Emmet Penney: [00:00:00] We have the secret ingredient to building nuclear that we have been missing for half a century.

Nuclear gains through economies of repetition.

What hurt nuclear also killed a bunch of coal plants at the same time.

The amount that nuclear provides to the grid will not increase for the next decade. 

If it's being built to solve safety don't bother. The safety problem has already been solved. 

Everybody who works at a nuclear plant is a control freak, because that's what it requires.

There has been no country on this earth that has ever built a nuclear plant without some sort of government involvement.

If they're telling you it's going to be cheap, they either don't understand what they're doing or they're not being real with you and either way that's a big red flag.

There's no renaissance until something hooks up to the grid.   

Andrew Kazlow: Welcome to the Diligent Observer, the first podcast exclusively focused on helping angel investors make better bets. I'm your host, Andrew, and today I'm excited to share an episode from our first deep dive season focused on angel investing [00:01:00] in nuclear energy. When three respected VCs Mentioned nuclear on this show within a month, late last year, I realized that something unique was happening.

So, I've spent the last 90 days going deep, interviewing nuclear experts, analyzing deals, and just trying to understand what this all means for angel investors. Over five episodes, we'll explore what works, what doesn't, and why, through conversations. With some of the most experienced voices in nuclear energy.

The season will culminate in the release of the nuclear energy investing playbook, which you can pre order today using the link in the show notes, or get it completely free by subscribing to the diligent observer and referring at least one friend.

My guest today is Emmet Penny, a nuclear energy analyst and host of the Nuclear Barbarians sub stack. What makes Emmet fascinating is his depth of historical knowledge combined with a clear eyed view of [00:02:00] nuclear's economic fundamentals. In this episode, we explore why electricity demand growth, not policy or climate, is the real driver of nuclear's future, examine what actually killed the industry's momentum in the 1970s, and learn which SMR companies he believes will succeed, even if perhaps they shouldn't.

I hope you enjoy learning from Emmet as much as I did. 

Emmet, thanks for being with me today.

Emmet Penney: Pleasure to be here.

Andrew Kazlow: Okay. Emmetett, I'd love to start with a really fun question and that is what is exciting to you right now in the nuclear energy space?

Emmet Penney: So right now, what's exciting and nuclear actually isn't all of the companies that are debuting new technologies or companies that are trying to capitalize on our existing supply chain, like the nuclear company, or the fact that we just built our first stem-to-stern reactor set in Georgia for the first time in like [00:03:00] half a century.

None of those things are the most exciting part about what's happening in nuclear. What's exciting about what's happening in nuclear is that we have the secret ingredient to building nuclear that we have been missing for half a century, which is an increase in electricity demand. That was the thing that really killed nuclear, right?

So we might talk about some history here. It's not that there was a meltdown at Three Mile Island in the late 70s that freaked everybody out, even though no one got hurt. It wasn't even the inflation of the 70s, though that hurt it. It wasn't new regulation, which was very burdensome, which also debuted in the 70s that hurt nuclear.

It did. It could have survived all of those things. I claim, if demand growth for electricity continued at the pace it was going as it had been for the 2 to 3 decades before the 70s, which was steadily between 5% and 10% per year for almost 30 [00:04:00] years. And that's because it allowed utilities to justify investments in big power plant. Because they would say we need a big power plant to generate a lot of electricity. And it will be so efficient that your bill won't go up that much, because you'll get so much more power, so much more cheaply. Once that business case died, it stopped making sense for any utility to remain invested in building nuclear power plants. Once demand growth plateaued as it did from like the 70s till just about now for the most part. Once that demand growth disappeared, the business case fell apart.

All the other things were really difficult. The public relations stuff, the handling stuff on the regulation side, having a new technology that almost wasn't ready for prime time when they were building it. So cost overruns and stuff kept cropping up. All of those things were really painful. But, if no one needs more power, then you can't really [00:05:00] build any new big power plant, because what hurt nuclear also killed a bunch of coal plants at the same time.

Andrew Kazlow: So say more about what actually killed it, like 4% to 5%, 10% growth year over year for a long time. That was kind of the expectation. What changed?

