There's lots of talk about how shale oil and gas are the answer to all of America's energy problems. One fuel source people are discounting is nuclear. Last month the Department of Energy, or DOE, announced a $450 million grant to Babcock and Wilcox (NYSE:BWXT) to develop small modular nuclear reactors. Read on to find out why this is important and how small modular reactors will benefit the U.S.
Small modular nuclear reactors
Small Modular Reactors, or SMRs, have all the qualities you might expect from the name. They are meant to be small enough to be transported by train and generally have a capacity of under 300 MWe. They are meant to be modular, in that it's composed of just one design, so each new build isn't a custom project. Finally, they are meant to be nuclear reactors in that, well, they make electricity through harnessing a nuclear reaction.
The advantages of SMRs include lower construction time, risk, and cost, enhanced flexibility, ease of adding additional capacity, and lower financing requirements. While some economies of scale will be lost from their smaller size, the ease of adding capacity at relatively low cost will make up for them.
Department of Energy program
The DOE announced the SMR design program in January 2012 in an effort to spur development of the reactors in the U.S. The program provides for two 50/50 cost-sharing grants of up to $450 million each over five years for the development and deployment of SMRs. That means a company could spend $900 million developing SMRs and the government would split the cost with them.
Four developers submitted applications for consideration:
- Babcock & Wilcox, with partner Bechtel Power, submitted an application for B&W's mPower reactor, a 180-MW light water reactor. The partners have a signed an agreement with the Tennessee Valley Authority to build a reactor by 2020.
- Toshiba's Westinghouse, with Burns & McDonnell and Ameren Missouri, submitted an application for a 225-MW integral pressurized water reactor.
- Holtec International, with support from the Shaw Group and AREVA, submitted an application for a 160-MW passively safe plant.
- NuScale, majority owned by Fluor, submitted an application for a 45-MW reactor.
Conspicuously absent was General Electric (NYSE:GE). It is developing its own technology with Hitachi for a liquid sodium cooled reactor called the Power Reactor Small Innovative Module (PRISM), however it is not far enough along in the design process to be submitted.
Last month the DOE announced the first winner was Babcock & Wilcox and its mPower Reactor. Analysts speculated that a key factor was having a customer already lined up and that the reactor only needed refueling once every three to four years, compared to every year or two for the competitions'.
A second winner has yet to be announced. While SMRs won't be ready until at least 2020, they are worth keeping in the back of your mind. Longer term, the development of SMRs would be a big boost for uranium suppliers Uranium Energy (NYSEMKT:UEC), Cameco (NYSE:CCJ), and USEC (NYSEMKT:LEU) if it is still around.
Foolish bottom line
With a head start on the competition Babcock & Wilcox could be an acquisition candidate for General Electric or another major industrial conglomerate.
Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page: DanDzombak. He has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.