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New!Nuclear!
Summary!
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October!17,!2014!

“New Nuclear”
Summary Points
The Case


The developing countries of the world need massive amounts of low-cost energy to build
their economies and to lift their citizens out of poverty.
Base-load power is essential to economic growth, and fossil fuel plants are the cheapest,
most accessible alternative.
Data from the US Energy Information Agency (EIA) and the International Organization
for Economic Cooperation and Development (OECD) is unambiguous; China, India, and
the developing countries of the world are telling us that they will continue to build coal
power plants to supply the lion’s share of their energy needs – they have told the world
that they will build more coal plants over the next 20 years than all other energy sources
combined (i.e. natural gas, wind, solar, geothermal, nuclear, hydroelectric, etc. – see
Appendix A).
Clean water, sanitation, and indoor air quality are public health priorities in developing
countries. China and India serve the near to mid-term public health of their citizens by
trading outdoor air pollution and CO2 emissions from burning fossil fuels in exchange
for affordable water/sewage treatment and displacement of indoor cooking fires (see
Appendix A).
Time is of the essence if we want to steer China and India from building out massive
fossil fuel economies that in all likelihood will accelerate worldwide CO2 emissions to
threatening levels – regardless of our own domestic energy choices. We need to show
them a concrete alterative within 5 to 10 years to make a difference.
Fortunately, a new generation of nuclear technology (New Nuclear) is on the drawing
boards, created by American entrepreneurs and scientists. New Nuclear is both safe and
potentially cheaper than fossil fuel-based energy – if the US government will allow the
technology to be tested and licensed in an economic manner.

Recommendations
Licensing New Nuclear technologies under current US rules will take too long and will be too
expensive (estimates between 7 to 10 years and $500M+) to permit the rapid experimentation
that drives innovation in most of the US economy. Private US investors are willing to develop
New Nuclear technologies but we need the following:

Create a “license-by-test” process modeled after the FDA and FAA systems, which
balance risk of uncertainty with benefits of timely technology deployment. These
systems employ clearly defined experimental stages of testing and expected outcomes to
deploy safe, effective and economic products in a timely manner (see Appendix B).
Create rapid development sites at select US nuclear reservations (i.e., PNNL-Washington,
INL-Idaho, ORNL-Tennessee, SRNL-South Carolina, etc.); permit the sale of electric
power from prototypes to help offset the cost.

1

October 17, 2014


Allow progressive, nuclear-powered testing at appropriate stages in the licensing process
to validate computer models and to verify performance, safety, and cost predictions.
Tailor the licensing review process and costs to credit innovate risk reduction, and to take
into account different reactor designs (e.g., smaller vs. larger power output reactors);
different physical sites (e.g., nuclear reservations vs. commercial utility sites); and special
purpose applications (e.g., nuclear waste disposal, weapons-grade materials destruction,
nuclear medicine).
Fast track nuclear exports to states with well-established nuclear capabilities and cultures,
particularly China and India, negotiating the slowdown and ultimate phasing out of fossil
fuel use in their domestic economies as well as in their ROW (Rest of World) exports.
Establish a United States Nuclear Power Agency, specifically chartered to promote
development of low-cost energy and a secure energy supply to US citizens. The agency
would address policy and business (domestic and international) aspects of nuclear energy
while coordinating with DOE as a technology provider and NRC as a regulator.

Nuclear technology is here to stay. Countries around the world will continue to develop nuclear
technologies for energy, medicine, weapons, and other uses regardless of US national will or
policy. We can lead or we can follow. If we lead, we can innovate, influence, and prosper; it
will protect everyone from the threat of global climate change, enhance our national and energy
security, and quickly add a huge “world-scale,” high-growth industry to the US economy. If we
follow…
We recommend assembling a small team with members from Congressional Staff, DOE, NRC,
the nuclear industry, private investors, and business process/new product development experts.
This team should be tasked with identifying realistic, actionable steps that can be taken now and
in the future to allow the US to regain and then to maintain its leadership position in the nuclear
industry.