Emmet Penney: Yeah, so a few things changed. First of all, the world economy no longer looked the way it did in the immediate wake of World War II. The US was sort of the last man standing in the developed world. But then, Japan and Germany and the European economy in general bounced back from the war. So suddenly, the US wasn't the only major nation with a manufacturing base competing on the global stage. And we also started to see things like, offshoring begin to happen. And so you're losing a lot of power demand like that. We're also just starting to see, like this is sort of my pet personal theory, that we hit a level of growth, at a [00:06:00] speed that was really just generally hard to maintain. So once you get to a certain point, it's actually hard to keep the growth engine going at that rate. And that's because a lot of people are basically satisfied with their lives. Now you add into that, like you might get some more power efficiencies out of other innovations and stuff like that.

That means building big stuff isn't as necessary, and I also don't want to say that environmental law had no impact on building big things. Anybody who's tried to invest in heavy infrastructure, like, knows that, the Grim Reaper of NEPA, the National Environmental Policy Act will like, come and kill you and your balance books, or try at some point in the process, right?

But what I do want to say is that there are macroeconomic trends that determine nuclear's fate outside of the things that are hot button political issues or trends to talk about today. So one reason to be excited about nuclear, one thing that makes me excited [00:07:00] about nuclear is that the macro trends for the US are in line with what can be a good environment to justify building new nuclear, right? So it's not climate. It's not necessarily that we have cool new technologies to debut. It's that we literally need to keep the lights on and we need to maintain our standard of living.  

Andrew Kazlow: So this is, it sounds like a situation of rising tide lifts all ships, macro demand for energy is increasing. And so the outlook for most sources of energy theoretically would be positive based on that trend. 

Emmet Penney: Yeah. And electricity for nuclear in particular, because that's where it's mostly used. Now we have some stuff in the advanced reactor space that, because of its ability to generate process, heat is going to be good for chemical companies to use and stuff like that as part of their industrial processes.

So there is a memorandum of understanding for all it's worth. [00:08:00] I think right now, between X-Energy and Dow Chemical for their bespoke reactor type that is big on generating process heat. And because energy is, and by which I mean broader than electricity. So process heat included in that is so necessary for chemical companies.

They have a more vested interest in making sure they have cheap, clean base load, right? So what I mean by that, it's like non-intermittent, on all the time power that can supply that for them because big fluctuations in price or something like that can really screw up their day or their quarter.

Andrew Kazlow: So I mean, broad brushstrokes, the numbers I've been seeing are that nuclear represents 15% to 20% ballpark of kind of the total energy, which is incredible given that we have like a hundred reactors active in the country. Is that expected to continue, like [00:09:00] talk me through what you see as the next few years, this demand for energy grows, all of the other methods of supplying it are also growing to fulfill that demand.

How does the current split or breakdown of the slice that goes to nuclear change over the next few years?

Emmet Penney: Right. So, over the next few years it's not going to change very much. The number of the amount that nuclear provides to the grid as like just total capacity per year, I argue will not increase for the next decade. And the reason for that is that nobody is in a position to build anything on a timeline shorter than that. And I feel very confident in that because the last time I said that was on stage at the American Nuclear Society's Winter Conference, and the Chief Technical Officer of Westinghouse said that's absolutely right.

So, I thought I was being like a troll until [00:10:00] she was just like, no, that's completely correct. And anybody who's saying otherwise is just talking their book. So, I would say that like people want to be really careful when people say like, oh, we've got this new design and it's going to go so much faster.

First of all, we don't know what's going to happen in the regulatory environment for nuclear. We don't even know what's coming with the Trump administration. Some of that might be true. Anything that's just on paper, if it's hardetch is going to run into unforeseen problems because it's first of a kind. Which means it will come in over budget and over time.

So nuclear gains through economies of repetition. Because it's so complicated to build, you need a workforce and a supply chain that matures with the technology so that familiarity can drive down costs. Innovation is not the thing to fix here. Getting reps in, and that's why the demand part is so important. Because it's like, oh, can you justify a [00:11:00] fleet scale build where you're building a lot of the same type of reactor? That's the environment we want for nuclear. Not every company is offering that. I also think that some SMR companies are going to succeed, even if they shouldn't. I would say Bill Gates TerraPower would be, a great one.

