The battle for market share is tough no matter what era you are in
Guest blog post by Tamar Cerafici
A few weeks ago I wrote about the SEC’s bird dogging activities in the nuclear industry. NuScale and its primary investor, Michael Kenwood Capital Management, found themselves under the SEC’s microscope for alleged investment activities unrelated to NuScale’s core business, getting a NuScale design sold.
As a result, though, NuScale found itself unable to pay its bills bringing into sharp relief the perils of conducting business in the wild world of nuclear entrepreneurship.
A friend and I were talking about this yesterday. Since we’ve both read Nathaniel’s Nutmeg, we’ve figured out what the world of small modular reactors (SMRs) really needs.
What SMR developers need is the East India Company
When Renaissance apothecaries proclaimed nutmeg a cure for the plague, Western Europe mobilized its maritime industry to get the spice from its source in the islands of present-day Indonesia. The hundred-year effort, known as the “Spice Race” would topple the Portuguese trading monopoly in Southeast Asia and win the island of Manhattan for the British. It would make world powers out of England and Holland.
Outfitting one ship in the 16th and 17th centuries was no minor undertaking. Mobilizing a merchant fleet would have been impossible for even the richest individual tradesman, particularly when sailing to the Indian Ocean meant running a gauntlet of Portuguese fighting ships.
These merchants realized banding with their competitors would be far more profitable than attempting to build solo entrepreneurial ventures. Each competing merchant would participate in shares of the company and ultimately bear the cost of success or failure together. England and Holland’s efforts are the most storied.
At the height of its powerful reign, the Dutch East Indies Company employed 10,000 soldiers, 40 warships, and 150 merchant vessels. During its 200-year history, more than a half million people sailed from Europe under the Dutch East Indies and Dutch West Indies company flags. England’s East India Company fared as well, colonizing India and much of Southeast Asia, governing its holdings there until 1857, when governing responsibilities were assumed by the British Crown.
Spice trade rules
The first Dutch adventure only brought back a small cargo of pepper. That pepper paid for the entire trip (four ships and crew – three ships returned), leaving a tidy profit for the organizing merchants. The English adventurers ruled India for nearly 300 years.
The business model is present today in various forms, including Rothschild, J.P. Morgan, Lazard, Hambras, and Barings, as well as newer ventures like Next Street.
Taking away the massacres, slavery, and general oppression of foreign competitors, the Dutch and English had a series of good ideas:
- Band together
- Take on the risk
- Get market share
- Take on the risk
- Sell your nutmeg
- Cure the plague
- Get really, really rich
- Cure the plague
- Run the world.
An essential paradigm shift wouldn’t hurt
For SMRs, that are grounded by a lack of money, we all know money is hard to come by, since there are no ratepayers to support the inherent risks of deploying the new SMR technology.
The return on investment is hard to show because the market for small reactors is still pretty theoretical. The market for SMRs will not take off without money so how to get some?
You either have your own money (Babcock & Wilcox, GE) or you run to venture capitalists to meet the financial needs of the company. They’ll want more than a modicum of control. Traditional investment houses won’t touch these technologies with a 10-foot pole, because they’re not proven in terms of having paying customers.
Watch out for the white whale
Any traditional funding mechanism, such as those used for large reactors, is a white whale. And you know how that turned out. The big nukes got built because everybody agreed on one basic technology, and one basic fuel source. They got funded because the financial model was different – a huge and captive base of ratepayers insured that the capitalization costs would be paid no matter what, when, or how much. As we know, that model had some drawbacks.
In today’s risk adverse industry, the mantra still remains, “Pick ONE.” SMR developers have adopted this wholesale, because I guess it’s the only one they know. On the other hand, the great virtue of the dozens of small reactor technology designs is the variability they present.
Things are different now
A 10 MWe plant using lead bismuth coolant in its design would work really well in a remote army station, while a desalination plant in the Middle East would be more appropriately powered by a 125 MWe light-water design. Plus, it can be located right next to the water plant saving a bundle on transmission infrastructure.
Unlike the big nukes, which run solely to manufacture electricity for sale, SMRs have a broad range of uses that don’t require a grid and rate payers. Forty years ago a single industrial model was what people understood for building power plants. That’s not the case now.
New lamps for old
The U.S. SMR industry is failing to recognize that its product must be developed under a completely different series of assumptions, and learn lessons from the recent past (like the airplane industry) as well as the distant past.
If it doesn’t, it will continue to languish, without investment capital, while designs from Japan and Korea gain control global market share.
SMR developers in the United States need to recognize what the Dutch and English traders recognized 400 years ago. Individually, there is no way to succeed. Let’s put our ships together, and bring in the manufacturing sector. Let’s be merchants.
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Tamar Cerafici (right) is an attorney based on Frederick, MD, specializing in environmental and nuclear energy law. website
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