Viewpoint: Energy crisis demands quickly-scalable SMRs

07 October 2021

Given the EU's legally binding 2050 comprehensive decarbonisation policy with adequate CO2 pricing, the closure of many large nuclear power plants in Belgium and Germany, and an EU-wide coal power phase out by 2030-2050 and the inability of intermittent renewable energy to supply the scale and quality of energy needed for continent-scale decarbonisation, there is a strong business case to deploy small modular reactors (SMRs) in the EU by 2040, writes Kalev Kallemets, co-founder and CEO of Fermi Energia.

Kalev Kallemets

In January 2019, I decided to quit my job as Deputy Director of the Estonian Geological Survey and incorporate a great team of Estonian nuclear engineering PhDs and a former CEO of our national power utility into our new company, Fermi Energia. The reason was that, from my own PhD studies, I became deeply convinced that Europe's climate policy and decarbonisation goal would lead to very high carbon prices and loss of competitiveness of fossil fuels. We also knew that our team was capable of executing the plan. The speed of change in Europe has strongly exceeded our initial expectations as the price of carbon at EUR65 (USD75) per tonne led to loss of competitiveness of oil shale and coal power generation in 2019 and 2020.

Policy development in the European Union has also been rapid, where legally binding 2050 comprehensive decarbonisation policies now exist for all sectors. An EU-wide coal power (about 60GW capacity) phase out will take place from 2030-2050. Unfortunately, populism appears to have won out in Belgium and Germany, where closure of many large nuclear power plants is due to take place.

A major development of 2021, however, is the major impact of climate change on energy systems. It started with an abnormally cold winter in Japan and much of Asia, followed by cold fronts in Texas that led to rolling blackouts and enormous record prices. Springtime in Europe was unusually warm, where consistently high atmospheric pressure led to lower wind energy availability along with increased power demand of cooling systems. But heat waves and droughts dominated both the Americas and Asia, impacting both wind and hydro power generation.

In late summer, hurricanes Nicholas and Ida hit US Gulf coast natural gas infrastructure particularly hard. This resulted in Dutch TTF natural gas price futures of EUR100 per MWh until March 2022. In essence, 2021 has witnessed the extraordinary impact that climate change can have on renewable and fossil energy infrastructure. And, considering the message of the Intergovernmental Panel on Climate Change's Sixth Assessment Report, we are already on the pathway of beyond 1.5°C warming, the impact of which may be harsher every year, every coming decade for centuries - droughts, hotter heat waves, colder cold fronts and abnormal, more destructive hurricanes. There is no escape. We must cut burning of fossil fuels as soon as possible.

A level of comfort exists, however, in the most climate change and extreme weather resilient source of energy: nuclear energy.

Global coal phase out

This year started with a new administration in the USA, which shortly after swearing in President Biden, re-entered the Paris Agreement on climate change. New pragmatic diplomacy combined with a joint push from the G7 meetings in June are now clearly impacting the future of coal generation, which is now in terminal decline. Even China is committed to climate neutrality, and coal power generation is in significant decline due to banks and investors being unwilling to finance new mines, plants and equipment providers.

But coal still dominates power generation and the naïve hope of displacement with renewables isn't supported by evidence. The reality of the switch to gas has driven up global gas demand and has led to the energy price crisis of 2021. Power retailer bankruptcies, industrial closures and energy poverty are the new reality that the nuclear industry has long warned the European decision makers about.

This is a significant mid-term problem as the quantity of coal power generation is 8735 TWh globally. In the EU, we still burn about 250 million tonnes of coal annually for power. In comparison, China burns 400 million tonnes of coal for district heat with the national aim to switch to cleaner fuels. Thus, the demand for gas will be very, very strong for decades, creating a very supportive investment environment for nuclear energy, with power prices potentially remaining well above EUR80/MWh for the period of high gas demand. Price of power in Western Europe as of 7 October this year, prior to the closure of three German nuclear power plants, reached EUR302/MWh. Many industries are about to shut down. Political ramifications are about to unfold.

A new development in 2021 is the apparent inability of intermittent renewable energy to supply the scale and price of energy needed for continent-scale decarbonisation. Deployment of wind in the first half of 2021 in Germany was below 1GW, while its annual target is 4GW, and wind generation is down 25% due to heat waves. Transmission build-out and permitting of new wind parks is facing real local opposition in Germany, the Netherlands, Norway and many other regions. At the same time, dispatchable capacity closures in EU are only starting. Recent analysis predicts a 30GW dispatchable capacity shortfall for Germany. It seems the energy crisis in Europe is only beginning; thus, we need nuclear energy to provide credible, scalable solutions very urgently.

