Friday, January 21, 2011

SEC’s hand in future of small nuclear reactors

Action against an investment firm funding NuScale could jeopardize its quest to commercialize a 45 MW light water reactor

Guest blog post by Tamar Cerafici

SEC imageOne month after charging Don Gillispie, CEO at Alternative Energy Holding Inc., with fraud, the Securities and Exchange Commission (SEC) issued another complaint against a major investor in SMR technology. This time the SEC’s focus is on NuScale’s main funding source, Michael Kenwood Group.

On Jan 14 the SEC filed a complaint against Michael Kenwood Capital Management, LLC (MKCM). According to court papers MKCM provides the bankroll that’s keeping NuScale in business. MKCM has done this through a series of loans to the company, to the tune of about $23 million. In brief, the SEC says those loans violated SEC regulations. (see reference links below)

The SEC freezes money needed fund to Nuscale operations

The SEC also filed a Motion for a Temporary Restraining Order (TRO). The TRO will operated to essentially freeze any outgoing investments or funding of MKCM projects. With MKCM’s assets frozen, NuScale is left without a critical tranche (according to court documents, about $5 million).

According to the Portland Business Journal, SEC's action has suddenly turned a promising and seemingly well-capitalized Oregon energy startup into one in immediate need of new financing.

“This was a curve ball to us,” said Bruce Landrey, a spokesman for the Corvallis-based company, which is developing modular reactors for nuclear power plants.

NuScale said in a statement (PDF file below) it is reviewing the impact of the restraining order on its 90 full-time employees.

According to the TRO supporting documentation, MKCM “invested” in companies using funding from private equity accounts. This funding, according the the SEC, could only be used for short term investments. Contrary to the terms of the private offering, MKCM allegedly used the funds to make the loans to NuScale and other energy companies.

A cautionary tale

In freezing the MKCM funds, the SEC has sent another shiver down the spine of nuclear entrepreneurs, SMR investors, and vendors, many of whom operate on a knife’s edge between bankruptcy and liquidity. After two major investigations announced in the same number of months, the industry should be looking over its collective shoulder.

The field of SMR contenders is populated with low-hanging fruit. Companies seek and obtain venture capital by talking big and moving aggressively. The SEC activities will certainly dampen the enthusiasm that’s marked most SMR propaganda. While it’s fun to read, developers seem to have gotten caught up in their ad copy. The industry can’t forget that even private investments are subject to SEC regulations, and that it’s possible for companies to get entangled in those regulations, too.

The demise of a viable SMR technology?

It appears that the rumors of NuScale’s death may be greatly exaggerated, but the company is certainly on life support.

NuScale was suspending operations until the fracas can be sorted out. A contract on the NRC design certification will cease, and it’s likely operations will be severely scaled down. The schedule for DC will certainly be extended to beyond its current goal of 2014.

The proceeding against MKCM is a complicated securities action. The TRO is a creature of the courts, and can be tweaked by the court in Connecticut as necessary. It’s entirely possible that the NuScale operating funds could be released, and business could resume within the next few months.

It could be a while to sort things out

AEHI was also pursuing small modular reactor technologies. In June 2010 its signed an MOU with Hyperion Power of Albuquerque, NM, which is developing a 25 MW fast reactor. The MOU was touted by the two firms as the beginning of a joint venture to license, build and market Hyperion's refrigerator-sized modular nuclear reactors on a world-wide basis. Hyperion was not named in the SEC's complaint against AEHI.

Another development is that in AEHI's case, the SEC action set off a blizzard of separate stockholder suits against the firm. It is possible that the SEC's action against MKCM could result in investor lawsuits that might tie up funds owed to NuScale. It isn't known whether NuScale has other investors it can approach to keep going.

Reference Links

Tamar CeraficiTamar Cerafici (right) is an attorney based on Frederick, MD, specializing in environmental and nuclear energy law. website

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Thursday, January 20, 2011

SMRs sail into headwinds at SRS

Licensing issues could push prototypes projects off course

An innovative program to build prototypes of multiple designs of small modular reactors (SMRs) at the Savannah River Site (SRS) is getting off to a rocky start. The anti-nuclear group Friends of the Earth (FOE) is charging that the Department of Energy (DOE) is trying to avoid having to submit the projects to the Nuclear Regulatory Commission (NRC) for licenses to build them.

