Dive Brief:
- Higher steel prices and interest rates are driving up the projected cost of energy from Utah Associated Municipal Power Systems’ planned 462 MW small modular reactor project, multiple municipal utilities have reported.
- Previous cost estimates were for the project to generate power at a price of $58/MWh, but at least one municipal power provider says project developers told it that prices could run $90/MWh to $100/MWh. The Utah project consists of a half dozen 77 MW reactors, being developed by NuScale, with the first expected online in 2029.
- The rise in prices likely means the UAMPS project will not hit certain engineering, procurement and construction benchmarks allowing participants to renegotiate the price they pay or abandon the project, experts said.
Dive Insight:
Of UAMPS’s 48 members, 27 have signed on to purchase electricity from the advanced nuclear Carbon Free Power Project, or CFPP, as the Utah project is known. In recent months, those municipal power providers have learned that costs are likely to rise.
“It was like a punch in the gut when they told us,” Scott Hughes, power manager for Hurricane City Power, said during the utility’s Oct. 5 board meeting.
The Idaho Falls Power Board discussed the price increases at its October meeting, according to its minutes, and Washington City Power Department Director Rick Hansen told his board on Nov. 1 that the project will “probably fail” the economic competitive test.
Costs of more than $58/MWh could allow participating utilities to abandon or renegotiate the terms of the CFPP.
Hughes explained to the Hurricane City Power Board that the new cost projections take into account approximately 30% in savings through the Inflation Reduction Act, which includes billions in tax credits to support clean energy projects. Otherwise, the project cost could be $120/MWh, he said.
But with the project start date still seven years away, materials costs and interest rates could fall, Hughes added.
“The next question is what are we going to do instead?” he asked. “Or what if the project fails, what are we gonna do? There’s not a lot of options.”
If other cities walk away, the project “might just fail anyway,” Hughes said.
“They didn’t say 100%, but most likely this is going to cause the [enginnering, procurement and construction] contract to fail, which gives us an out,” he said.
UAMPS spokesperson LaVarr Webb said the developer is reviewing all project costs. Final numbers are not yet in but project costs have risen, mostly due to inflation and interest rate increases, he said.
Reducing costs
UAMPS is considering ways to reduce project costs and reduce risk to participating members, Webb said. The project remains on schedule to begin construction in 2026 with initial power generation three years later, he said.
Webb said prices are rising for all energy projects. At their October meeting, Hurricane City Power Board members discussed other project price increases and whether $100/MWh would still be a good price for energy from the CFPP. Board Chair Mac Hall said he would be willing to pay the increased cost because of the guaranteed dispatchable power it would provide.
At the board’s November meeting, Hughes said it appeared that support for the project remained steady among participants, and some previous participants had indicated renewed interest.
Webb said project participants “will likely have an opportunity to exit the project” after cost estimates are finalized.
Of the 462 MW the NuScale reactors are expected to generate, 116 MW have been subscribed to by UAMPS members, said Webb. “UAMPS is working with outside utilities to take the balance. Productive discussions are underway with a number of utilities,” he said.
Price estimates for CFPP have varied, according to Scott Williams, nuclear policy analyst with HEAL Utah, which has opposed the CFPP project. Original cost estimates came in at $65/MWh, and were lowered to $55/MWh before rising slightly when some project sponsors abandoned the project, he said.
Last chance to leave
The last chance for project participants to abandon CFPP is probably 2024, depending on the Nuclear Regulatory Commission’s review of the project, Williams said.
“If the participants don't take that off-ramp, then they are locked in and no matter what happens to the cost of construction after that, you know, then they’re in it, like Vogtle and Summer in the Southeast,” Williams said, referring to the development of two new nuclear reactors that each went billions over budget. The Summer project in South Carolina was ultimately canceled.
If the CFPP project is unable to draw more subscribers and if costs continue to rise, Williams said, “there's a point at which ... the project won’t pencil out to a bond holder.”
The CFPP project could be in trouble if it cannot attract new customers, particularly as there is talk of cutting federal support, said Edwin Lyman, director of nuclear power safety at the Union of Concerned Scientists. “I think it will all depend on what Congress does, if they’re willing to bail out the project, if more of the customers drop off,” he said.
The Department of Energy in 2020 approved a multi-year cost share award of about $1.4 billion to help demonstrate NuScale reactors at Idaho National Laboratory. Funding that must go through an annual appropriations process in Congress may have hit a snag in the Senate this year.
“There’s a Senate draft out there that seems to direct some funding away from NuScale,” Marc Bianchi, an analyst at Cowen, noted during NuScale’s third-quarter earnings call Monday.
“We’re working both sides of the Hill right now on appropriations to again continue to secure, then to ensure that this technology in our project at CFPP moves forward,” NuScale President and CEO John Hopkins said. “The feedback we’re getting on both sides of the Hill has been very positive, so we’ll see what the end result is. But we’re working diligently on it, like we do every year.”
CORRECTION: We have clarified in the second bullet that the Carbon Free Power Project developers provided the new energy cost estimates to project participants.
