SMR Economics & Possible Business Models - UXC Hinze-NE Insider SMR 2012-04-24.pdfSMR Economics & Possible Business Models Jonathan Hinze ... Provides nuclear power and fuel cycle

2nd Annual Nuclear Energy Insider SMR Conference

SMR Economics &

Possible Business Models

Jonathan Hinze

Senior Vice President, International

April 24, 2012

The Ux Consulting Company, LLC

www.uxc.com

The Ux Consulting Company

► Founded in March 1994

► Provides nuclear power and fuel cycle consulting and market information to suppliers, utilities, investors, and government agencies internationally

► Publishes:

● Ux Weekly (publication started in 1987) – UxC News Headlines

● Quarterly Market Outlook reports with price forecasts – Uranium, Conversion, Enrichment, and Fabrication

● Nuclear Power Outlook and UxC Requirements Model forecasting ● Uranium Suppliers Annual ● Key country analysis: China, Russia, India, Japan, Kazakhstan, etc. ● Special studies on Nuclear Reactor Technology Assessments, Small

Modular Reactor Assessments, Nuclear Power after Fukushima, etc. ● UxC Policy Watch briefing service ● SpentFUEL and StoreFUEL

► Launched uranium futures contract with CME/NYMEX in May 2007

► Offices located in Atlanta, GA, Washington, DC, and other locations

► The most complete & accurate consulting service in the nuclear markets, backed by senior industry experience & strong fundamental analysis

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► Quarterly global reactor program tracking in Nuclear Power Outlook (includes SMRs)

► Major 500+ page Small Modular Reactor Assessments report issued in December 2010

► Post-Fukushima special report (including impacts on SMRs)

► Work with technical experts to complete full-scale SMR analysis

► Integrate with UxC reactor market expertise & commercial analysis

► Speeches and attendance at various SMR conferences

► New Products: SMR Web Portal & SMR Market Outlook Report

UxC Nuclear Power & SMR Efforts

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Presentation Outline

► Nuclear Market Trends & UxC Global Reactor Forecasts

► Commercial Opportunities for SMRs

► Review of SMR Economics

► Challenges for Successful SMR Deployment

► Potential Business Models for SMRs

► Final Thoughts

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Nuclear Power Market Trends

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► Traditional 20 countries with nuclear power in steady state, but a few in slow decline

► About 10 fast growth/new build expansion countries

► Up to 20 serious “newcomer states”

► Post-Fukushima, safety is paramount (more than economics)

► Relative costs of competing energy sources makes new nuclear a hard sell in many places

► However, same logic for nuclear power applies as before: • Increased world demand for electricity due to steady

economic & population growth

• Global warming and climate change fears impact fossil fuels

• Energy security and diversification

• Long-term, strategic perspective requires nuclear to maintain a seat at the broader energy table

350

400

450

500

550

600

650

700

750

800

850

900

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

2012-Q1 Base 2012-Q1 High 2012-Q1 Low

2011-Q1 Base 2011-Q1 High 2011-Q1 Low

GWe© UxC

UxC Reactor Forecasts: Before and After Fukushima

Source: UxC Nuclear Power Outlook, Q1 2012

~12% drop for

2020 in base case

~15% drop for

2030 in base case

Still show 67%

net growth

by 2030!

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Commercial Opportunities for SMRs

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► Multiple applications and deployment avenues:

● Standard nuclear power plant for baseload electricity

● Modular power plant with incremental capacity increase

● Stand-alone reactor for small power load or back-up power

● Co-generation of power & heat

● Combined with desalination facility

● Remote locations (e.g. military base, off-grid, islands, etc.)

► Global nuclear market is not a zero-sum game. There is ample room for SMRs as well as large reactors!