The issue that FOE brings to the fore is that even research reactors need licenses and even if they never generate any electricity for use on the grid. This is the point where the DOE and the NRC part ways.

DOE is asserting its authority over R&D projects on DOE sites, like SRS, saying an NRC license isn’t necessary. On the other hand, a source familiar with the ways of the NRC tells this blog, “there are no special cases for prototypes.”

Here’s the pro and con in quotes from the Augusta Chronicle for Jan 19.

"SRS plans to fully engage the NRC throughout all aspects of any reactor project at the site, and that may include licensing," said Jim Giusti, an Energy Department spokesman at SRS. “

"However, DOE does have the authority to construct, operate and monitor safety of research reactors at its sites. NRC regulation is not necessary unless these reactors feed electricity to a commercial grid."

Scott Burnell, an NRC spokesman in the agency's Washington headquarters, also said the Energy Department has indicated it fully intends to comply with licensing guidelines.

"Everything the NRC has seen from those departments indicates they fully intend to use the NRC licensing process if they intend to pursue small modular reactors on Department of Energy facilities."

It’s DOE position that got socks in a knot for Tom Clements, the Southeastern Nuclear Campaign coordinator for Friends of the Earth.

"Construction of 'small modular reactors' that are not licensed by the Nuclear Regulatory Commission would violate U.S. law as well as endanger the public, and we will strongly oppose any attempt to avoid required licensing of such reactors.”

Early progress on SMR licensing would be a good idea

Everything this blog has heard, aside from the fantasies of some marketing types talking to new investors, is that future customers want the NRC licenses done and soon.

One of those customers is the Department of Defense (DOD) which would rather get electricity for tactical jet fighter squadrons from an SMR than reply on the grid in a potentially unfriendly country. DOD is not going to bet the tactical readiness of a front line fighter squadron, or the safety of our service men and women, on an unlicensed reactor.

That said FOE’s Clements sees his job as attacking anything that looks like a weakness in the nuclear world as a means to thwart the nuclear renaissance. The anti-nuclear agenda isn’t about licensing. It is designed to set the bar so high that the safest reactor is one that is never built.

The Department of Energy is helping this cause by tap dancing on the licensing issue. SMR vendors who encourage this type of conversation are not doing themselves any favors. Speculation about what investors in SMRs might want, or not, regarding the involvement of the NRC is more or less irrelevant.

There is a workable process available. Just look at how the Tennessee Valley Authority (TVA) and mPower are working to license a 125 MW SMR at the Clinch River reactor site. They are using the old Part 50 process and then plan to blend the resulting information into a Part 52 design certification. Maybe the folks at SRS should take a short trip Oak Ridge, TN, for a briefing?

The Atomic Energy Act is clear that the only exemption for licensing involves a presidential determination on civilian use of “nuclear materials. Maybe someone at SRS should call Sec. Chu to see how willing he is to carry that request to the White House?

SMR licensing challenges

SMRs are by their nature low power, usually in the range of 25-300 MW, compared to their bigger brothers which weigh in at 1,000 MW or more. The NRC has lots of experience licensing the large designs because they are all based on similar design principles. Basically, set off a nuclear chain reaction with enriched uranium (3-5% U235) bundled into long fuel rods, use the heat to make steam, drive turbines, and make electricity.

The problem for the NRC is that it has not, in recent years, conducted a safety analysis to certify a design for a “fast reactor” cooled by liquid metal such as sodium or a lead-bismuth mix. These reactors use enriched uranium at levels of 15-19% U235 and operate at much higher temperatures than the light water reactors the NRC knows so well.

The materials used in secondary loops to transfer heat from fast reactors to make steam for turbines can be exotic including helium, carbon dioxide, and liquid metals. There are design and materials challenges ahead before these reactors will hit an engineer’s desk at the NRC. That’s why the prototyping projects at SRS will be useful.