2

October 17, 2014

Appendix A

The Challenges and Opportunities of
Cleantech and New Energy

Joseph B. Lassiter, III
Senator John Heinz Professor of Management Practice
In Environmental Management
&
Faculty Chair, Harvard Innovation Lab
Harvard Business School

September 2014
Copyright @ 2014 President & Fellows of Harvard College
1

A Thought Experiment:
Are Energy Efficiency & Renewables in the
US, EU and Japan Enough?

Source:(UN(WPP(2012,(EIA(
Note:(Following(Hargraves((2012)(presentaBon.(EsBmates(require(energy(use(per(capita(in(2040(to(become(approximately(50%(of(US(
levels(in(2012(i.e.(6.65(MWh(per((person(per(year(for(the(whole(world.(
2

So,What Do We Know?

It s tough to make predictions,
especially about the future.
Yogi Berra

3

EIA Projections of
Energy Generation Capacity
9,000

Electricity)Generation)(GW)

8,000
7,000
6,000

Rest0of0World

5,000

China

4,000

India

3,000

Japan

2,000

EU

1,000
0
2010

US
2015

2020

2025

2030

2035

2040

Source:(EIA(
Note:(2010(reflects(historical(data,(whereas(2015R2040(are(EIA(projecBons.(
4

EIA Projections of CO2 Emissions
50,000
45,000

CO2$Emissions$(millions$of$tons)

40,000
35,000
30,000

Rest,of,World

25,000

China

20,000

India

15,000

Japan

10,000

EU

5,000
0
2010

US
2015

2020

2025

2030

2035

2040

Source:(EIA(
Note:(2010(reflects(historical(data,(whereas(2015R2040(are(EIA(projecBons.(
5

Alternatives, Economics & the Choices of
Nations
1400
2010

500

2040

400
300
200
100

Generation/capacity/(GW)

Generation0capacity0(GW)

600

2010

1200

2040

1000
800
600
400
200

0

0

United States

China

Generation/capacity/(GW)

300.0
2010

250.0

2040

200.0
150.0
100.0
50.0
0.0

EU

Source:(EIA(
Note:(2010(reflects(historical(
data,(whereas(2015R2040(are(EIA(
projecBons.(
6

China Leads and India Follows in
Reducing Poverty & Increasing Disparity

7

Premature Deaths, Air Pollution
& the Choices of Nations

Source:(Jeffries,(hVp://www.businessinsider.com/jefferiesRchinasRepicRpolluBonRisRsavingRlivesR2013R1(
Note:(Uses(WHO(Public(Health(StaBsBcs(
8

EIA Projections
Alternatives, Economics &
the Choices of Nations
1400

2010

200.0

2040

150.0
100.0
50.0
0.0

Generation/capacity/(GW)

Generation.capacity.(GW)

250.0

2010

1200

2040

1000
800
600
400
200

0

India

China

Source:(EIA(
Note:(2010(reflects(historical(data,(whereas(2015R2040(are(EIA(projecBons.(
9

Probabilistic Temperature Estimates for Magnitude and Timing of AR5 IPCC scenarios

Biological & economic models are
likely to be invalid at these levels!

10

So, What Do We Do Now?

When you come to a fork in the road, take it.
Yogi Berra

11

To Materially Change The World’s Climate Future,
Cleantech & “New” Energy Alternatives
Must Be Cheaper Than Coal In China and In India
• 

The Chinese and India governments are committed to raising the standard of living in their countries to “Western per
capita economic and public health standards ”…

• 

The Chinese and Indian government actions say that the certain short-run benefits of low-cost coal energy are likely
to offset the uncertain long-run costs of coal’s climate change impacts to their citizens.

• 

The Chinese and perhaps Indian government actions say that they will build green supply chains if needed for
export sales to Europe and North America while serving themselves and their ROW exports with brown supply
chains. The Chinese and perhaps the Indian governments will clear up local pollution that impacts their own citizens
directly even if that energy required for that clean-up increases their net CO2 emissions.

