The RCEP Agreement Aligns Large Consumers and Producers of Energy While Excluding the U.S.

The Regional Comprehensive Economic Partnership agreement (RCEP) includes the world’s largest crude oil importer (China) and the largest liquified natural gas importers (Japan, China and South Korea). It also includes some of the largest oil and LNG exporters (Australia, Indonesia, and Malaysia). Increased energy trade activity among members leaves out the largest energy exporters; the United States, Saudi Arabia, and Russia.

On November 15, 2020, representatives of Australia, China, Japan, the Republic of Korea, New Zealand, and other countries signed the Regional Comprehensive Economic Partnership (RCEP) Agreement. RCEP will eliminate tariffs and quotas on over 65% of goods traded among the signing countries. It’s viewed as a significant step in stimulating the world’s economy which will counter a slowdown from the steps each country has taken related to COVID-19. The RCEP agreement covers a market of 2.2 billion people and 30% of the world’s GDP. India, an original participant in the deal negotiations, withdrew from the pact but is considering rejoining. The United States, representing the world’s largest economy, was not a participant in the agreement.

The agreement is viewed as negative news for U.S. oil producers. The U.S. has become the largest exporter of oil within the last few years. Most of U.S. domestic oil goes to Canada, with South Korea a close second. China was poised to become the largest importer of U.S. oil, that changed when tariff wars decreased trading activity with them. If Indonesia and Malaysia increase exports to China, South Korea, and Japan in response to the minimal tariffs, then U.S. oil exports may suffer.

Source: EIA

The U.S. natural gas market could be hurt even more than the oil market. In the last few years, companies have been building terminals to export domestic liquid natural gas (LNG). These terminals cost billions of dollars to construct and require decades of trade to reach breakeven.  Much of the LNG exported from the United States is routed to Asian countries. As the graph below shows, the country’s ability to export LNG has increased 1000% over the last five years but is running below full capacity because of the pandemic. If Australian LNG exports to China, South Korea, and Japan increase in response to lower tariffs, U.S. LNG exporters could be hurt by even more idle capacity.

Domestic energy producers are already feeling a strain due to decreased demand resulting from the pandemic and the resulting economic slowdown. Companies are working hard to reduce costs to remain competitive. Several have merged to reduce overhead. Others have cut drilling budgets. A further reduction in demand for oil and LNG from Asian countries would further exacerbate the problem.

Suggested Reading:

Are we headed to Another Oil Collapse?

Contango and the Known Risk to ETFs

Will Oil Prices Rise in 2021?

Do You Know a Student  Who Could Use $7,500 for College?

Tell them about the College Challenge!

Source:

https://finance.yahoo.com/news/world-largest-trade-pact-could-150000944.html, OilPrice, November 30, 2020

https://asean.org/asean-hits-historic-milestone-signing-rcep/, ASEASN.org, November 15, 2020

https://compressortech2.com/u-s-lng-exports-down-by-half-in-2020/, CompressorTech, June 23, 2020

Monday, November 30, 2020

Gevo, Inc. (GEVO)
Upcoming Milestones – Increasing Price Target

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Strong stock price performance is likely driven by hopes that some of the upcoming potential milestones will be announced shortly. While the stock price dropped sharply in 3Q2020 after capital raises to fund ongoing operations and the project financing process, stock price performance since 3Q2020 results were announced has been very strong and the stock is up 122% so far in November.


Potential milestones over the next year:  Full or partial retirement of convert debt of ~$13 million due in December 2020; Finalizing and acquiring rights to additional plant locations; Identifying engineering firm performing FEED work; Expanding supply contract portfolio with new industry/financial partners; Identifying project financing partners, including equity investors and debt financing; Timing of process to …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Oil Storage Numbers are Worth Watching