In addition to the Hyperion reactor (25 MW), with its so-called “bathtub design,” there is the GE-Hitachi 300 MW reactor that is designed to work with spent nuclear fuel. Two other SMR developers are also interested in building prototypes at SRS. They are General Atomics with a 240 MW reactor that uses plutonium and HEU and TerraPower’s 300 MW “Traveling Wave” reactor that uses depleted uranium for fuel.

Licensing SMRs will take time, and the NRC will have to go up a steep learning curve for the new “fast reactor” designs. Help is available. The American Nuclear Society and the Nuclear Energy Institute have published a series of technical papers on the multiple aspects of licensing SMRs. The NRC is listening to the ideas from both group as it develops its capability to craft a licensing strategy for the new designs.

Prior coverage on this blog

  • 09/04/10 – Stand up double for SMRs
  • 08/18/10 – NEI seeks consensus on licensing small reactors
  • 07/28-10 – ANS committee works SMR licensing issues
  • 06/22/10 – How to open running room for small reactors
  • 11/21/09 – Will the nuclear renaissance start with small reactors?
  • 06/26/09 – Change the NRC cost recovery rule for small reactors

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Wednesday, January 19, 2011

China waves caution flag on pace of nuclear new build

A government policy groups says the country should avoid building too many units too quickly

Keep options openThe Bloomberg wire service reported Jan 11 that the Chinese State Council Research Office published a policy paper in its Outlook Weekly that the country must avoid building too many new nuclear reactors too quickly.

This blog obtained a rough English translation of the source document. This blog post is a review of the highlights of the English version of the report.

The paper calls for a ceiling on new construction to avoid shortfalls in nuclear fuel (uranium) and inability to build and operate the new plants safely due to a lack of qualified workers.

The paper also said the country should set aside its Generation II indigenous design for safety reasons and concentrate on building new reactors based on the Westinghouse AP1000 reactor.

China has astonished nuclear experts in the West with estimates it will build 80 GWe of new nuclear powered electricity generation capacity in the next ten years. There has been a lot of debate about whether China can actually perform to these numbers and do it safely. The 'Outlook' paper now puts the target for construction of new nuclear reactors at 40 GWe or half the number announced last Fall at an energy conference in Beijing.

The new State Council document should be taken with a grain of salt since it appears to be an advisory memo rather than the ratified policy of top government decision makers. It is important because it is a strong reality check on the large numbers for construction of new reactors that have been released in recent months.

A fearless prediction appears to gain credibility

China nuclear construction site This blog predicted in December 2010 that there would be a slowdown in China in terms of the pace of its new nuclear build.

The mandarins in Beijing will discover they're outrunning their ability to build out their plans for 80 GWe of new reactors in ten years. There are limits to how much concrete, steel, and nuclear engineering talent can be put into play in that short a period of time. They might build 25 GWE in ten years.

The World Nuclear Organization has a briefing on China’s nuclear energy program along with maps and lists of current and planned new reactors.

China’s new nuclear vision

Here are some highlights of the Outlook Weekly dated January 10, 2011. These highlights are a summary of the rough English translation obtained by this blog. Readers who understand Chinese may click on the link at the top of this blog post to get to the original document.

Planning baseline – as of the end of 2010, the government has approved 40 GWe as a target for completion of new reactors by 2020. Attention is needed on constraints that will prevent utilities building them to attain these goals. Key issues are trained personnel, equipment manufacturing quality, and safety supervision. The long-term healthy develop of nuclear energy could be affected by these issues.

Reactor design - The country should stop building its indigenous design, a Gen II reactor, and use the Westinghouse AP1000, a Gen III design, for all new reactors. The reason is the numerous safety improvements in the Westinghouse model. The firm has executed a major technology transfer agreement with China to hand over technical documents for the AP1000.

Personnel – There is a serious shortage of human resources and inadequate capabilities to train them. A qualified nuclear engineer needs four-to-eight years of education and more to fully grasp the scope of a nuclear safety culture. The safe operation of new plants will be at risk if an adequate number of technical personnel are not available.

Manufacturing quality – Product quality is unstable. Getting complete systems assembled from multiple suppliers is getting more difficult. Due to the rush to get components, there is a problem with compliance to the requirements of the nuclear grade quality assurance system.

