Thursday, September 3, 2009

What’s a small reactor like you doing in a market like this?

Hyperion CEO claims 122 customers have options to order a 25 MW reactor

Hyperion logo John (Grizz) Deal is an expressive driver of an entrepreneurial start-up that has spun out unique nuclear reactor technology from the Los Alamos National Laboratory (LANL). It’s not a conventional reactor with fuel rods and cooling systems. Instead, it is a 25 MW “battery” that is expected to be compact and light enough to be delivered on the back of a truck. The vision is a user will pop it into a hole in the ground and have to replace the fuel just once every five years.

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The firm is faced with competition from a number of other emerging small reactor firms, including industrial powerhouse Babcock & Wilcock, which unveiled a “game changing” 125 MW mPower reactor earlier this year. Deal (right) says, in an exclusive interview with this blog, that Hyperion “is not in a race for winner take all.” He adds that each of the reactor firms are targeting different market niches and there’s some for his firm as well.

“No one is saying we have to replace large plants, like the Westinghouse AP1000. We all [small reactor firms] have a place in the market. I want all small reactor makers to succeed. We are not afraid to be a nuclear company.“

Deal does not have a working prototype suitable to show customers. He claims 122 potential users have signed options to buy one and a quarter of them are in the U.S. Here's a few of the types of customers the firm has in mind.

Military and mining applications

The first key market for Hyperion is military applications for reliable power for U.S. bases overseas so that combat readiness cannot be held hostage to outages from local grid. To support this marketing strategy, Deal has stocked his advisory board with former defense official including former Sec. of the Force William Anderson. He also sees his reactors providing electricity for electric vehicles the armed forces will eventually need to buy “to reduce their massive carbon footprint.”

hyperionreactor

The second niche is power for remote mining and oil & gas fields that have no access to electricity. Variations of this model include providing process heat for the Alberta tar sands. People have been taking about taking reactors to the Peace River region for decades. Deal is the latest to get a gleam in his eye to swap the power of enriched uranium for high priced natural gas. Although Bruce Power last year announced plans to build twin 1,100 MW AECL ACR1000 reactors there, Deal says he thinks he can get there first.

Anyone who wants to bring heat

A third key market is replacing dirty coal plants in eastern Europe swapping out the boilers for his reactor and hooking it up to the turbines and the grid. Coal-powered utilities in Slovakia and Poland have reportedly expressed interest in this approach.

The reason for this strategy is that the primary output of Hyperion’s “battery” is heat. A customer that wants to buy one to make electricity has to get their own turbines and power distribution network. Deal claims he can deliver his pocket reactor for $1,000/Kw, or $25 million, and that the balance of plant for one will come in at another $1,000/Kw for a market maker price of $2,000/Kw.

Industry observers question these numbers pointing out Babcock & Wilcox is estimating the cost of their 125 MW reactor at $4,000/Kw. However, NuScale Power, which is developing a 45 MW conventional light water reactor, has been quoted as saying its design will come in at $2,000/Kw. A 45Mw reactor could cost $90M. It could be affordable for municipal utilities that don't want to hitch their wagon to the costs and risks of being investors in building a 1,000 MW plant.

High hurdles to get to market

HighHurdleDeal says he will deliver Hyperion's reactor for commercial sale in 2013. To get here, he has daunting challenges to overcome including completing his goal of raising $65 million to finish the design, get it licensed by the NRC, develop a supply chain, and, most importantly, build a factory to make it.

For a location he’s looking at Idaho Falls, ID, a “nuclear city” which last year went all out to successfully get French nuclear giant Areva to commit to build a $2 billion uranium enrichment plant 18 mile west of town.

Deal figures if the town will go for something like that, a manufacturing plant for a 25 MW nuclear battery would be welcomed with open arms. Economic development leaders in the town are interested in his plans. Like everyone else who reads about the firm, they want to see how and when Deal will get his invention from the drawing board to a prototype and then to a docketed application for reactor design review at the NRC.

Deal will also need a patient set of investors. His primary investor to date is Altira Group LLC, a Denver-based venture capital firm. Dirk McDermott, a board member and partner in the firm, is enthusiastic about Hyperion’s future.

He has to be bullish on the project because it is unlikely that Altira, which Deal says has total capital investments of $176 million, is going to bet the ranch on all of Deal’s financial needs. It’s web site lists 26 energy-related investment projects including Hyperion. A typical investment for the firm is in the range of $5-10 million. A key investment criteria is that the energy technology firm getting equity capital from Altira has it’s “own skin in the game.”

Other investors have to come to the table, and getting them is Deal’s top priority. The firm is still privately held, and Deal says an IPO is unlikely in the next few years. Deal knows he’s under the gun. “We have to deliver,” he says.

NRC reactor design certification is the key to success

nrc logo The biggest challenge is NRC design certification. It is the “gold standard” for international nuclear energy markets. To sell overseas, Hyperion must convince the NRC’s engineers its reactor meets the agency’s stringent safety standards which are the same for large and small reactors. Hyperion’s battery has no cooling pipes, pumps, or some of the other standard systems of conventional light water reactors. It is too early to tell whether these differences will speed up the design certification process or slow it down.