Cushing, Oklahoma is a major trading hub for crude oil and a price settlement point for West Texas Intermediate (WTI) oil prices. It is located at the intersection of many pipelines and has 91 million barrels (MMbbls) of oil storage capacity. As such, most of the oil that is produced in the Permian Basin flows through Cushing, with 6.5 MMbbls of oil flowing in and out of Cushing each day. An estimated ten MMbbls of new storage and 1.6 MMbbls of exit capacity is being considered to address current bottlenecks.  Those bottlenecks became clear at the end of April when traders were caught with long oil positions at Cushing and no place to store or transport the positions. WTI oil prices turned negative briefly as traders scrambled out of positions. In hindsight, the issues seen in April seem obvious if one was tracking the rise in storage levels that occurred in March and April as the pandemic sapped demand, but producers kept on producing. With COVID-19 cases growing again, we see a similar story unfold as Cushing oil inventories approach levels seen last April. Are we headed to another oil price meltdown? Or, has the market learned its lesson?

The Reasons Why Oil Prices May Be Headed for A Crash

The current situation is looking eerily like last spring. COVID-19 cases are rising, and government officials are putting new restrictions in place. People are driving less as they work out of their homes and stop going out to restaurants and theaters. Gasoline represents 44% of the output of a crude oil barrel. Distillate fuel oil (28% of crude oil) is turned into diesel fuel and heating oil, which are also affected by pandemic mitigation. Jet fuel (10%) has also been negatively affected as recreation and business travel has decreased. The result is that refineries are running at low capacity with decreased demand for its products, which means it has less demand for crude oil.

With the number of COVID-19 cases growing, there is little indication that crude oil demand will return in the foreseeable future. On the demand side, producers have not shown signs of reducing production. With wells taking several months to drill, a supply response generally does not come in response to one month’s rise in storage. Shutting in existing production is a possibility, but shutting in and restarting production is expensive, and companies are unlikely to take such drastic steps if the drop in price is viewed as a temporary event.

The reason why oil prices are not headed to a crash

The crash of last spring was due to traders being caught in long oil contracts with no place to store the product. As recently as January, money managers had large open oil positions. They began exiting these positions in February and March, but it wasn’t until April that they were forced to exit positions at a loss. Turning to the current situation, we do not see the same involvement in the market by money managers. Long positions have held steady. There is less speculation in the oil market today than there was last spring, and speculation leads to price volatility.  It is reasonable to assume, then, that the traders currently taking long positions in the market are doing so to meet demand and not because they are betting on oil prices.

It is also important to remember that WTI prices do not represent the entire oil market. When WTI prices crashed last spring, it’s worth noting that Brent oil price did not. That may come as little comfort for energy companies operating in the Permian Basin, but it should provide some comfort for energy companies in other operating areas.

It is too early to say whether we are headed to a repeat of last spring. Higher storage levels are a concern but not a condemnation of current price levels. With the expiration of the December future’s contract less than two weeks away, the number bears watching.

Suggested Reading:

Contango and the Known Risk to ETFs

Will Oil Prices Rise in 2021?

Tesla Car Batteries and Virtual Power Plants

Do You Know a College Student?

Tell them about the College Challenge!

Source:

https://finance.yahoo.com/news/america-biggest-oil-storage-hub-005607002.html, Lucia Kassai and Andrew Guerra Luz, Bloomberg, November 20, 2020

https://en.wikipedia.org/wiki/Cushing,_Oklahoma, Wikipedia

http://www.okenergytoday.com/2020/10/cushing-oil-hub-isnt-following-national-trend-of-crude-oil-storage/, OK Energy Today, October 3, 2020

https://www.cmegroup.com/education/lessons/the-importance-of-cushing-oklahoma.html#:~:text=Cushing’s%20inbound%20and%20outbound%20pipeline,of%20barrels%20of%20oil%20daily., CME Group

https://rbnenergy.com/that-was-then-this-is-now-part-2-new-crude-pipeline-capacity-out-of-the-cushing-hub, Housley Carr, RBN Energy LLC

Improved Efficiencies and Rising Oil Prices May Help West Canada Producers to Soon Generate Strong Cash Flow