Safety & regulation – Organizational capacity needs to be strengthened soon. Staffing is not up to the required numbers for each new reactor. Pay and promotion for nuclear safety jobs lags behind other specialties. Legal authority is fragmented and needs to be codified under a single statute.

Fuel cycle – The infrastructure to handle the back end of the fuel cycle is weak. The recent hot start-up of a pilot plant does not mean industrial scale reprocessing is available.

Separately, it will take at least a decade for China to start the large-scale industrial application of spent nuclear fuel reprocessing technology according to a Jan 17 statement from the China National Nuclear Corporation (CNNC).

Financing – Capital requirements are putting a strain on the budget, perhaps requiring one trillion yuan ($152 billion). This will increase costs and the country has not seen the end of this trend as the peak of the construction period is still in the future.

Corrective actions

corrective actions The rest of the document contains a series of reasonable corrections to problems. For instance, the overriding recommendation is to adjust the scale of development to what is sustainable without compromising safety.

For instance, the report calls for independence of the National Nuclear Safety Administration and giving it the authority to do its job.

It calls for a national system of nuclear engineering education. Improvement of manufacturing quality must get a top priority. The document called for the government to "break the bottleneck" on delivery of quality components and systems.

An interesting recommendation is to establish an independent nuclear fuel authority to handle the complete fuel cycle from acquiring uranium, to enriching and fabricating fuel, and reprocessing and disposition on the back end.

China could still amaze the world with what they do accomplish. They are headed in the right direction with a focus on shorter delivery times and lower costs through modular construction. Eventually, Chinese utilities will become exporters of technology transferred to them by Westinghouse and Areva.

Note to readers World Nuclear News published a report on the Outlook Weekly document on January 11, 2011.

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Nuclear news roundup for 01/19/11

Green groups line up to shut down Davis-Besse in Ohio

green lobbyAn unusual coalition of national anti-nuclear groups and locals from the Green Party of Ohio and Sierra Club have begun to organize efforts to deny the Davis-Besse nuclear power station a renewed license from the NRC. In mid-December the Green Party hosted a meeting in Toledo, OH, with help from the Sierra Club, Beyond Nuclear, and the Coalition for Nuclear Free Great Lakes.

According to the NRC, the license renewal application process for Davis-Besse Unit 1 is moving ahead with a target date of July 2012 for a new 20-year license. The 879 MW reactor was built in 1978. It is located in Oak Harbor, OH, near Toledo. The current license expires in April 2017. The reactor is owned and operated by FIrstEnergy Corp.

The Davis-Besse reactor became a controversial site when it was discovered in 2002 that the reactor pressure vessel head had been damaged and that the full extent of the degradation had not be reported to the NRC through routine inspections. Hard feelings persist in the region even today about the incident.

In a letter sent to the anti-nuclear groups, U.S. Rep. Dennis Kucinich (D-Cleveland) reminded them that FirstEnergy was fined for withholding information about the reactor head from the NRC. U.S. Rep. Marcy Kaptur (D-Toledo) said in a newspaper interview she is critical of the utility’s ability to conduct safe operation of the reactor.

In January 2006 FirstEnergy Corp. admitted that several of its employees made false statements to the NRC about safety violations at Davis-Besse. The utility made a deal with the US Department of Justice to avoid further prosecution. FirstEnergy agreed to pay a $28 million penalty to the Justice Department and to cooperate with criminal and administrative investigations.

Survey shows Texans support nuclear energy

NRG LogoThe Victoria Advocate newspaper reported Jan 8 the results of two statewide surveys show 72% of Texans support nuclear energy and the expansion of the South Texas Project. NRG is building two 1,350 MW ABWR reactors at the site. In both polls, Texans said they agree nuclear energy has an important role in meeting needs for electricity in future years.

NRG, which conducted the surveys, told the Victoria Advocate it is hoping to hear about DOE loan guarantees for units 3 & 4 later this year. Construction activities are expected to employ 6,000 people and the two reactors will support 1,200 permanent jobs.