• 

The world will need to adapt to their choice….In my opinion, there is a material likelihood that our world is very
already changed “forever” ..

• 

In my opinion, most of the “rich” will not materially feel these changes…But, many of the “poor” will materially
suffer from these changes

• 

In my opinion, we need to use “markets” to drive efficient, effective change by “fully-pricing” each unique
source of energy to consumers, utilizing tax-revenue neutral escalating carbon taxes, catastrophe/
remediation taxes and security-of-supply taxes, enforced with international border tariffs

• 

In my opinion, all nations should encourage the hunt for an “energy miracle” that can significantly impact
Indian and Chinese energy choices and CO2 emissions as well as their own within 5-10 years ..No nation is in
the lead.. It is an open game for the bold…. That “energy miracle” is probably *new* nuclear

• 

In the end, in my opinion, we will all need to move to zero net carbon emissions as well as quite possibly supporting
a geo-scale carbon dioxide capture and storage “miracle” in the next 10-20 years. And, we all need to prepare for
adaptation to what quite possibly is an already very changed and rapidly changing world.
12

Appendix B

The Challenges and Opportunities
Financing “New” Nuclear
Joseph B. Lassiter, III
Senator John Heinz Professor of Management Practice
In Environmental Management
&
Faculty Chair, Harvard Innovation Lab
Harvard Business School

October 2014
Copyright @ 2014 President & Fellows of Harvard College
1

Staged Investment: Cash Flows , Information and Value
Value, Money
&
Value
Progression

Information
Produced
Time
Purchased
In Round

Cumulative
Cash Flow

Time
1st
Round

3rd
Round
2nd
Round

Seed
Stage
2

Staging & Experiments
• Staging is the central entrepreneurial method of financing
that is distinct from the traditional capital budgeting method
• Allows for
– A series of experiments
– Information-gathering
UNCERTAINTY- REDUCTION
– Option to abandon
and PAY-OFF DEFINITION
– Option to re-negotiate
– Option to pursue
» You raise money to buy time for experiments, you buy
experiments to produce information, you produce
information to make decisions, you make decisions to open or
close options….You raise enough cash at each stage to get
you to that decision point and to deal with its consequences

3

Venture Capital Return Profile 1995 - 2009
636 Investments
$1,200 MM Cost / $3,000 MM Value - 2.5X

0.7
62.4%
0.6

52.8%

% of Total Cost or Terminal Value

0.5

0.4

0.3
20.1%

0.2

15.7%

15.3%
12.6%
9.1%

0.1

5.3%

3.5%

3.1%

0
<1X

1X to 3X

3X to 6X
Multiple on Invested Capital
% of Cost

>10X
6X to 10X

% of Value

Does the Fund get into the “Big” Deals?
4

The Number of Internet Ventures Has Exploded
As the Cost of Experimentation Has Fallen…
$5m

Open Source +
Horizontal Scaling

Cloud +
Amazon Web
Services

Developers Start
Companies

$500k

2000

2005

$50k

$5k

2009

2011

Source: http://www.pehub.com/152118/morning in vc/
5

Private Investors Runs Multi-Billion Dollar Experiment
When the Payoff Is Promising and the Rules Are “Fair”
Research Spending Per New Drug

Number of drugs
approved

R&D Spending Per
Drug ($Mil)

Total R&D Spending
1997-2011 ($Mil)

AZN

5

11,790.93

58,955

GlaxoSmithKline

GSK

10

8,170.81

81,708

Sanofi

SNY

8

7,909.26

63,274

Roche Holding AG

RHHBY

11

7,803.77

85,841

Pfizer Inc.

PFE

14

7,727.03

108,178

Johnson & Johnson

JNJ

15

5,885.65

88,285

Eli Lilly & Co.

LLY

11

4,577.04

50,347

Abbott Laboratories

ABT

8

4,496.21

35,970

Merck & Co Inc

MRK

16

4,209.99

67,360

Bristol-Myers Squibb
Co.