Canada is the fourth-largest producer of oil and the third-largest exporter of oil.  Most of their production comes from Western Canada, which has a long history of oil production. About 80% of the oil produced in Canada is from the Alberta Providence, with Saskatchewan producing another 10%. About half of Canadian oil production is from oil sands deposits in northern Alberta and Saskatchewan. Oil sands (tar sands, crude bitumen, or bituminous sands) are sandstone deposits containing a mix of sand, clay, and water. Within the deposits is a dense, viscous form of petroleum that may require heating or dilution to allow the oil to flow to the surface. While oil sand production garners significant attention due to large deposits, it is worth noting that western Canada also has large deposits of more traditional oil deposits in shale formations. These formations are fracked to produce quick payouts and low decline curves, similar to the Permian Basin deposits in the United States. And like the Permian Basin wells, drilling, and operating costs are declining as companies perfect the process.

Lower Production Costs

Oil sand production has grown in recent years as the cost of an oil sand project has decreased 25-33%. The breakeven oil price for oil sand projects has fallen from around $65 per barrel to $45 per barrel. Oil sand production has larger upfront fixed costs due to the construction of steaming facilities. That makes them less likely to shut in or cut back drilling due to temporary decreases in prices. Shale production, on the other hand, is more flexible to changes in oil prices. Shale production also tends to be less expensive to produce than oil sand, with companies reporting production costs closer to $20 per barrel and all-in breakeven pricing closer to $30 per barrel.

Oil Sands bpd production has increased as conventional bpd production has remained stable

Western Canada Shale Plays

There are many shale plays in western Canada. The Cardium Formation is one of the largest shale formations and includes several profitable plays including the Pembina Field, the largest oil field in Alberta. Other producing areas in Western Canada include the Muskiki Formation, the Wapiabi Formation, the Blackstone Formation and the Kaskapau Formation.

As western Canadian oil production grows, new infrastructure needs to be built to transport and store oil. Delays in the construction of new pipelines has meant that the Western Canadian Select oil price trades at a discount of approximately $10 per barrel to West Texas Intermediary prices. That discount roughly offset the gains associated with converting prices from the U.S. dollar to the Canadian dollar. There is a good chance the basin discount will decrease as new pipelines are built. Mark Salkeld, president of the Petroleum Services Association of Canada explains, “The only thing holding us back is access to market and the cost.”

Shale oil production in western Canada went dormant when oil prices sunk last spring

Take-Away

With oil price rebounding during the summer, production is returning. With low production costs and improving prices, western Canadian oil producers may soon be generating strong cash flow once again.

Register Now for Today’s Virtual Road Show Featuring InPlayOil (IPO:CA, IPOOF):

Virtual Attendance of the InPlay Oil (IPOOF)(IPO:CA) Virtual Road Show – has limited free registration. TODAY, November 23 1pm EST Join Douglas Bartole – CEO & President as he discusses his company and answers questions from attendees. REGISTER

Sources:

https://en.wikipedia.org/wiki/Oil_sands

https://www.businesswire.com/news/home/20190501005040/en/Costs-of-Canadian-Oil-Sands-Projects-Fell-Dramatically-in-Recent-Years-But-Pipeline-Constraints-and-other-Factors-Will-Moderate-Future-Production-Growth-IHS-Markit-Analysis-Says, Businesswire, May 01, 2019

https://www.reuters.com/article/us-canada-oil-shale-insight/why-canada-is-the-next-frontier-for-shale-oil-idUSKBN1FI0G7, Nia Williams, Reuters, January 29, 2018

https://static.aer.ca/prd/documents/reports/DuvernayReserves_2016.pdf, Alberta Energy Regulator, December 2016

http://oilshalegas.com/cardiumshale.html, Oilshalegas.com

Variables That Will Affect Energy Production Growth Through 2021

Energy prices may be less volatile than in the past, based upon the U.S. Energy Information Administration (EIA) Short-Term Energy Outlook (November release).  The report calls for domestic oil production to remain at current levels through 2021. Current levels are near 11.0 million barrels per day (mmbd) and significantly below the peak levels of 12.9 mmbd of November 2019 and pre-COVID levels of 12.7 mmbd.