Licensing could be expensive because the NRC is required by law to recover its costs for reviewing a reactor design. Its engineers charge the applicant $250/hr and the clock could tick for some time with a radical new design that uses highly enriched fuel.

Deal says there is a team of 30 nuclear engineers and scientists at Los Alamos, working through a CRADA, to complete the design and support the licensing process. Most firms at this stage in Hyperion’s product development cycle would be submitting white papers to the NRC to start the agency up the learning curve about the new technology. So far, Deal says, the firm has not put anything in the agency’s hands.

Competition for small reactors making process heat

PebblesThe competition is taking a different approach. PBMR, a South African firm developing a 165 MW high temperature gas cooled reactor, has been in a dialog with the NRC since 2007. It expects to submit a reactor design to the agency in the next two-to-three years.

In December 2007 PBMR officials estimated the cost of the prototype at $3,500/Kw. A commercial version would have to come in much closer to NuScale’s cost to be attractive to developing nations.

Eskom, which is the primary customer in South Africa, has experienced severe financial setbacks stopping its planned tender for conventional LWR designs. Government funding for both Eskom’s nuclear program and development of a prototype of the PBMR design depends on rate increases political leaders have been reluctant to grant to the utility. Outside investors such as Mitsubishi have been providing some investment support.

China has leapt ahead of South Africa with its version of the Pebble Bed design. The Huaneng Group launched a commercial demonstration of its pebble bed modular design at a plant in Shandong Province. China is developing its reactor for domestic use and is funding it through state-run corporations. Exports could come later, but still sooner than anyone else.

The NRC issued its own strategy on licensing the Next Generation Nuclear Plant (NGNP) in August 2008. The NGNP is a planned 300 MW high temperature gas cooled reactor design being developed by the Department of Energy at the Idaho National Laboratory. Like PBMR and Hyperion, it is also targeting the process heat needs of the chemical processing and oil & gas industries. However, construction of a prototype isn’t expected to begin until after 2016.

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There are plenty of challenges facing Hyperion’s Deal once he has a working prototype. His investors know this. Their patience for the time and effort it will take to develop a product will only be sustained by a clear path and defined time to market. John (Grizz) Deal has his track shoes and is on a dead run to make it happen.

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4 comments:

crf said...

Companies like ESKOM ought to be able to access financing through the world bank's clean technology fund, or similar funds, imo.

It is stupid that lack of financing mechanisms holds back projects to such an extent.

Inflation should not be such an over-arching worry. Last year's energy, and yesterday's and tomorrow's food crises, show that you cannot ignore those twin lifebloods of all civilisations.

Risk that the project might "fail", due to incompetence, say, is a worry ... but that is what skilled international bureaucracies, like those available to the world bank directly, or through its donor countries, should be able to sort out. Leaving this job solely to free capital markets is, frankly, stupid, and deadly. These last months conclusively have proven that free markets cannot function without backstops of government financing, and that those backstops will be needed. Capital to these projects must flow, or whole countries needlessly suffer and needlessly worsen their future prospects.

Rod Adams said...

Dan:

Grizz is an interesting and inspiring speaker. I wish him the best of luck in a challenging endeavor. My hope is that his "track shoes" are durable and that his "dead run" is paced like a marathoner or perhaps even an extreme runner. The established energy interests have had plenty of time to erect lots of barriers to entry.

One correction - PBMR has recently made a significant alteration to their plans that have brought the unit power output down to something closer to 100 MWe with a substantial focus on providing process heat. One of their key potential markets is Sasol, the South African synthetic fuels company that converts coal into oil.

There has also been a very recent announcement by Sandia National Laboratory of a sodium cooled breeder that is "right-sized" to produce between 100-300 MWe. Tom Sanders, the current President of the American Nuclear Society is a big supporter of that project. We talked a bit about it when I interviewed him at the Atlanta meeting. New Energy and Fuel has a useful post on that topic under the heading of "Another New Small Fission Reactor Joins the Group" http://bit.ly/zpvI8

BTW - the author there saw fit to mention a company that has been in the chase for small reactors for well over a decade and a half.

Rod Adams
Publisher, Atomic Insights
Host and producer, The Atomic Show Podcast
Founder, Adams Atomic Engines, Inc. (est. September 1993) :-)

djysrv said...

I interviewed Thomas Sanders about his "right sized" reactors last June. See the full text here.

http://www.theenergycollective.com/TheEnergyCollective/42927

Rick Michal said...

I interviewed Tom Sanders, too, for the "President's Profile" that appears in ANS's Nuclear News magazine, July 2009 edition. Tom is certainly a big backer of the right-sized reactor, although he didn't get into specific designs when I asked him about it. He thinks that the ability to build small reactors quickly and add them incrementally to a site is a big selling point.

The July '09 edition of Nuclear News is available at:

http://www.new.ans.org/pubs/magazines/nn/y_2009/m_7

-Rick Michal
Nuclear News magazine
American Nuclear Society