The energy revolution that transformed the United States into the top oil producer and a leading natural gas producer may have also provided an easy solution to nuclear waste disposal.
It may sound a bit crazy at first, but the U.S. Department of Energy is set to experiment with a technique to dispose of nuclear wastes by drilling 3-mile boreholes into the Earth's crust and then, well, dropping radioactive materials into their geological tombs. For good.
The technique, pioneered by researchers at the University of Sheffield in the United Kingdom, could represent an amazingly simple and low-cost solution to nuclear waste disposal. That could be (really) great news for atomic energy leaders such as Exelon Corporation (NASDAQ:EXC). It could also swipe away a key opportunity for next-generation nuclear waste use, such as the cutting edge technology currently being pioneered by General Electric Company (NYSE:GE) which is designed to consume spent nuclear fuel all while actually generating electricity.
This is still just an emerging possibility, but it's one that could radically alter the nuclear landscape. Which of course begs the question, what should investors make of the recent developments?
Deep-hole nuclear disposal
If drilling a deep hole and tossing stuff into it to be forgotten sounds incredibly simple (minus a few clutch details), and the benefits seem blatantly obvious, then you might just be onto something. Fergus Gibb, the technique's pioneer, told The Engineer that each bore hole, measuring roughly 3 miles deep and 2 feet wide, would cost just a few tens of millions of dollars to drill. That compares favorably to long-term geological repositories such as Yucca Mountain, which would require billions of dollars to study, mine, and build. (For perspective: Yucca Mountain cost over $12 billion -- and it wasn't even completed!)
Better yet, Gibb said about six boreholes would be sufficient to store all of the United Kingdom's existing high-level wastes and would take just five years to drill, fill, and seal. That last part is a bit trickier, although the processes have been studied, and solutions have been developed or are in the works. You can read the details on your own, although it's important to note that after sealing the boreholes with melted granite that fuses with surrounding rock formations, you'll never be able to tell a hole was drilled at all.
That's enough to intrigue the DOE, which is conducting a trial with Sandia National Laboratory to take place in late 2016. If successful, the DOE will move forward to dispose of "small capsules of highly radioactive cesium and strontium being held at the Hanford nuclear facility in Washington State," which contributed to weapons research during the Manhattan Project. Nearly 40% of the facility's waste could fit in one 3-mile-deep borehole.
A successful outcome would be great news in terms of safely storing nuclear wastes, but it's a bit of a mixed bag for investors.
First, the good news. Although there is no long-term plan for disposing of nuclear waste, the Nuclear Regulatory Commission has always been preparing for the inevitable decommissioning of nuclear power plants. Thus, every nuclear power plant in the United States has been required to pay into the Nuclear Decommissioning Trust, or NDT, at a rate of $0.001 per kilowatt hour of electricity to fund future closure and waste disposal expenses.
At the end of 2013, the Trust had a balance of $58 billion. It's no Apple war chest, but it's impressive nonetheless.
Of course, when regulators set the massive balance requirement decades ago, it wasn't based on any expected expense, just with the expectation that decommissioning would be expensive. If something as simple and low-cost as deep-hole disposal becomes a suitable option, the NDT will have more than enough funds to cover it -- and the excess will be redistributed to companies that have been paying their fair share over the decades.
That could result in an enormous payday for Exelon, which has paid the largest sum into the NDT -- nearly twice as much as its closest peer. At the end of 2014, the company reported over $7.5 billion of investments into the NDT in its cash flow statement. While some of that will be needed to restore the physical sites hosting nuclear power plants today, billions of dollars could be returned if deep-hole disposal works as planned and is utilized by the company.
...and jeers (General Electric)
It's not all good news. General Electric has been hard at work resurrecting designs for a Generation IV small modular reactor, or SMR, called PRISM. Engineering and design work is still being completed, but the sodium-cooled reactor will be capable of consuming traditional nuclear fuels, plutonium fuels, and used nuclear wastes -- the same materials the DOE wants to bury deep underground.
One of the major value propositions for PRISM, aside from its low-cost footprint and supercharged power capacity, was its ability to consume spent nuclear wastes. General Electric has been pursuing the United Kingdom's plutonium stockpile for the flagship deployment of the technology, but the opportunity to build SMRs at existing or decommissioned nuclear power plants was tremendous. If deep-hole disposal proves successful and emerges as the method of choice, General Electric could miss out a critical market for its latest atomic thrust.
What does it mean for investors?
From a completely neutral standpoint, successfully developing deep-hole disposal techniques would be a great development for society. We've invested hundreds of billions of dollars in nuclear energy technologies -- a monumental achievement in itself -- without developing adequate solutions to store the unfortunate byproducts.
The technique proposed above would bail out humanity and could result in a massive payday for major nuclear power plant operators such as Exelon, but it could be devastating for next-generation nuclear developers attempting to utilize existing used nuclear fuel stockpiles. The silver lining is that General Electric will be successful with or without PRISM, given its diversification, although PRISM does have the potential to emerge as a leading revenue source for the company and investors should its use become heavily adopted. That being said, in the long run investors in GE may have to take one for the team. All 7 billion of us.