In today’s issue:
- Sparks fly between SMRs and AI
- SMRs aren’t better than large-scale nuclear, but…
- Better than Nvidia?
No doubt you’ve noticed the flurry of nuclear power news over the past two weeks. Especially when it comes to small modular reactors (SMRs).
It’s something we predicted at The Fleet Street Letter, as you’ll discover below.
Today, it’s time to release the second half of that report on how to potentially profit from AI.
If you haven’t already, be sure to check out part 1 here. It outlined just how big the energy challenge AI has created really is.
Now, for the solution…
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It is painfully obvious that nuclear power is the solution to our energy crisis. It is the only form of energy that deals with the two crucial energy constraints we’ve set ourselves: zero carbon emissions and reliably meeting electricity demand in a cost-effective way at scale in a way we can control the output of.
Nuclear is not exactly a new technology. Nuclear power is 75 years old this month, with the reactor Clementine launching in March 1949. Small modular reactors (SMRs) have existed in nuclear submarines for almost as long too.
So the real question is what the nuclear renaissance will look like, when it begins in earnest. And how long it takes.
Recently, SMRs have received a lot of renewed attention. These smaller nuclear power stations could be produced in a more modular fashion, and installed with far less of a footprint than large-scale nuclear power. Their rollout could be much faster too.
The idea of SMRs is to cut costs by economies of scale. Instead of building a vast unique large nuclear power station each time, with all the costs and overruns this entails, SMRs are about mass producing smaller independent nuclear power plants that are assembled and slot into place.
Their size varies widely, but two football pitches is a good rule of thumb. This is smaller than a large-scale nuclear power plant by orders of magnitude.
It’s crucial to notice that SMRs also dramatically lower the upfront cost of getting access to nuclear power. Instead of a truly vast project that can only get off the ground with the support of a long list of partners, including politicians, SMRs are priced for much smaller customers’ wallets.
So SMRs have many obvious advantages. But many nuclear power advocates have come out against SMRs.
If we’re going to go nuclear, why do it on a miniature scale?
There is a long list of entirely valid criticisms of SMR nuclear power. Especially relative to larger scale nuclear power. Well, we don’t know how valid some of them are because SMRs are yet unproven. But let’s presume they are all valid for the sake of argument.
SMRs are more expensive, unproven, less efficient, higher maintenance, higher cost to run and countless other shortcomings. And let’s ignore that the majority of large-scale nuclear’s cost comes from having to pay interest on debt financing – something that SMRs could dramatically reduce by cutting the time they take to get operational and begin earning revenue.
But the question is not whether SMRs are bad. The question is whether SMRs are better than the alternatives once you factor in all the variables to the equation. And I believe they will outcompete large-scale nuclear for a very simple reason that nobody in energy markets is focusing on: size.
Bitesize energy for mid-size users
With national governments busy ruining the electricity system with net zero policies, power users are being forced to look for solutions. Solutions that actually provide power, not just political problems or subsidies.
But the likes of Google, Amazon and Grimsby Town Council are unlikely to try and build a full-scale nuclear power plant. And I’m not sure they’d succeed if they did.
But they could buy SMRs…
SMRs match the amount of energy produced to the demand of large-scale energy users. And they match the upfront cost of nuclear power to the wallet of large-scale energy users.
This means SMRs provide bite-size energy on a bite-size budget.
It’s this combination that could make SMRs the “killer app” of today. For the first time, energy users will be able to produce their own cheap and reliable power in a zero-carbon way, just as they provide their own buildings, staff and machinery.
SMRs represent the opportunity to evade the government’s involvement in the energy system, remove the middlemen of the energy grid and avoid all the net zero energy transition’s shortcomings.
We are talking about power for the people which is produced by the very same people. You might even say the masses will seize power for themselves from the government…
Just as green-dream believers fail to consider a long list of ancillary costs and risks associated with a transition to renewable energy, large-scale nuclear advocates fail to include the costs and risks associated with large-scale nuclear projects. Costs and risks that SMRs can evade.
Just as the cost of renewables is vastly higher than estimated once you include energy storage, grid upgrades and land used, large-scale nuclear looks a lot less viable once you factor in the cost of legal challenges, cost overruns, design amendments, planning delays and government incompetence. That is why large-scale nuclear projects have a habit of being rather dramatically over budget and behind schedule.
Perhaps more importantly, large-scale nuclear would be part of the same disastrous grid that is being undermined by the various problems of the net zero energy transition. Unless you are going to tell me that the UK will build enough large-scale nuclear power stations to stabilise its entire electricity grid, doing away with renewables, any issues with the wider grid will continue to apply to large-scale nuclear power. It won’t solve the underlying problem: government incompetence.
But independent grids using privately owned and operated SMRs will be immune from such shenanigans. And that’s why people will buy them: to escape the government’s energy grid.
Why SMRs will win the nuclear war
Imagine, for one terrifying moment, nuclear power advocates get their way. The UK government announces its detailed plan to build a grid running almost exclusively on nuclear energy. What would happen over the subsequent 30 years?
I suspect it would result in such a debacle that nuclear power would be discredited forever. But I am far more sceptical of government initiatives than the average Briton. Still, you get my point. The government would likely make a mess of rolling out large-scale nuclear, if only to the extent that it already has with existing nuclear projects.
But what if the government only needs to get out of the way instead?
SMRs are to the electricity industry what Airbnb was to the hotel industry. And what Uber was to the taxi industry. It’s all about who can become a hotel, offer a lift, and produce energy by avoiding disastrous government interference.
Airbnb and Uber, when they were first launched, didn’t just lower the barriers of entry to these politicised and government-controlled industries. They just evaded them by allowing home and car owners to transform themselves into operating businesses without having to go through expensive licensing requirements. The scale at which hotel and taxi businesses needed to operate in order to become viable was crushed right down to the individual’s level.
SMRs will do the same for electricity. To a lesser extent, of course. Nobody is suggesting you put an SMR in the attic. Please don’t.
Still, the capacity to become a power producer will suddenly be put in the hands of large-scale power consumers. Companies, towns and industrial sites will be able to match their energy demand with their own electricity supply. They will be in control of their own destiny when it comes to power. They will be independent from the madness in Westminster.
***
I was wrong about that last bit. Westminster has been sitting on its hands. The Czechs, Poles, Swedes and Dutch have jumped the queue to secure Rolls-Royce’s SMR reactors. The SMR boom has begun without us.
Unless you invested in the likes of Rolls-Royce, NuScale and others.
But you haven’t missed the boat. There are other, perhaps even better, ways of positioning yourself for the AI boom.
Eleven years ago, my friend Sam Volkering alerted his readers to Nvidia. Now, he’s identified an opportunity that he hopes to turn into even larger gains from a very similar idea. And it’s shockingly close to home.
Until next time,
Nick Hubble
Editor, Fortune & Freedom
