer to assist them in maintaining the plant, doing any changes to the plant, helping them in licensing, doing their reload analysis for refueling, assisting in the refueling. And that range really will vary depending upon the sophistication of the customer. If it’s somebody who doesn’t have a fleet of… has never operated a plant before and doesn’t have any other reactor operations, it’ll be using a lot more services.

If it’s somebody like Constellation who has a large existing fleet, they’ll be using less. But again, we see those margins being in the kind of 25 or 20 to 30% range, and you can expect the mix of those services versus the modules as very heavily weighted towards the modules early on. But once we get an installed base of let’s say a hundred plants by the mid-30s, that service revenue is going to be pretty substantial. It’ll be on the same order of magnitude as the modules part of it and carry on for a very long period of time.

Marc Bianchi:

Okay, super. Talk to us about the financial plan here. Free cash flow positive in 2024. You’ve got about 350 million of cash at the end of second quarter. So how much cash do you expect to use between now and becoming free cash positive, and what are the major requirements to getting to that free cash flow positive level?

Chris Colbert:

Yeah, so our projections were based upon what we saw was needed to get through the remaining of licensing and technology maturation, including proof of design prototyping that we have underway between this year and next, and a little bit in 2024. Second is we sort of saw that net of the margins or the cash we expect to generate from customers to be around $200 million. But that sort of presupposes one, that our costs come in where we say they are to complete those things, and two, get the customer uptake, the revenues and the margins associated with it, which we’ve projected and averaged out, but meeting those requirements. So it really comes down to customers, customers, customers.

This year we have five objectives. Three are in our control mostly. That’s complete the reactor building design, the standard plant design, and submitted the standard design approval. The other two are less in our control. That’s our first customer placing an order for the long lead materials with the NuScale power modules by the end of this year and getting a second customer to come on to be pursuing both the licensing and the design for a plant at their particular site by the end of this year. And then getting three more next year, five the following year, seven the following year. But if you just look at what the sort of averaged revenues you are and you layer those across each other, that drives what our revenues would be that become fairly substantial from a cashflow perspective, turning the corner in 2024 and becoming substantial in ’26. But you’ll start seeing that work its way through starting next year.

I mean, this year we’ve been hitting of the targets we have, but they’re not huge. It’s really in ’23 and ’24 you start seeing the proof of show me in our actual results that I think people can start getting confidence in that, “Okay, yeah, this looks like to be consistent with the story that they’ve put forward in terms of the overall business model for them going forward.”

Marc Bianchi:

What does the customer funnel look like? So if you’re going to have one later this year, three next year, five the following year, I think that’s what you said, how many hot prospects do you have? And I’m assuming that you got more than three for next year. What does that funnel look like and how are they moving through the various stages of certainty?

Chris Colbert:

Early on it was just we were about filling up the funnel and demonstrating the interest out there, which resulted in the number of memorandums of understanding, which are not binding, but generally include as an appendix what a work program would look like to move people down that curve. Now our focus is really getting contracts that show customer commitments to spending money to do those things for the design and licensing of a voyager plant and their jurisdiction.

So we’re still comfortable with the funnel we have in terms of doing it, but really it’s going to be about what is being seen [inaudible 00:32:01] publicly you can view. So it’s no secret where UAMPS is. They report their progress monthly on their website, what they’re doing, what’s going on. There’s been a number of announcements from Romania’s [inaudible 00:32:15] Electrica on their progress and their engagement with the regulator. Same is true for KGHM, which is a Poland metal refining company moving forward. And then there’ll be additional pronouncements by people as they start moving further along from what we call, or into what we call a class-one customer category moving forward.

So right now, we still remain comfortable with what we need to do, but let’s be clear, we had a objectives of just getting one more this year than three next year, then five the following and seven to nine. And I expect that to be achievable. We certainly have tailwinds going for us. I mean, can’t tell you how the phone’s been ringing off the hook since the Inflation Reduction Act passed as people scramble to say, “Okay, give me the information so I can start plugging in your technology into my integrated resource plan so I can start having a conversation about converting my old coal plants to say NuScale’s model module reactors or other people’s designs as well.”

So I think we’ll see more activity in this than not. And I think you’re seeing the beginnings of that. I just point to Dominion has it in their IRP. Governor Youngkin in Virginia talked about a plan that has contemplation of a SMR in southwest or central Virginia going to operation I think in 2030 or 2031. I think we’re going to see more of those opportunities being made public and people really going after them, particularly next year.

One of the questions they get from folks is like, “Gee, with the IRA providing such an incentive to go forward, why isn’t your order book over the top?” And my answer is that people weren’t really expecting the IRA this year to come through as it has. And so there’s always a little bit of a lull as people really digest what it means, get their planning and get their approvals in place to start moving out on these things. But I think 2023 is the year where you’ll see more of that happening. And it’s a fair question to the extent you’re following utilities, just asking them what are their plans to take advantage of the IRA.

Marc Bianchi:

I have a couple NRC questions. First, as it relates to part 52 versus part 50 approval, you’re going the part 52 route. Can you explain what that is and what advantage it provides? And then the second question is on the emergency planning zone, or EPZ, I think you’re waiting on a decision around that? Could you walk through what that’s all about and what it could mean?

Chris Colbert:

Yeah, so part 52 was a provision under the regulations that was promulgated in response to the deficiencies that people perceive a part 50. And part 50 is a process by which you apply for and get a construction permit allowing you to build a plant, a nuclear plant, but before you can load a nuclear fuel into it, you have to procure an operating license. And the history in the US is that was very prone to interventions from a legal standpoint, which greatly delayed a large number of projects in driving large cost overruns and cancellations in some cases.

