Back in the race

2012-03-18T06:15:00Z Back in the raceBy Bennett Hall, Corvallis Gazette-Times Corvallis Gazette Times

Paul Lorenzini is a man in a hurry.

The CEO of NuScale Power spent most of 2011 fighting to keep his company afloat after its chief investor was charged with securities fraud and prosecuted in federal court.

While the Corvallis venture was never implicated in any wrongdoing, the legal proceedings severed NuScale’s

financial lifeline, sending it scrambling for alternative funding sources and forcing it to furlough employees and cut contract workers adrift.

Even after a dramatic $30 million bailout last fall, it took months to rebuild the capacity lost during a dangerously turbulent period in the young company’s history.

“That’s basically taken a year out of our schedule,” Lorenzini acknowledged. “That’s set us back.”

It was a delay the company could ill afford.

Before last year’s troubles, NuScale was the clear leader in the high-stakes race to develop a new breed of smaller, safer, cheaper nuclear reactors. Now some of its competitors are closing the distance.

And Lorenzini is trying to make up for lost time.

Weathering the storm

NuScale Power was formed in 2007 to commercialize a small modular reactor design based on technology developed at Oregon State University.

Much smaller and simpler than a conventional nuclear reactor, NuScale’s SMR is designed to be built in a factory and shipped fully assembled to its destination.

Each self-contained reactor unit would generate 45 megawatts of electricity, enough to supply 45,000 homes.

A single reactor could power a small city, but the modular units can also be linked in arrays of up to 12 to create a 540 MW plant, about half the size of most conventional nukes.

NuScale’s SMR design also incorporates passive safety features, relying on convection currents to circulate cooling water around the core rather than complicated pump systems that can fail in a power outage. In last year’s disaster at Fukushima, Japan, there were several explosions at overheated reactors after a tsunami knocked out electricity and backup generators went down.

With its innovative design features, NuScale was on track to become the first company to submit an SMR application to the Nuclear Regulatory Commission for approval, a crucial milestone on the road to profitability.

But the company’s bright future was plunged into doubt on Jan. 14, 2011, when Francisco “Pancho” Illarramendi was hauled into federal court by the Securities and Exchange Commission. The Venezuelan-American hedge fund manager was charged with misappropriating hundreds of millions of dollars entrusted to his care and investing it on his own behalf in a number of business ventures, including more than $23 million in NuScale.

Illarramendi pleaded guilty more than a year ago, but NuScale’s affairs remained hopelessly encumbered by ongoing legal proceedings until Fluor Corp. swooped in with a $30 million rescue package in October. The investment by the Texas-based engineering and construction heavyweight freed Illarramendi’s majority stake in NuScale from receivership and provided a badly needed jolt of fresh operating capital.

“That was the amount of money required to right the ship,” Lorenzini said.

Back up to speed

It was also the beginning of a remarkable turnaround.

The Illarramendi debacle dealt a terrible blow to NuScale, and the company had to take drastic measures to keep from foundering.

First it severed ties to contract workers. Then it furloughed 30 of its own 103 employees, cutting the rest back to minimum wage while the company’s top executives worked for free. A series of bridge loans kept just enough cash flowing in to keep the lights on.

Remarkably, however, the company managed to hang on to two-thirds of its original work force, including highly skilled nuclear engineers and other key specialists.

Now, thanks to millions in additional investment from Fluor (Lorenzini won’t say how much), NuScale’s staff is back at full strength and full pay. The company has resumed its relationships with major contractors, expanded its management team and formed a technical advisory board of outside experts.

And NuScale will continue to staff up as momentum builds toward completion of its Nuclear Regulatory Commission application, an exhaustively detailed technical document expected to amount to 15,000 pages.

“We’re over 100 people now and hope to get to 200 by the end of the year,” Lorenzini said. And with Fluor’s backing, he added, “we are not constrained financially in moving the company forward.”

Reasons for optimism

There’s still a long way to go.

Lorenzini estimates his company is still two years away from being able to file its application with the NRC. The federal agency will likely take three or four years to review the documents before rendering a final decision, and it could be several more years before the first power plant using the new technology opens.

In other words, it will probably be a decade or so before NuScale’s first commercial small modular reactor is up and running.

And getting there will not be cheap.

The NRC application fees alone will run about $40 million to $50 million, Lorenzini said. But that’s just a fraction of the total costs involved.

There are hundreds of people employed in doing the design drawings, engineering studies and safety simulations. An electrically powered scale model of a NuScale reactor is already operating on the OSU campus, and a fully functional mockup of a reactor array control room is under construction.

Altogether, Lorenzini estimates, the cost to get a novel reactor design through the NRC certification process is well over half a billion dollars.