The survey also shows 70% of residents in Austin, TX, support having that city’s municipal utility buy power from the expanded nuclear site. The city owns a 16% interest in units 1 & 2 at STP, but backed out of making investments in units 3 & 4.

The municipal utility in San Antonio had planned to invest in a 40% share in the new reactors. Opposition to rate increases to pay for the investment, and mistakes by utility executives in explaining them to elected officials, resulted in a reduction of the city’s share to just 8%.

Separately, NRG has announced early stage investment in the new reactors from a Japanese electric utility and financing from Japan’s export bank. The twin reactors are being supplied and built by Japanese conglomerates Hitachi and Toshiba.

Anti-nukes lose a round at Comanche Peak

ApplicationDeniedOpponents of the expansion of the Comanche Peak nuclear power plant south of Ft. Worth, TX, failed in their efforts to convince the Atomic Safety & Licensing Board to deny licensing of two new 1,700 MW Mitsubishi APWR reactors, The Ft. Worth Star_telegram reported the panel dismissed three of the four remaining contentions out of 19 that were filed by anti-nuclear groups.

Opponents include Rep. Lon Burman (D-Ft. Worth), Public Citizen, and several grass roots green groups. Their 19 contentions raised issues about water, safety, and nuclear waste.

Luminant, which is building the new reactors, said it expects the NRC to approve its license applications for them in early 2013. The biggest challenges are finding investors, getting loan guarantees from the federal government, and bringing the units online in 2018 and 2020 on time and within budget.

The combined cost of the two new reactors, and grid improvements, could be in the range of $15-20 billion making it the one of the biggest capital construction projects in Texas history.

Savannah River becoming a center for small modular reactors

small reactorsThe Augusta Chronicle reports that developers of small modular reactors (SMRs) are heading towards an energy park being developed at the Savannah River site (SRS) So far New Mexico-based Hyperion has committed to building a prototype 25 MW fast reactor at the site. Also, GE-Hitachi has announced it wants to build a prototype PRISM 300 MW fast reactor there as well.

More recently, San Diego-base General Atomics, which is developing a 240 MW reactor capable of burning plutonium and HEU as fuel, also wants to use the site to build and test a prototype.

TerraPower, a Seattle-based start-up funded by the Bill Gates Foundation, is also talking with SRS about building its 300 MW liquid metal cooled reactor there. Reportedly, the firm is considering either a depleted uranium fuel design or one using thorium fuel.

SRS will provide land, electricity, and security for the prototype sites. Raising funds to build the reactors, and hiring a skilled workforce, remain the responsibilities of each developer. Also, each reactor vendor will have to negotiate its own path to licensing the prototype projects with the NRC.

Friends of the Earth, an anti-nuclear group, said in a press statement that the prototype SMRs cannot evade NRC licensing requirements just because they are being built at a DOE facility.

Thomas Sanders, an expert on SMRs from Sandia National Laboratory, is the new manager of the 2,700 acre energy park that will host the prototype reactors.

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Tuesday, January 18, 2011

Japan puts India in a pressure cooker

No deals for reactor components without nonproliferation commitments

Pressure cookerIndia's refusal to sign the nuclear nonproliferation treaty may delay, or even stop, delivery of massive reactor pressure vessels from Japan Steel Works (JSW). India has plans to build 20 GWe of new nuclear reactors in the next 10 years.

These aren't just pumps and pipes. The components that are at the core of a potentially deal-breaking dispute are 400-600 ton reactor pressure vessels. A civil nuclear agreement between the two countries is the key to success for India's ambitions to build $150 billion of new nuclear powered generation capacity.

Before Japan will let JSW supply reactor components to India, it is demanding that India provide a guarantee that it will not conduct a nuclear test nor use its civilian nuclear reactors for military purposes.

Japan has made it clear that it wants India to ratify the Comprehensive Test Ban Treaty. Japanese diplomats have emphasized that an Indian nuclear weapon test would not only end the supply of new reactor components, it might also trigger a recall of any parts and fuel that have already been shipped for use in new reactors.

Japan's other problem is that while it has domestic political reasons for pursuing a diplomatic initiative with India, it also has competition for India's nuclear business from South Korea. The government in Seoul is ready to sell reactor components to India regardless of whether it holds open the option to test a nuclear device.