At the same time, the EIA is projecting flat production; it expects West Texas Intermediate (WTI) oil prices to increase from a 2020 average of $41 per barrel to a 2021 average of $47 per barrel. Expectations are for domestic energy companies to have shortened their time frame for making drilling decisions and production levels to react to price changes quicker. Of course, making long-term predictions is difficult and depends on several “best-guess” variables. Here are some of the variables that will have an impact on 2021 oil prices and production levels.

COVID-19. The pandemic has a significant impact on both the demand and supply of oil. Analytical firms such as Rystad Energy AS and Trafigura Group estimate that global economic weakness associated with COVID-19 has reduced world oil demand by 27-33 mmbd (27-33%). The reasons are clear. People are not driving cars as much to commute to work or shop. Vacation and business travel have been put on hold, so there is less demand for jet fuel. The figure below shows that the largest demand declines are being seen in the United States and Europe. The pandemic also affects oil supply. Restrictions on gatherings and curfews can delay drilling and the ability to build the infrastructure (roads, electricity, water transportation) needed to drill.

OPEC Plus. When oil demand vanished last spring, OPEC Plus reduced production to offset the drop in demand. The latest pronouncements by OPEC call for supply cuts to begin to ease, although there is talk that they will be extended at the November 17 meeting in response to growing global COVID concerns. That said, OPEC Plus is tired of restricting production and could release supply in response to the rise in demand that occurred in the September quarter.

Domestic Producers. U.S. and Canadian producers have also cut back production in response to lower prices. Historically, management set their drilling budgets at year-end and had the budgets approved by their board of directors. In recent years, boards have become more flexible and granted management the ability to ramp up or ramp down drilling depending on prevailing energy prices. Most energy management has a long list of wells they would like to drill and are chomping at the bit to drill if energy prices justify the drilling costs. Consequently, domestic energy companies have become more reactive to energy prices. In addition, the use of horizontal drilling and fracking have accelerated the rate of extracting energy. This has moved production to the earlier years of a well’s life, making the supply response to energy price changes more pronounced.

Conclusion. There are many variables coming into play that will affect production levels. We believe those variables have become more sensitive to changes in energy prices and any significant change in energy prices will be quickly met with a supply response. The result will be that energy prices, especially oil prices, will be less volatile than in the past. That stability will translate into flatter production levels, both domestically and globally.

Suggested Reading:

Energy Industry Report 3Q 2020

Will There be Mergers in the Utility Industry

Interest
Rates Impact on Investment Sectors

Virtual Attendance of the InPlay Oil (IPOOF)(IPO:CA) Virtual Road Show – has limited free registration. It takes place Monday November 23 1:00PM EST Join Douglas Bartole – CEO & President as he discusses his company and answers questions from attendees. Register Now

Sources:

https://www.eia.gov/todayinenergy/detail.php?id=45916#, U.S. Energy Information Administration, November 17, 2020

https://www.eia.gov/outlooks/steo/report/global_oil.php, U.S. Energy Information Administration, November 10, 2020

https://economictimes.indiatimes.com/markets/stocks/news/how-the-pandemic-wiped-out-oil-demand-around-the-world/massive-impact/slideshow/75091835.cms, Bloomberg, April 11, 2020

https://blogs.worldbank.org/opendata/oil-market-outlook-lasting-scars-pandemic, Peter Nagle, World Bank Blogs, October 27, 2020

Monday, November 16, 2020

InPlay Oil (IPOOF)(IPO:CA)

The road to normal

As of April 24, 2020, Noble Capital Markets research on InPlay Oil is published under ticker symbols (IPOOF and IPO:CA). The price target is in USD and based on ticker symbol IPOOF. Research reports dated prior to April 24, 2020 may not follow these guidelines and could account for a variance in the price target. InPlay Oil is a junior oil and gas exploration and production company with operations in Alberta focused on light oil production. The company operates long-lived, low-decline properties with drilling development and enhanced oil recovery potential as well as undeveloped lands with exploration possibilities. The common shares of InPlay trade on the Toronto Stock Exchange under the symbol IPO and the OTCQZ Exchange under the symbol IPOOF.