BMY

11

4,152.26

45,675

Novartis AG

NVS

21

3,983.13

83,646

Amgen Inc.

AMGN

9

3,692.14

33,229

Company

Ticker

AstraZeneca

Sources: InnoThink Center For Research In Biomedical Innovation; Thomson Reuters Fundamentals via FactSet Research Systems

6

The Investor’s Context….
Staged Capital Supply Chain… Probably “Variants” of
Biotech for “New Nuclear”
Money-Time-Information-Value

7

FDA Approval Process
Elapsed
Time
(years)

Stage

Capital Required
($ million USD)

Purpose and
Objective

Market Value
($million USD)

Historical
Success
(probability)

Pre-clinical

1–5

10 – 50

Pre-human
validation

10 – 20

10%

Phase I

1–2

5 – 20

Safety

10 – 50

65%

Phase II

2–3

20 – 50

Efficacy and dose 50 – 100

50%

Phase III

3

40 – 100

Registration Trial 200 – 400

65%

20 – 50

Manufacturing
and FDA
Approval

New Drug 1
Application

500 – 1000

90%

Ray Rothrock, Blue Ribbon Panel Testimony, August 2010

8

A “New Nuclear” Approval Process
Discussion with Ray Rothrock

Elapsed
Time
(years)

Capital Required
($ USD)

Purpose and
Objective

1–3

$5-10M

Economic and technical
concept, computer simulation,
critical materials or neutronics
assessments

Phase I
Viability

2–3

$10 – 150M

Sub-critical pile to test
neutronics. thermal hydraulics
test Update economics. NRC
prelim review.

Phase II
Scalability

2–5

$200 – 500M

Stage
Science &
Economics

Phase III
2
Full Power

Approved
NPP IPP

Total 5-7
yes

$500M

$1B Including
Licensing

Market
Value
($million
USD)

Historical
Success
(probability)
1st Option to
Abandon

Build, characterize and test
critical pile. NRC review.

Small scale reactor for
power. Produce steam only (at
DOE facility), but full run and
final modelling, economics,
control, and training process.
Full NRC approval

1st Utility
Evaluation

1st Option
for Financial
Exit

Site-Specific Licensing,
Training & Supply-Chain
Audit
9

“New Nuclear” Approval Process
Discussion with Jack Devanney 24 November 2014
Martingale’s ThorCon Reactor 2x250 MWe MSR Converter
“No New Technology” & “Physical Testing-Based-Development &Licensing”
Stage
Seed

Elapsed Time
(years)

Capital Required
($ USD)

1

$10M

Prepare Specs for Yard /
Vendors , Get Quotes &
Execute Selected
Experiments. Raise
Phase I Round

1 - Build
1- NonNuclear Test

$50M

Build, commission, then
full scale pre-nuclear
tests, Confirm thermohydraulics, stresses at
operating temperature,
exercise instrumentation,
safety, replacement
systems.
Approval of zero power
tests. Raise Phase II a
&b Round

Full-Scale
Prototype Bidding
& Vendor Selection
Phase I
Non-Nuclear
Full-Scale
Demo

Phase IIa

1

$130M

Ramp-Up by “Must
Pass” Test Stages to
Full Power then
Characterization
Approval of Design Basis
Casualty Tests.

1

$225M

Staged Physical Testing
of Design Basis
Casualties , Training &
Supply Chain Audit

Nuclear
Full-Scale
Prototype

Phase IIb
FOAK Nuclear
Power Plant
Approved
NPP IPP

Purpose and Objective

Total 4-5 yrs

$415M
Supporting Licensing

Site-specific Licensing
50GWe/yr Reactor Yard

Market Value
($million USD)

Historical Success
(probability)

Test-While -Licensing
- Build at Korean Yard
- Move to Nuclear Prototype Park

License-by-Testing
- Sell Power to Grid
- Operator Training