And this is with all due respect to the engineers working on that project. I really, I'm rooting for them. I want them to win. I would be surprised if we built more than one or two of those. I think the reason they will survive is because Bill Gates is obscenely wealthy. And he can foot the bill and also they made the really wise decision and this was so smart on their part. I really want to make sure i'm like not being a jerk and giving them their flowers, is they aren't making the consumers of electricity through the rate base of the utility.

That's how these things usually get paid for it. That's what I meant earlier about justifying these expenses. They're taking that on with themselves and some other investors. So they're taking all the risk. So, that means that nobody's going to be like, why is [00:12:00] my power bill going up while you try to build this thing that still isn't coming online or whatever.

I think they can gut it out. I want them to do it because I think that we could, through that technology, I think it's a molten salt reactor, something like that, sodium reactor, I think that we will learn other things that are important through that achievement. So, I think it's ripple out effects will be big because we'll learn so much by doing it, but I would be surprised if we got more than a couple of those types of reactors.

So that's what I mean, like even if I don't think it quote unquote shouldn't succeed, it might.

Andrew Kazlow: So, it sounds like there is a lot of excitement and new energy, I've heard the term Nuclear Renaissance that happened in like '06 to '08 and kind of fizzled out. People are hesitant to use the word again now, but it is being used. There seems to be a lot of hype, quite a few new startups that are active in the space.

What are some of the things that you hear talked about a lot that you think are way overblown? And that [00:13:00] investors should be really careful when they hear about. 

Emmet Penney: So there are a few things, investors like hearing the word innovative. Be careful with that word when it comes to nuclear. You really want to make sure you have somebody on staff who can do a good technical audit of whatever you're looking at. Don't take anything at face value from these SMR companies, because who knows how many of them are serious.

They might have a great staff. Anybody who's involved in business knows that things can go wrong for all sorts of reasons. So not only do you need a technical audit, I would say you need a character audit. Like, is this for real? Is management ready for the really difficult problems that could jeopardize the whole thing?

Are they courageous? Are they prudent? Is the design prudent? Are they trying to do too much at once? Too many weird things happening all the time. [00:14:00] Oh, it's going to do this, and then it will also put process heat into like a big sort of battery thing, and ah. That should be starting alarm bells off in your head,  

because they're over promising. I would say here's another thing, smaller isn't better necessarily. So people say like, Oh, these reactors are smaller, they're going to deliver. This is a complicated technology. It's first of a kind. No one knows. No one knows. So you have to figure out how comfortable you are with your risk tolerance. Especially when we're talking like in big infrastructure investments. So the other thing is this micro reactor thing that's happening. And so we're talking about stuff that's like you could put in a shipping container. That's the size we're talking about. We're not talking about like, Oh, it's going to be 100 MW rather than 1 GW, you know, a thousand megawatts.

We're talking like we want to be around 30 to 60 MW, right? So smaller and smaller. I have no doubt that some of those technologies will exist. The DOD is [00:15:00] working on one right now, project Pele. It's going to fit into several shipping 

containers.

 It will not generate cheap power. That's not its job. It's job is to be used in the battlefield, forward operating areas, stuff like that. As far as I understand it. micro reactors, the physics of them, in other words, like how much power they can actually generate in that amount of space and what it's going to cost to do it, especially with the fuel economies,

doesn't really pencil out to cheap power. As far as I can tell, that is a problem. This is going to be a really difficult problem for all micro reactors. So if somebody is coming to you and saying, "We've got this brand new micro reactor idea, it's gonna snap together like a Lego, and it'll fit in a shipping container, and look, the Nuclear Regulatory Commission might not even have the authority to regulate it because it's so different.

