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This Mini Energy Revolution Is A Giant Profit Opportunity

by | published April 19th, 2010

Some 550 miles northwest of Anchorage, a tiny Alaskan settlement may hold the key to solving electricity shortages for small communities all over the world.

Galena has barely 700 residents. It sits on the Yukon River. For energy, it relies on diesel shipped up when ice-free passage allows. That is both an expensive and uncertain way to generate power. Therefore, the local council has decided to move in a different direction, one that will cut the settlement’s electricity prices from 28 cents a kilowatt-hour to less than 10 cents, in a matter of months.

They have unanimously voted to go nuclear.

What is about to happen in Galena is reflecting developments in other parts of the world. And it may just bring nuclear power back into fashion as a significant focus for investors.

To be sure, these mini reactors come with huge profit potential…

The Rapidly Emerging World of “Nuclear Batteries”

The settlement has accepted an offer from Toshiba Corp. (OTC:TOSBF) to install one of the company’s new 4S (“Super Safe, Small and Simple”) mini nuclear reactors. The Galena council approved the move in March. The plant could begin operations before the end of the year.

The 4S is a sodium-cooled fast spectrum reactor – that is, a low-pressure, self-cooling power plant – that will provide 10 megawatts (MW) of electricity annually for three decades before it needs refueling.

The 4S is actually referred to as a “nuclear battery” because it has no moving parts. Upon completion, it looks much like a water tower. Once installed, it does not need to be maintained or even opened during its 30-year operating life.

Cool.

The Obama Administration has decided to emphasize nuclear power as one alternative to dependence on foreign oil. Given this newfound nuclear support, we are once again talking about reactors as a legitimate alternative source for at least some of our energy needs.

Yet the decade-long (and often more) delay in getting a traditional new reactor online, along with the exorbitant cost, would seem to make any prospects for more immediate help in meeting rising energy demand remote at best.

But not so fast. Technological developments like the Toshiba 4S promise to bring nuclear power to smaller communities in an inexpensive and manageable way.

The Advantages of Smaller, Locally Focused Power Plants

The real key to increase short-term impact is to decrease unit size. Investors need to think small, because mini reactors are where the money will be made in the nuclear power sector.

Mini reactors have been in service for decades in the military, especially on naval vessels. Yet the commercial application of minimized size is a much newer development. We are witnessing a quickly developing, inexpensive alternative to conventional power plants.

The recognition is setting in everywhere. In a market dominated by French and Japanese companies building the latest versions of large reactors, new players are emerging – both in response to concerns over the cost and to the increasing reluctance of government agencies to supply loan guarantees for their construction.

The downsizing has affected the entire nuclear power spectrum.

Daewoo Engineering & Construction Co. Ltd. (047040:Korea Stock Exchange [Koscom]), Hyundai Engineering & Construction (000720:Koscom), and Korea Electric Power Corp. (NYSE:KEP) recently have surprised many by wrestling Middle Eastern reactor contracts from better-known global leaders, such as the French-Japanese AREVA (OTC:ARVCY), Siemens (NYSE:SI), and Mitsubishi Corp. (OTC:MSBHY).

The South Korean companies are positioning for a major global move to meet increasing demand for medium-sized reactors. These plants can be built and licensed in much less time than larger competitors.

However, your primary investment moves will come more from developments closer to home. The mini reactors coming on the scene will transform the industry. There will still be the need for larger plants, but the mini revolution is likely to make nuclear power available to many localities in a more flexible application.

They also solve two major concerns – waste storage and loan guarantees. These versions would be able to store on-site and, with likely energy and climate legislation on the horizon, along with the proposed clean energy banks, funding would be less of an issue.

Three approaches are already here, with more certain to follow.

First is the Toshiba 4S going into Galena, a result of engineering work at both the Japanese major and a U.S.-based Westinghouse subsidiary recently acquired by Toshiba. The 4S is already before the Nuclear Regulatory Commission (NRC) for licensing.

But the 4S is hardly the only American option coming on-market.

Another is the Babcock and Wilcox Co. “B&W mPower” mini reactor. This model can store waste for up to 60 years on-site and produce between five and 10 MW a year. It also is self-contained, but it is entirely underground. That allows for a greater waste-storage potential than the 4S and a much less-apparent physical footprint.

McDermott International Inc. (NYSE:MDR) recently decided to separate B&W from J. Ray’s other engineering interests. The Tennessee Valley Authority (TVA) has designated 760 acres near the Oak Ridge National Laboratory in eastern Tennessee as a site for a future power plant. This will probably become a main testing location for the mini reactor.

However, I find a third development the most interesting…

It is Santa Fe-based Hyperion Power Generation Inc., a spinoff company from the Los Alamos National Laboratory. Hyperion is barely out of an incubator stage, yet already has 120 orders for its Hyperion Power Module (HPM). Shipments should begin by 2016. It is privately held now, but its capital needs to expand activities will require it go public. The company should file engineering specs with the NRC this year.

These units are the smallest yet – about the size of a hot tub. Each HPM can provide electricity for eight to 10 years before refueling… power 20,000 homes… and generate as much as 25 to 100 MW in serialized installation. They are sealed at the factory, making accidents virtually impossible, and can be either above or below ground.

With a price tag of $35 to $50 million, the HPM is also inexpensive enough to revolutionize village life in most areas of Africa and Asia by providing both power and the ability to purify water. Readily available technology exists to clean dirty water. What undeveloped areas lack is the ability to power that technology cheaply. It is little wonder, then, that both continents are directing considerable interest to Santa Fe these days.

Of course, the advances coming from Toshiba, B&W, Hyperion, and other competitors certain to enter this market, have direct applications here at home. We are witnessing the miniaturization familiar to computer users. If we could liken a conventional nuclear plant to a mainframe, the minis seem the nuclear industry’s version of a laptop: Almost anyone can afford one, and you can take it anywhere.

Kent

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  1. Marc
    July 28th, 2010 at 14:08 | #1

    A few years ago the entire west coast was shut down, because of a
    malfunction within the “grid”…? I would assume this new product would prohibit this happening. Also, a real block against terrorist
    acts? …

  2. ramesh patel
    January 31st, 2011 at 16:37 | #2

    Are these units same that were aired on 60 minutes program less than a year ago? Since that time no news have come out. they had shown these units installed by major companies like walmart,silicon valley co offices etc…please let me know.

  3. Bob Canada
    March 7th, 2011 at 16:58 | #3

    Warning to all about TOSBF. My normal $18 fees to purchase a stock just jumped to a whopping $116 in commissions and fees because Schwab says that TOSBF is listed in Japan not the US.

    The fix is buy an un-sponsored ADR with the following TICKER TOSYY. I just place a limit order for it to replace my TOSBF Mistake.

  4. James Kemper
    April 25th, 2011 at 15:22 | #4

    Pls provide an update on these small nuclear units following the Japan disaster and the ensuing public and government opposition in many parts of the world to nuclear power.

  5. Jimmy Edwards
    April 25th, 2011 at 17:29 | #5

    Kent, I found your article on small, self-contained nuclear power plants intriging. Although you mention a few manufacturing companies(several of which are still private) I assume you are not currently recomending trades on them. Is that correct? Thanks!

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