Does DOE’s Funding Announcement Mark the End of its Irrational Exuberance for SMRs?

November 21, 2012
Ed Lyman
Director, Nuclear Power Safety

On November 20 DOE finally announced that the Babcock and Wilcox Company (B&W) and its “mPower” reactor were the lucky winners of its Funding Opportunity Announcement (FOA) for a cost-sharing program with industry for the design and licensing of “small modular reactors,” or SMRs.  Although DOE had originally said the announcement would come in July or August, it decided instead to bury it on Thanksgiving week – not usually a time the agency releases news of which it is particularly proud. 

And in fact, the real news is not that a grant was awarded to B&W – this was a near-certainty – but that there was only one winner instead of two. While the initial FOA specified the program was meant to fund “up to two” projects, the widespread expectation was that two grants would be awarded to the pool of four applicants.

For instance, DOE Assistant Secretary Pete Lyons testified before Congress in March that

“The SMR Licensing Technical Support program is designed to support first-of-a-kind engineering activities for design certification and licensing activities for two SMR designs through cost-shared arrangements with industry partners in order to promote accelerated deployment of these technologies.”

DOE softened the blow to the other applicants by saying that it would issue a “follow-on” solicitation, but it does not appear this is intended to provide the same level of technical support and funding as the initial FOA. The other vendors appear to be out of luck.

So what happened to the second grant? One can come up with two theories – either there wasn’t enough money left over once B&W took its cut, or the other applications had so little merit that DOE could not come up with a justification for funding them.

Of the other three applications, one may have been too similar to the B&W concept (the Westinghouse SMR). The other two, NuScale and the Holtec HI-SMUR, are novel designs that have no motor-driven pumps and depend entirely on natural circulation for cooling – frankly, a risky business in view of the uncertainties and challenges of injecting water into overheating reactors and spent fuel pools that were seen during Fukushima. And the credibility of the latter two proposals was recently damaged earlier this month when DOE directed the Savannah River Site (SRS) in South Carolina to stop using funds intended for environmental management to support their development at the site.

But ultimately, the decision may have come down to the commercial prospects for the technologies. The fact remains that the economics of all of these designs remains murky. Today, even some operating reactors are having difficulty competing with gas-fired electrical generation.  Based on economies of scale, small reactors will produce more expensive electricity than large reactors, all other factors being equal. To compensate for this basic principle, SMR vendors argue they can achieve economies of mass production that would reduce capital costs.

But even if this assertion were true, these benefits would not be realized for the first few units coming out of the DOE program, which (at best) will produce a handful of first-of-a-kind experimental reactors. Only the B&W proposal, which through its alliance with the Tennessee Valley Authority hopes to build up to four mPower modules at the old Clinch River site, has the prospect for further taxpayer subsidies to offset high production costs. If TVA can secure a long-term purchase power agreement with the Oak Ridge National Laboratory for the B&W plant’s output, DOE’s accountants may be able to find a way to conceal the fact that it is contracting to buy what may well be some of the most costly electricity in the country.  But as the “fiscal cliff” looms, even this strategy may be doomed.

UCS has long been concerned about the safety and security risks of SMRs, especially if the vendors and DOE succeed in convincing the NRC to weaken regulatory requirements in areas such as plant staffing, security, and emergency planning zone size. We articulated these concerns in our testimony to the Senate in July 2011  and in testimony to the Secretary of Energy Advisory Board in May 2012, but have not seen any indication that our concerns are being seriously addressed.

Until it resolves issues of safety, security and economics, we do not believe that DOE’s SMR program represents sound energy policy.