Michael Heim, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

IPO reported operating and financial results in line with expectations. Production of 3,742 boe/d vs. our 3,871 est. Oil prices were slightly below model ($39.51 vs $43.00) but gas prices were above ($2.32 vs $1.52). Sales of $10.8 mm vs. $10.9 mm. LOE of $14.42 vs. $14.18. Earnings of ($2.7 mm)/($0.04) vs. ($3.2 mm)/($0.05). All in all, a very straightforward quarter.


Other developments were preannounced November 2.  InPlay’s $25 million bank loan is moving forward, a small $1.9 mm tuck-in acquisition closed, 4Q budget includes drilling 3 wells that will move production levels to pre-Covid rates of 5,000 boe/d. Only new development was that a ban on road construction will push drilling and the 5,000 target into the first quarter instead of year end …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Utility Mergers May Be Reheating After Pausing for the Pandemic

NextEra Energy (NEE) made an all-stock acquisition offer for Evergy (EVRG) earlier this week. It has been reported that Evergy quickly dismissed the $60 per share offer as inadequate. The offer comes after NextEra, the world’s largest wind and solar power producer, was rebuffed in its attempt to acquire Evergy last spring and Duke Energy (DUK) in September. Evergy is under pressure from one of its shareholders, Elliot Management, to consider consolidation.

Merger activity was picking up before the pandemic – Utility merger activity had been increasing steadily between 2012-2016.  Activity remained at a fervid pace in recent years. In 2017 Sempra Energy (SRE) acquired Oncor, the regulated utility unit of TXU. In 2018, Great Plains Energy and Westar Energy merged to form Evergy, Inc. In 2019 Dominion Energy (D) closed its acquisition of SCANA, and Centerpoint Energy (CNP) absorbed Vectren. This year, however, has largely been characterized by merger offers but no agreements.

Merger agreements among regulated assets are difficult to justify – Under cost-of-service rate-making, utility rates are set to recover costs and leave a little leftover to compensate investors. Cost reductions through a merger or other means often face a reduction in rates. Consequently, it is difficult to pay a market premium without it being highly dilutive to earnings without cost savings. Combining noncontiguous service areas limits cost reductions beyond headquarter reductions. Merger savings must come from unregulated operations. Hostile takeovers among utilities are extremely rare because they require regulatory approval. NextEra CEO James Robo said on September 30, 2020, that he would not pursue hostile acquisitions because major deals could only clear regulatory hurdles if companies worked co-operatively.

History of utility mergers – In the nineties, there was a wave of merger activity among utilities. Mergers typically took the form of a large electric utility taking over its neighboring smaller gas utility. The thought process was that the company that owned the meter rights owned the customer. At the time, there was a belief that utilities could use that connection to sell customers unregulated products. Products such as appliance repair service agreements had become popular. In addition, natural gas service was becoming unbundled, allowing customers the ability to buy gas from a third party and then pay the utility solely for the distribution service. Utilities began forming their own unregulated marketing subsidiaries, often with names similar to the regulated utility name. Utilities needed to acquire, merge, or sell out to control enough metered customers to compete. Over time, regulators tightened the rules regarding the sale of unregulated services to utility customers.

Why has merger activity increased? Around the turn of the century, electric utility service also started to become unbundled. Large customers could purchase power from marketers or even self-generate via cogenerations. The shift away from traditional utility operations has continued with the spread of renewable power generation. Utilities like NextEra that have focused on wind generation have seen their stock price soar while utilities stuck with stranded coal generation assets have seen their stock underperform. That has given currency to the winners in the form of a high stock price.

Will merger activity reignite? COVID-19 and the resulting shutdown of the economy have made acquisitions difficult in all industries. Having a good sense of the true cash flow of an asset to acquire is difficult during normal situations and close to impossible under current situations. The fact that companies are even considering making an acquisition is a clear sign that the appetite for acquiring is there. As pandemic concerns began to wane with signs of a possible vaccine, it is reasonable to think that merger activity will pick up again. We look for 2021 to be a busy year for utilities.

