Getting From Viable Technology to Commercial Success: What Suppliers and Owners Should Consider When Developing or Selecting New SMR and AR Technologies
Category: Thought Leadership
With any innovation, winners and losers will emerge as the market works itself out. For a clear example, you only need to look as far as the crowded field of here-today-gone-tomorrow streaming services.
This dynamic is no less true when it comes to the emerging market for small modular reactors (SMRs) and advanced reactors (ARs). However, streaming networks are simply competing for their slice of the consumer attention pie. The stakes for the first SMR / AR developments, in contrast, are high.
These nuclear technologies are justifiably gaining momentum in the global nuclear energy marketplace. They are poised to help solve world electrification, climate challenges, water desalination, waste management, land use, and other systemic problems. But the nuclear power business carries a very high price for entry, and the first SMR / AR developments must exceed public expectations if the technologies are to live up to their potential.
The good news is that a number of these technologies appear to be technically viable. But that alone is not enough.
Achieving commercial success will require a new perspective and varied skillsets for SMR / AR suppliers and prospective owners. Below, I outline what both groups should consider when developing or selecting new nuclear power technology.
This post addresses the “what.” I addressed much of the “how” in a paper presented at a 2019 industry conference. @Eric Gould and I also covered it in the paper we wrote for the Nuclear Energy Institute (NEI) about establishing a gate process for new nuclear projects.
SMR and AR suppliers
SMR and AR suppliers must have the end in mind before they even build their first demonstration reactor. Licensing the design is the first important step, but suppliers need to have the means to endure that lengthy process while building a viable business capable of meeting its long-term commitments.
Suppliers must address how they will deliver their first-of-a-kind (FOAK) unit and develop a backlog of orders. And they must also have the foresight to anticipate scaling up for nth-of-a-kind (NOAK) mass production.
To move their reactors from viable technology to commercial success, suppliers must be prepared to both deploy and service the new reactors. They must be able to focus proportionately on initial deployment while giving owners confidence that they will be able to support the plant throughout its lifecycle.
Doing all of these things at once will require suppliers to develop and execute a comprehensive business model that addresses their business sustainability.
Owners / customers
For their part, the first owners / customers need to be prepared for the inevitable ups and downs of embracing a new technology, especially in a highly regulated industry. They should be mindful that not every supplier will cross the finish line. Some will succeed, but some will certainly fail along the way. So owners will need processes to help them determine the best and most prudent path forward, accounting for the uncertainties in this new market.
The first owners must be prepared to size up the new SMR / AR technologies and select from among them. They should conduct rigorous and prudent due diligence to assess the technical alternatives to and the risks associated with the SMR / AR offerings they are considering.
To gauge whether a technology will be commercially viable in the long term, owners should evaluate that supplier’s plans to address the commercial issues and challenges. They need a process to guide them in evaluating the business cases; the technology and any alternatives; and the environmental, social and governance benefits.
Owners also need a process to prepare their company to execute a FOAK project. This process must carefully consider the cost, schedule and risks associated with the venture. It should enable decisionmakers to communicate their expectations about the company’s return on its investment to stakeholders.
Owners and suppliers together
Early owners and developers can benefit from taking a collaborative approach to successful development by working together and sharing ideas, risk and resources. For at least the initial SMR / AR deployments, owners and suppliers will be knitted together to meet a number of significant commercial needs in addition to the technology development. These include:
- Access to funding to meet short- and long-term commitments. Obtaining license approval will require substantial investment in proof of concept and prototype testing.
- Standardization of the plant design once it is licensed. This includes developing the module assembly process and the deployment process, which will cover logistics and EPC agreements.
- Robust execution planning and governance. Suppliers and owners will need to be sure they have continuous improvement processes and mechanisms to identify and implement lessons learned in place.
- Superior human resources, technical and business leadership teams, and relevant strategic partnerships.
- Establishment of an order backlog. Suppliers will need this backlog to support a reliable and sustainable supply chain, as well as their ability to construct module assembly facilities and optimize production.
- Protection of intellectual property. Suppliers may be reluctant to disclose proprietary aspects of their business plans. But there are legitimate and ethical ways to engage suppliers to get a sense for their business acumen and how they will treat anticipated challenges.
- Assurance that the plant will achieve the expected benefits of reduced operational cost and ease of maintenance over its lifecycle. This will require expert technical support from suppliers and a sustainable and reliable spare and replacement parts supply chain. In this regard, owners’ groups and industry support organizations have great value that cannot be overlooked. Members can share best practices and lessons learned, and they can also help address problems that may arise along the way.
Owners and suppliers must invest the time to make sure they understand and confront these needs in their commercial agreements and project planning. This will help the parties establish – and achieve – the appropriate commitments.
Both owners and suppliers must be especially mindful of these considerations to help devise the most appropriate commercial agreements for FOAK and NOAK SMR and AR developments.
Owners and suppliers alike should expect FOAK projects to be more costly and take longer to develop and build than the NOAK projects to follow. Their commercial agreements should reflect this fact. Moreover, both parties should build appropriate expectations for both FOAK deployment and NOAK improvement into their own planning, especially in multi-unit agreements.