Canadian SMR programme is world class

It is our belief that Ontario Power Generation's grid SMR deployment programme, coupled with Canada's licensing framework, the capability of the Canadian Nuclear Safety Commission and the strength of the Canadian nuclear industry supply chain (heavy equipment, instrumentation, services, fuel) awards Canada the status of the most credible SMR deployment programme in democratic nations. There is a strong technology and know-how export potential from Canada to Europe if the right decisions are made and attention is paid to the needs and circumstances of potential export markets.

However, professional caution is warranted. Olkiluoto unit 3, Flamanville and Vogtle new build execution by owners, vendors and suppliers has been far from satisfactory, affecting the reputation of the whole industry. Unfortunately, we also see delays, budget amendments and lack of real progress towards first-of-a-kind (FOAK) deployment by some SMR developers. Only real deployment of first units - not a vast number of MoUs - is the most credible pathway to further scalable, lower-cost and lower-risk deployments, siting, real licensing, and financing.

Advanced is too advanced for Europe

At Fermi Energia, we started with great enthusiasm for molten salt and other Generation IV technologies. But, by engaging with developers, participating at conferences in the EU, discussing with academia, utilities and regulators, we must conclude that the real knowledge of non-light water reactors is low. I recall a meeting with a European nuclear utility vice president explaining molten salt reactors and then the person asking his head of technical department: "Do you know how these reactors work?" That is reality.

It seems to me that advanced nuclear, Gen IV, is somewhat over-advertised as being the fresh start the industry needs, with many customers just waiting to get their hands on it. I'm afraid there might be disappointment. If one carefully studies the challenges to the French gas reactor programme, the lifetime of advanced gas-cooled reactors and Magnox reactors compared to light water reactors (LWRs) and real performance of the Molten Salt Reactor Experiment, along with issues of industrial scale HALEU and TRISO manufacturing, one starts to doubt. I absolutely applaud the well-financed US Advanced Reactor Deployment Program to execute two most credible Gen IV reactor demonstrations within 7 years. These demonstration FOAK units will lead to credible commercially-deployable designs and units. But to believe that FOAK advanced reactor is going to be built and operated without delays and bad surprises is as optimistic as were customers of the Olkiluoto3 EPR and Vogtle AP1000s hoping for turnkey on-schedule EPC execution when signing contracts.

As a potential customer, we have taken a close look at various reactor technologies and must conclude that there are not only technical challenges, but also supply chain, human resource and - most importantly - lack of real-world regulatory capability to adequately execute safety assessments and utility risk appetite. In Europe, at least in the 2020s, it pains me to say that I do not see it. Without having all the above elements lined up, it is impossible to develop the environmental impact assessment, organisation and financing necessary for a non-LWR reactor deployment.

World needs scalable, simple, economical SMRs

Regarding the energy transition, too much talk is about hydrogen, high-temperature, desalination and other fancy applications. In the whole energy nexus, clean power demand will increase by far the fastest given the closure of coal and gas power. The moment power supply is interrupted or becomes so expensive it impoverishes companies and families, the true value of nuclear power will be understood as of overwhelming national security importance.

Last year, Foratom nuclear leaders again discussed hydrogen when a Central European leader declared that every megawatt of their nuclear capacity is so precious for grid stability, they believe it is unrealistic to commit any to "maybe profitable" hydrogen. Power is king; it is the most high-quality energy product in our world. And LWR is a time-tested, rugged piece of engineering to provide large volume power to humanity without carbon emissions.

Therefore, there is strong demand for SMRs that truly deploy existing supply chain, regulatory and utility experience, and deliver next-level safety, economics and a lower risk to project execution.

The world does not really need exotic, out-of-this-world technology for decarbonisation. It does not need "power-point-reactors", as my colleague puts it. It does not need a 'wow factor'. In reality, every corner of the world needs deployment of the most credible, wide-scale deployable and low-cost SMR possible. That is the strongest social, environmental and business case in Europe and the world this decade.

Such performance, credible scalability will unlock much sooner an ESG label and low-interest funds, than anything else nuclear industry can do.