So we're gonna get rid of all those regulatory hurdles.", you should still be skeptical, right? If they're telling you it's going to be [00:16:00] cheap, they either don't understand what they're doing or they're not being real with you and either way that's a big red flag

Andrew Kazlow: Well, it's, it just as an aside on that, one of the things that stood out to me as I've just wrapped my mind around the space, the last 30 days, read a couple of books, listen to some podcasts, it's just the scope of how much money this stuff costs and how that's okay, if the problem we're solving is not cheap, consistent electrical power generation. Like that is a problem that some of these are being deployed to solve. But like much of the original development I learned about through reading this book, billions of dollars in equivalent spend over the course of just a few years to develop a couple of test reactors and they solved the problems that they were seeking to solve and

they were proving the technology functioned. Then the [00:17:00] evolution was okay. Now, how do we deploy this in a

economical scale? And in a different market, like that's super, super important. And I think a great point that you bring up is make sure that you understand the problem that a venture is being built to solve

Emmet Penney: Right. Exactly. and if it's oh, Here's another thing, if it's being built to solve safety don't bother. The safety problem has already been solved. The nuclear fleet, globally and in America, is the best in the world. There are no power generators safer. Like any more investments in safety stuff, you're going to get really diminishing returns on all the other things that nuclear power is supposed to do.

So somebody is like, this is the safest in the world. The big question is like, compared to what? what, what, like What are the major problems in the current fleet that this person's trying to solve? This fleet that has like an incredible safety record, [00:18:00] very few accidents, despite existing for decades and decades and decades.

And even those accidents weren't fatal, What's being solved here? There is a way where safety becomes a kind of advertising in nuclear, because of people's fear of it. That I think investors need to be very careful of. Because it is a great way to seduce people into paying for stuff they don't need.

Because not only is electricity hard to understand, physically. It is what created the engineering departments at most major universities. Because it's so difficult to manage. Nuclear engineering on top of that, adds another layer of complexity. So someone can come into your office, and give you a great PowerPoint, where they're breaking down all this fancy safety stuff, and it sounds super smart, and it's hard to know.

I'm telling you right now, the big question is compared to what? And if there's not a solid answer [00:19:00] to that, or if somebody's like, so Fukushima doesn't happen, Fukushima probably won't happen again. Because nuclear collaborates internationally across countries to improve safety globally. That's how serious these people are about it.

Everybody who works at a nuclear plant is a control freak, because that's what it requires. We want that. It's sort of like, you might want to fight our pilot to be kind of a narcissist, and think he's the hottest guy in the sky. You want that, you know, like you need a certain level of that to get that apex predator performance out of it. Same thing with wanting to control everything and make sure it's dialed in and have that high safety culture with operating nuclear, we want to select for that. you know, There are trade offs with everything, but that's an important feature.

So if I'm an investor, those are questions that I'm asking anybody who's coming to me. I don't know if that's like exactly what you're looking for, but like, these are the things that set alarm bells off for me when I'm covering [00:20:00] stuff or reading about it, that if somebody was asking me to open up my wallet for, I'd be like, okay, this is an even bigger conversation now.

Andrew Kazlow: So let's flip that around. What are the things that aren't getting a lot of attention or aren't getting a lot of press that if somebody was in a conversation with you started talking about you would be like, oh my god, take my money.

Emmet Penney: So the biggest one that I can think of is, The Nuclear Company. That's just what they're called. They're new. And they have a, I think a really great idea. And their idea is the thing that they're trying to fix for is how do you get unlock the economies of repetition for building existing nuclear, which I think is one of the major problems to solve.

And then how do you derisk that? Those are two huge things. The only time other than PG&E in California getting sued for roasting a bunch of people alive, nuclear is the only reason why any utility in America has gone bankrupt because the [00:21:00] cost overruns became so burdensome that they couldn't afford it anymore.

I mean, it's only happened like a couple times. It was in the 70s. I think it was in New Hampshire or something like that that happened.

it wait just 

Andrew Kazlow: Tell me the story i'm not familiar with this.

Emmet Penney: Yeah, yeah. So I can't remember like all of the exact details about it. But basically like what happened after the 1965 blackout is that they created a bunch of power pools where they got utilities to collaborate together.

And they said, we need to have a bigger reserve margin, which means like power capacity on deck for peak times, right? That meant that smaller utilities that got integrated into that system could now justify buying bigger power plants than they ever normally would, because they're no longer just serving their own customers.