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Mergers Within the energy Industry are Heating Up

Each event in our popular Virtual Road Shows Series has a maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

Sources:

https://www.forbes.com/sites/greatspeculations/2020/06/21/evergy-inc-the-latest-phase-of-utility-ma/?sh=2c34d7374671, Roger Conrad, Forbes, June 21, 2020

https://www.utilitydive.com/news/nextera-mulls-bid-for-evergy-amid-market-volatility-may-face-competing-off/575675/, Iulia Gheorghiu, Utility Dive, April 8, 2020

https://www.reuters.com/article/us-evergy-m-a-nextera-energy-exclusive/exclusive-nextera-energy-in-15-billion-bid-for-evergy-sources-idUSKBN27P2S8, David French, Reuters, November 9, 2020

Photo: Skyspecs

Wednesday, November 11, 2020

Gevo, Inc. (GEVO)

3Q2020 Capital Raises Enhance Funding Visibility and Project Financing Discussions Progressing

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Adjusted 3Q2020 EBITDA of $(4.0) million widened versus $(3.1) million in 2Q2020 due to idling Luverne plant, but cash burn dropped. Lower cost structure pushed cash burn down to $3.9 million from $4.7 million. Current 2020 EBITDA loss estimate is $16.7 million and 4Q2020 cash burn should stay in the $4 million range.


Current cash of ~$81 million enhances near-term funding visibility, including repayment of maturing convertible debt.  3Q2020 capital raises of $62 million from equity offerings and $16 million from warrant exercises enhanced the funding visibility and reduced financial risk. Design and engineering (FEED) phase to fully develop/construct the three production plants has started and the influx of cash …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

The First U.S. Small Modular Reactor Design is Sign of the Future for Nuclear Energy

Advancements in nuclear energy will keep it relevant for the foreseeable future. But, cleaner forms of energy are expected to take a larger share of electricity production. According to the U.S. Energy Information Administration’s Annual Energy Outlook 2020, the pivot to greener forms of energy will cause coal-fired and nuclear-powered generation to lose share to renewable and natural gas-fired power sources.

Source: EIA Annual Energy Outlook 2020

Renewable energy’s share of electricity generation is estimated to rise from 19% in 2019 to 38% by 2050. Natural gas, which accounted for 37% in 2019, is expected to provide 36% in 2050. On the losing end, coal-fired and nuclear power generation account for 13% and 12% in 2050, respectively, compared to 24% and 19% in 2019. What the analysis does not consider is progress in nuclear energy technology and the potential for public policies that put a price on carbon emissions.

Major Objections to Nuclear Power

Objections to nuclear power generally center on three issues. First, large-scale nuclear plants are very costly, and there are no incentive systems in place to reward the generation of carbon-free electricity. Second, nuclear power plants generate nuclear waste in the form of radioactive spent fuel, which needs to be safely stored. Third, the potential for a nuclear meltdown, such as what happened at Three-Mile Island in the 1970s, is a risk that many find unacceptable. What may be surprising are the many advancements in technology that may help overcome deep-seated objections and cause policymakers and the public to re-think nuclear power’s value proposition.    

On a bipartisan basis, Congress passed the Nuclear Energy Innovation Capabilities Act in 2018, which promotes public-private partnerships through the U.S. Department of Energy’s Gateway for Accelerated Innovation Nuclear program to accelerate the development of the next generation of nuclear reactors. In 2019, the Nuclear Energy Innovation and Modernization Act was signed into law, which requires the Nuclear Regulatory Commission to develop new processes for licensing nuclear reactors, including staged licensing of advanced nuclear reactors.