Read the full details at ANS Nuclear Cafe now online.

Update: 01/20/11: Defying non-proliferation hawks, a Japanese envoy indicated that negotiations for concluding a civil nuclear deal with India are on track and can be wrapped sooner rather than later. Sify News, India

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Monday, January 17, 2011

AECL sale prospects quit talks

Government rejects bargain basement bids by Bruce Power and SNC-Lavalin Group

AECL SymbolThe Canadian government’s efforts to sell the commercial divisions of Atomic Energy Canada Ltd. (AECL) appear to have collapsed after the only two bidders, also both Canadian firms, walked away from the negotiating table. The move appears to leave the government still owning the Crown Corporation and its thousands of employees.

Also at risk is the planned “do over” of the star-cross Darlington, Ontario, new build which calls for two new reactors. Industry observers have said that it could specify AECL’s new ACR1000 1100 MW reactor. However, neither bidder for AECL was interested in paying for completion of the design or taking it through the licensing process with the Canadian Nuclear Safety Commission.

Two years ago the Harper Administration in Ottawa called for sale of AECL and chartered a review by investment bankers to assess its value to potential buyers. As it turned out the two bidders only wanted the parts of AECL, along with their engineers, that maintain the existing fleet of Candu reactors in Canada. The government valued the workforce, and the incomplete technology for the ACR1000, at $300 million. While no figures have surfaced about what either of the two bidders offered, there have been reports the numbers were far below the government’s expectations.

Cost overruns on refurbishment projects

Canada one red centAECL has not sold a new reactor for more than a decade. AECL has not been able to book a sale in either India or China which are the world’s two most ambitious builders of new reactors.

The Darlington project is the bright spot on the horizon. However, the provincial government got cold feet on the first round of bids in 2009. Since then it has dug in its heels demanding that AECL, or the federal government, assume responsibility for any cost overruns.

The Ontario government has good reason to worry about cost overruns. The refurbishment of the AECL reactor at Point Lepreau in New Brunswick has officially gone $475 million over budget with a schedule delay of more than a year. The cost of buying replacement power while the reactor is out of service is also a major sore point for provincial officials.

Bruce Power may have pulled the plug on its bids due to cost overruns for refurbishment of the AECL built Bruce A power station which is reportedly running more than 100% over budget from the original $2 billion estimated cost.

Any bright spots?

A wild card in the bid process, which the government refuses to discuss, is Canadian businessman Andrew Day. He says he is interested in the new reactor design and believes AECL could be successful if there is proper development of the technology and marketing it to international customers. Day has a background in the aviation industry.

A workers group, the Society of Professional Engineers, says the uncertainty about the future of AECL makes it impossible for the firm to book new business. Provincial officials in Ontario, which is also home to the majority of AECL’s workforce, agree with this assessment.

Premier Dalton McGuinty made a personal appeal to Prime Minister Stephen Harper so that the province could proceed to buy two new reactors from AECL. Ontario Energy Secretary Brad Duguid was more direct. He told the Canadian Press wire service last November, “Their decision to sell AECL in the middle of our procurement process is very bothersome to us.”

In the earlier round of bidding for Darlington, AECL offered a very competitive price of about $2,700/Kw for the two new reactors plus cost estimates to refurbish 10 other reactors. However, without the full financial backing of the Ottawa government for the crown corporation, AECL’s future may languish in limbo a bit longer. Michael Pardis, the third Natural Resource Minister to grapple with the issue, refused to comment on the sale prospects for AECL or financial guarantees for the Darlington project.

Chalk River not part of the deal

While the government always intended to keep the Chalk River R&D reactor, and its cleanup liabilities, out of the sale, it also has to fund a replacement for the now 50 year old reactor with its ever increasing maintenance burden. The Chalk River reactor produces between a third and half of all the short-lived medical isotopes in North America. When it was shut down for extensive repairs in 2009, it created an acute shortage for nuclear medicine clinics and stimulated efforts in the U.S. to build a more reliable supply.

Prior coverage on this blog

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