So part 52 was driven to provide a process of greater certainty, and that’s what we’ve done as NuScale and what UMAMP’s proposing to do. We receive the standard design approval, we’ll have a design certification rule, and then ultimately, we’ll get another standard design approval for the size plant that UAMPS is going to build, but then they can reference it. And when they make their application for combined license approval, they get not only their construction permit, but they get their operating license at the same time. So it greatly de-risks the project for the plant owner.

And so when we started this process off, there was nobody who was interested in doing a part 50 process. That may have changed with some folks, but we see it just as a huge de-risking in response to what happened in the past. And maybe that’s not needed for folks going forward, but that’s the path we’ve gone down, and clearly it’s de-risked the project from a licensing standpoint, certainly give people comfort of making the investment and moving forward.

Marc Bianchi:

And then on EPZ?

Chris Colbert:

Yeah, so on EPZ, interestingly, we provided information for the TVA’s early site permit application at Clinch River. And the findings of the NRC at the time staff were that if you had a design over the NuScale type, then a site boundary emergency planning zone, i.e., one that ends at the site boundary of the plant footprint, which might be 34 acres or 50 acres depending upon where you are and what you’re doing, was possible.

In addition, we also put forward a rule making, or a safety evaluation report, or a safety analysis report, that said, “Here’s a methodology to evaluate for it.” And the NRC staff has been going through a process to finalize their review, which ended up in a meeting by the Advisory Committee on Reactor Safeguards earlier this month to review it. During that meeting they were very positive on what the staff had done in terms of recommending approval of that SER. And there’s a process by which the NRC staff should finalize it and then issue it, and then we’ll have a basis for all future customers to, in their application, make the case for a site boundary emergency planning zone going forward, which is greatly beneficial.

I mean, it means basically that I call it kind of the good neighbor approach where you put the plant down and you’re not impacting upon people by way of introducing the need to do emergency planning, evacuation drills, sirens, all that ilk of thing. You’re limiting to your site, which is greatly beneficial to towns that may have grown up around a site that it could be a coal plant site, or other applications such as clean hydrogen production or clean chemical plants that need to be next to your plant. They can be and know that we’re not going to impact upon their operation.

So we think it’s very important. And again, we’re just the first one to get through that process, but we’ll be through it and others will need to do a similar application to show how they’ve done it because even though we started off with wanting to make the rule generic and not specific to the NuScale design, after a lot of interaction with the NRC staff, the safety evaluation report will be specific as to the NuScale design. So it just means there’ll be a higher burden for people to meet to achieve the same result. Not that they can’t, but really just a little bit more work that’s going to be required and time to do so.

Marc Bianchi:

Great. We’re just about the end of time here, I just want to wrap it up with kind of a final high-level question. I mean, you’ve had a pretty interesting interaction with investors kind of going through the pre spec merger process and then coming public and dealing with probably a different set of investors, and over time people have maybe ramped up and become more knowledgeable or maybe you’re seeing new people. I’m just kind of curious how the investor conversation has evolved over that time, and where do you think the biggest of holes in knowledge still exist when you’re having those conversations?

Chris Colbert:

One of the things we’ve been doing as an industry, and this goes back to my coming to large nuclear in 2007, but really in NuScale in 2011 and joining a number of industry trade groups in 2013 and ’14 when I became the chief strategy officer, has been around how do we find the financing to get new technologies over the second value of death of commercialization that goes from the point in time of licensing by the NRC to commercial readiness. And we’ve been able to secure the funding and the financing to do that. And by becoming a publicly traded company, yes, we’re the only one, but it’s driven a lot of interest in the investor and research community as to what they’re doing.

Over the last six months, I’ve probably done 120, 130 calls, podcasts, conferences, telling the NuScale story and really saying how that could be very similar for a number of our peers moving forward. And I know a number of our peers are out there looking to raise capital as well. So I think it’s been a very positive and improving environment for nuclear generally, and I think it has received a real shot, or acceleration, with the Inflation Reduction Act, and that we’re treated the same as any other clean energy technology.

And we just believe that in order to achieve an affordable carbon-free system, you’re going to need a mix of resources. And even though you may be giving it up against four or five different resources, the amount of generation we’re talking about is just so huge. I mean, we just need to get after it, and everybody’s going to have, to the extent they’re successful in doing what they say they will do in licensing and commercialization, we all should have plenty to do to keep us gainfully employed and provide good returns to our shareholders, and provide great opportunities for people not only in this country but overseas to achieve the goals of a modern lifestyle powered by clean and affordable electricity.

People just fail to get that there’s just huge numbers of people who have no electricity, and they need to have options that are affordable and clean. And demonstrated and developed countries like the United States first, so that they are comfortable adopting them themselves. We’re going down that path, and that story is beginning to become more apparent to folks. And as long as we’re successful in continuing that in the United States, we’re going to see greater adoption overseas and greater interest from investors from both the US and overseas in Europe coming into this space to really fund what could be trillions of dollars of investment of transitioning from the energy system we have today to the one that we want to have tomorrow.

Marc Bianchi:

Yeah, super. Well, that’s a great place to leave it. Chris Colbert, CFO of NuScale Power. Thanks so much for coming on, and we look forward to chatting again soon.

Speaker 1:

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

---