Modular Reactors May Be Part of the Solution

NuScale Power and TerraPower are just two examples of companies that are working to advance less-costly, smaller nuclear reactors that produce less nuclear waste and reduce the potential for an accident. NuScale Power, a privately held company, is developing a small modular reactor design using a safer, smaller, scalable version of pressurized water reactor technology. In September 2020, the U.S. Nuclear Regulatory Commission approved the design of NuScale’s small modular reactor which could portend a full design certification in 2021. Privately held TerraPower was founded by Mr. Bill Gates and is a nuclear reactor design company that is developing a class of nuclear reactors using new technologies, including the traveling wave reactor. By using depleted uranium as fuel, the new reactor type offers the potential to reduce nuclear waste, lowers cost, and eliminates the need for reprocessing. Small modular reactors could be paired with and act as a backup to intermittent renewable sources of energy.

Putting a Price on Carbon Emissions

According to the U.S. Department of Energy, nuclear power accounted for 20% of U.S. electric generation in 2019 and 55% of the carbon-free electricity produced. While the issue of nuclear power is controversial, policymakers would be wise to consider it as part of the solution for combatting climate change. While natural gas-fired power plants are thought to be a key part of the energy transition to cleaner energy, they still emit greenhouse gases. Putting a price on carbon emissions through cap and trade programs or a carbon tax could help level the playing field. Currently, utilities that produce energy with coal-fired or natural gas-fired power plants are not penalized for carbon emissions. Likewise, utilities that generate carbon-free energy with more costly nuclear plants are not rewarded. Either levying a direct carbon tax or establishing a market-based cap and trade program could remedy the existing inequity.  

Conclusion

The chorus for cleaner energy is growing stronger. Proposed plans for a clean energy revolution calls for the U.S. to achieve a 100% clean energy economy to reach net-zero emissions no later than 2050. In order to accomplish this goal, the plan would seek to achieve a carbon pollution-free power sector by 2035. While renewables, including wind and solar, play a significant role, policymakers should consider the downsides to these sources of energy, including the issue of intermittency and their footprint. For example, in terms of power density, as measured by watts per square meter, nuclear has a smaller footprint than some renewables, including wind farms. According to the Nuclear Energy Institute, wind farms require up to 360 times as much land area to produce the same amount of electricity as a nuclear facility, while solar photovoltaic facilities required up to 75 times the land area. Besides killing birds, wind farms are unsightly, take up a lot of space, and decommissioned wind turbine blades are difficult to recycle and often end up in landfills. Advanced nuclear reactors could make a significant positive impact toward reaching U.S. and global climate targets between now and 2050. Based on the promise of advanced nuclear technologies, policymakers should also ensure the viability of the entire nuclear fuel supply chain, including domestic production of uranium.

Suggested Reading:

When Does OPEC Expect Oil Demand to Plateau?

Oil and Gas Price Ratio, Which Way is it Headed?

Is America’s Energy Dominance Relying on Immaculate Areas?

Virtual Road Show Series – Tuesday, November 10 @ 1pm EST Join Lineage Cell Therapeutics CEO, Brian Culley and CFO, Brandi Roberts for this exclusive corporate presentation, followed by a Q & A session moderated by Ahu Demir, Ph.D., Noble’s Biotechnology Analyst, featuring questions taken from the audience. Registration is free, but attendance is limited to 100. Register Now  |  View All Upcoming Road Shows

Sources:

Annual Energy Outlook 2020, U.S. Energy Information Administration, January 29, 2020.

5 Fast Facts About Nuclear Energy, U.S. Department of Energy, Office of Nuclear Energy, 

TerraPower, Corporate Website, 2020.

NuScale, Corporate Website, 2020.

NRC Approves First U.S. Small Modular Reactor Design, Press Release, Department of Energy, Office of Nuclear Energy, September 2, 2020.

First U.S. Small Nuclear Reactor Design is Approved, Scientific American, Dave Levitan, September 9, 2020.

Nuclear Energy Policy Represents a Bipartisan Path Forward on Climate for the Biden Administration, Atlantic Council, Jennifer T. Gordon, November 7, 2020.

Land Needs for Wind, Solar Dwarf Nuclear Plant’s Footprint, Nuclear Energy Institute, July 9, 2015.

Wind Turbine Blades Can’t Be Recycled So They’re Piling Up in Landfills, Bloomberg, Chris Martin, February 5, 2020.

Photo: NuScale Power modular nuclear power plant (artist rendering)