by Bob Shively, Enerdynamics President and Lead Instructor
President Obama has announced that the EPA will move forward with developing greenhouse gas regulation for existing power plants, with a goal of implementing regulations by mid-2014. Natural gas prices have risen 42% in the last year. And Bill Gates says our future needs nuclear power. With multiple U.S. manufacturers in the process of developing small modular reactor (SMR) technologies and with U.S. government support in sharing the costs of such development, has the time come for utilities to consider including SMR in their future generation planning?
MidAmerican Energy Company, the Iowa utility owned by Warren Buffet’s Berkshire Hathaway, recently studied this question at the direction of the Iowa State Utilities Board. The conclusion? Maybe in the future, but not yet. We’ll discuss how they got to this conclusion, but first, what is SMR for?
SMR is generally defined as a nuclear unit with capacities of 300 MW or less. This is in contrast to the current commercial nuclear units which are typically 1000 MW or more. SMR is intended to be constructed mostly in manufacturing with limited on-site work required. According to the MidAmerican report, SMRs have advantages over existing nuclear designs used for power generation including improved safety, smaller required investment, and the ability to incrementally match load growth due to the smaller feasible minimum size of an SMR.
The MidAmerican study compared the economics of an SMR versus natural gas combined-cycle power plants. This choice was based on two assumptions:
- new coal power plants will not be possible to build under air emissions regulation until such time as carbon capture and sequestration technology is available
- although renewables will continue to grow significantly there will still be need for non-renewable baseload power
The study concluded that under certain scenarios, included scenarios the consultant running the study (NERA Economic Consulting) believed to be most likely, the cost of power over a period from the year 2020 to 2080 would be lower for SMR than for natural gas.
Key inputs that drive the conclusion include:
- future domestic natural gas supply and resulting gas prices
- the level of future economic growth and how that results in electric demand growth
- carbon pricing policy
- the ultimate capital costs of SMR engineering
Results are very sensitive to gas costs and SMR capital costs since the cost of gas generation is largely driven by fuel costs (75-82% of the revenue requirement for gas-fired power) and SMR is driven by capital costs (73% of the revenue requirement for SMR). Herein lies the difficulty: No one knows the future of gas prices and, since no SMR has ever been built, no one knows the true capital cost of building one.
Since much of the costs for SMR is upfront, and since current gas prices are low, the study concluded it simply makes sense to wait awhile and take advantage of low gas costs. This shows the difficulty for any new highly capital-intensive technology in today’s energy world. It’s a lot easier to just wait than to take the plunge and go first despite some appealing features of SMR.
One way of looking at SMR is that it is a hedge against future gas-price and carbon-price volatility. The key questions are: When will the hedge be developed enough to be viable? How much should a utility pay for the hedge? And when should the hedge be put in place?
Unfortunately not enough is known yet to answer those questions with the certainty required for a utility to move forward. This then leaves it up to the U.S. government to foster development until more questions can be answered.
 See our earlier blog, Why Bill Gates Still Believes in Nuclear Power, available at: https://blog.enerdynamics.com/2011/08/10/why-bill-gates-still-believes-in-nuclear-power/
 For a summary of the study and links to the complete analysis see: http://www.midamerican.com/common/newsroom/pdf/060413_nuclear_feasibility_study.pdf