Acknowledging the financial barriers to developing the next generation of nuclear energy technology, the Obama administration has stepped in with some incentives.

In January, the Department of Energy announced plans to invest $452 million toward the development and licensing of small modular reactors. The money would be doled out over five years to one or two qualifying companies, with the recipients expected to match the federal contribution at least one to one.

NuScale quickly announced plans to compete for the federal award. And just this month, the company was one of three firms that signed preliminary agreements with the Savannah River Site, a federal nuclear reservation in South Carolina, to work toward establishing locations to build SMR plants in the future.

John E. Kelly, the DOE’s deputy assistant secretary for nuclear reactor technologies, said SMRs could be used to replace America’s aging coal-fired power plants, providing flexible generating capacity without the greenhouse gas emissions. In addition, having a fleet of approved modular reactor designs could give the U.S. manufacturing base a much-needed boost.

“We recognize the importance of clean energy-producing technology, and nuclear is a component of that,” Kelly said.

“It also has the potential of opening up a whole new industry, both domestically and for export, and that could create a lot of jobs.”

Rough waters ahead

Not everyone sees it that way, of course. Grassroots opposition to nuclear power runs deep in this country, especially since the partial meltdown at Three Mile Island in 1979. And last year’s disaster at Fukushima rekindled old fears.

The Alliance for Nuclear Accountability is already raising questions about the possible siting of SMR demonstration plants at the Savannah River Site.

Tom Clements, the organization’s nonproliferation director, said DOE should not be pouring millions of dollars into an unproven technology in the first place and that taxpayers would continue footing the bill for any SMRs at Savannah River even after they’re built.

“What they’re hoping to do is have a captive client to sell electricity to,” Clements said. “What they’re really looking for is a backdoor subsidy.”

Nor is he convinced that SMRs will live up to the safety claims made by NuScale and other designers.

“Most of these small modular reactors are really not that small and would still be subject to some of the problems of the big reactors,” Clements argued. “They will still create high-level nuclear waste and could still be subject to reactor meltdown.”

Lorenzini counters that NuScale’s design represents a “quantum improvement” in safety, a claim he hopes to have validated by the Nuclear Regulatory Commission.

Still, he knows any new nuclear plant will face political opposition.

“It will be an obstacle,” he admitted. “It won’t be as big an obstacle as it would have been in the ’70s, but Fukushima has made it a bigger obstacle than it would have been otherwise.”

Eyes on the prize

In some ways, though, the accident at the Daiichi plant in Japan may have made SMRs more attractive by highlighting the shortcomings of old-style reactor designs.

And the potential rewards for companies that can bring baby nukes to market are immense. More than 2 billion people in the developing world are without electricity, Lorenzini notes, and a recent World Energy Outlook report predicted global demand for 1,200 gigawatts of new generating capacity between 2020 and 2030.

“That’s 1,200 Trojan-size plants,” Lorenzini said. “That’s huge. So we don’t have to capture much of that market to have a huge, huge business opportunity.”

A big share of that opportunity awaits the first company to gain approval for a small modular reactor design from the U.S. Nuclear Regulatory Commission. Around the world, NRC licensing is seen as the gold standard of nuclear safety certification, and whoever gets it first will have a major competitive edge.

“Right now, if we had an operating plant with an NRC license, we’d have all kinds of orders,” Lorenzini said. “We want to be the company that’s out ahead of the pack.”

But while NuScale was struggling to free itself from legal entanglements, the pack was catching up. Two large companies in particular, Westinghouse and Babcock & Wilcox, made significant strides toward submitting their own SMR applications over the past year.

But NuScale’s partnership with Fluor Corp. helps level the playing field for the small Corvallis company. With annual revenues of $23 billion and a track record of heavy construction projects around the globe, Fluor has no trouble going head to head with the big boys.

That, says Lorenzini, has given NuScale a major jolt of credibility with potential customers.

“We’re backed by a blue-chip company that has nuclear experience,” he said. “Everybody knows with them behind us we have the ability to deliver our product.”

And for its part, Fluor believes it’s backing a winner. If NuScale’s technology wins NRC approval, it will mean a big payday for both firms.

“Both Fluor and NuScale have potential clients interested in SMR technology and its advantages for providing base-load power generation,” Fluor spokesman Brian Mershon said.

“We believe that NuScale’s technology is best of class, and we hope to provide full engineering, procurement and construction services for clients’ nuclear power generation needs in the future.”

Contact Bennett Hall at 541-758-9529 or bennett.hall@gazettetimes.com.

Copyright 2015 Corvallis Gazette Times. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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