► SMRs may compete more directly with diesel, natural gas, hydro, or renewables rather than with large NPPs

Factors that Influence SMR Economic Analysis

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► SMR total capital cost considerably lower than large NPPs

► Much of SMR plant can be factory-assembled allowing for economies of scale & reduced on-site construction costs

► Less land area and cooling (BOP) requirements

► Passive designs & other features result in fewer plant staff

► For modular plants (such as those proposed by NuScale, B&W, Westinghouse, and others), the first units can begin operating sooner thereby producing a revenue stream and reducing the financing burden for the overall plant

► Additional non-electricity applications provide new market and income opportunities

Current SMR Cost Estimates

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Design Company Modules

per Plant

Total Plant

Output (MWe)

Overnight Cost

($/kWe)

Total Capital Cost

($ millions)

mPower Babcock & Wilcox 2 360 $5,000 $1,800

NuScale NuScale Power Inc. 12 540 $4,630 $2,500

SMR Westinghouse 1 225 $4,500 $1,013

HI-SMUR Holtec 1 145 $5,000 $725

SMART KAERI 1 100 $5,000 $500

CAREM CNEA Argentina 1 25 $4,000 $100

KLT-40S OKBM Afrikantov 2 70 $3,750 $263

VBER-300 OKBM Afrikantov 1 295 $3,500 $1,033

PBMR PBMR (Pty) Ltd. 1 165 $2,121 $350

HTR-PM Tsinghua INET & Huaneng 1 or 2 210 $2,000 $420

4S Toshiba 1 10 $3,000 $30

HPM Hyperion/Gen4 1 25 $4,000 $100

PRISM GE-Hitachi 4 1,244 $2,572 $3,200

Data compiled from public information and UxC estimates

Large vs. Small NPP Cost Comparisons

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► Based on simplistic Lifecycle Cost Analysis, large NPPs still appear to beat individual SMRs…

► However, there are key economic benefits of SMRs:

● Modularization greatly enhances O&M discrepancies

● Less strain on customer balance sheet due to smaller capital outlays

● Quicker completion of the plant, which leads to less financing

● Less risk & lower cost of capital easier to find willing investors

Plant

Type Size

Overnight

Capital Cost

Total

Capital

Cost

Lifetime Power

Generation

(MWh)

Lifetime Gross

Revenue

Lifetime Total

O&M Cost

Net Lifetime

Income

Profit

Margin

MWe $/kWe $ millions 50 years / 85% avg.

capacity factor

$ billions @ $40/MWh

power sales price

$30/MWh for SMR /

$20/MWh for LWR $ billions $ billions

SMR 150 $5,000 $750 55,845,000 $22.3 $16.8 $5.6 25%

Large

NPP 1,200 $4,500 $5,400 446,760,000 $178.7 $89.4 $89.4 50%

SMR Commercialization Keys

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► In order to succeed, any SMR developer must have complete answers to a number of critical issues: ● Understand and address customer needs/applications

● Finalize design and technical issues

● Overcome regulatory & government policy hurdles

● Establish realistic, detailed cost estimates

● Anticipate requirements for construction & manufacturing

● Develop a robust supply chain base

● Fully understand operations & maintenance parameters

● Address fuel supply and waste management

► Ultimately, a bit of luck and a lot of perseverance may be the difference between a nice idea on paper and multiple reactors deployed around the world!

Possible SMR Business Models

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► Traditional: NPP built & operated by electricity utility

● Turn-Key Project

● EPC Contract Only

● Complete Utility Control

► Multiple Owners (Group Financing)

► NSSS Provides Financing

► Build-Own-Operate (BOO)

► Lease-to-Own

Question: Given that many SMRs are being targeted for utilities,

companies, and countries that are currently uninitiated in the world of nuclear power, how can developers help foster this new marketplace?

Solution: Offer the Total Package!

● Select SMR designs that can cost-effectively adapt to site-specific stressors (climate, humidity, seismic, flooding)

● An integrated model of financing, licensing, construction, manufacturing, fuel supply as well as startup support

● Could involve providing staff and services for operations and maintenance for life of the plant

● Fuel leasing and spent fuel take-back may also create proper incentive for international newcomers to sign up for SMRs

Business Model for Newcomers

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► In 2009, UxC’s opinion of future SMR commercialization success was…

Skeptically Optimistic

► In 2012, due to progress by SMR developers and potential customers as well as positive government and regulatory actions, the updated view is...

Cautiously Optimistic

Final Thoughts

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Questions?

Thank You!