So they have other requirements to think of. So some of them over and extended themselves into buying nuclear technology and then once like the inflation of the 70s, the new environmental regs of the 70s, the new regulatory regs of the 70s, and then the [00:22:00] end of the demand growth that justified it in the first place all hit at the same time, they were like, we're underwater and there's nothing we can do.

So de risking investing in nuclear, like if we look at what happened at uh, Vogtle 3 and 4, the Westinghouse AP1000s that were built for the Southern utility in Georgia. I mean, it went what, 10 over 10 billion and something like 15 years over budget, like total maybe 10 years. I,

Andrew Kazlow: Over budget. What was the actual budget? 

Andrew Kazlow: over, Uh, it was like a few billion and then it almost doubled it.

Emmet Penney: Yeah. I don't have the numbers in front of me right now. I mean, you can google it, you'll be able to find it. So you have to understand, that's the risk appetite we're talking about for new stuff. That's what I mean. Like you need to make sure whoever you're investing in is like, we can survive this.

We have the supply chain for this. We have the everything, everything we're going to need. okay. So what The Nuclear Company is [00:23:00] doing is they're saying we're trying to get utilities that already have operator licenses and already have reactor space. This is really important. A lot of America's nuclear fleet, those plants have empty reactor spots.

So you could put a new thing there. I think a lot of them were designed to have three or four. A lot of them only have one or two. So they already have the reactor license, so that means that it's a brownfield project. 

Andrew Kazlow: You're saying there's infrastructure already in place at many of these   

Emmet Penney: Mostly on the eastern seaboard, yeah.

Andrew Kazlow: Where it's already set up for drop in.

And 

Emmet Penney: license 

is already there. What everybody's gun shy about is taking that leap. Even the public utility commissioners in Georgia and like, the utilities there are like, unless we derisk this, we're not buying anymore. Like We just did it, but that was terrifying and a brutal PR experience for us and it's paid off because the [00:24:00] nuclear plants, especially if we see this demand growth come in, are going to amortize themselves very quickly, you know, and then they last for probably over a hundred years, perhaps forever.

We don't even know yet where we're still at the beginnings of this technology. So anyway, back to the nuclear company, they're getting all these people together and they're even hiring staff from the Vogtle experiment. We're not experienced, uh, and from different parts of the, electricity center to come together

and pool money for a fleet build and they're getting investors to come in so it's derisking it in case there are overruns but they're trying to lock in those economies of repetition. So I think they're doing a lot of things really smartly.

Andrew Kazlow: So let me make sure I'm understanding. Basically, this company is pulling people from the Vogtle experience that are involved in the process of building that,

Some of that. And they're just raising a ton of money to go build a

fleet.

a And getting a 

Emmet Penney: bunch of people at [00:25:00] the table that already have operator licenses and that already want that demand. So hyperscalers are a part of their consortium that they've built, you know, that's what they're looking to do.

Andrew Kazlow: When say fleet, what do you mean by fleet?

Emmet Penney: So fleet we mean like multiple reactors. That's a fleet scale build, multiple reactors of the same type.

So we're not one or two. We're talking like between 5 and 10.

 How long that takes to pull off. This is why time horizons are really important for investors, right? If you're looking at what to invest in, you got to be real about time horizons with all this stuff. When can things happen? Where is it happening?

You know, Another thing that people need to think about is if you're investing in a new build of an SMR, let's say, and they plan on building it in a state that's in an American power market, which is 60% of the US. So, Texas, California, parts of the Southwest, from Minnesota to Louisiana, and then PJM, which is like 13 different states, [00:26:00] then New England, and then New York.

Those are all power markets. The power markets are skewed to advantage subsidized wind and solar and natural gas. So when somebody tells you, like, our nuclear plant is going to be able to ramp up and down to meet demand like a natural gas plant. What you should actually be hearing them tell you is that we are going to be investing in physical capital we don't plan to use all the time.

Alright, think about it that way. And we don't know what's going to happen with the Inflation Reduction Act, production tax credits and investment tax credits that are distorting the prices in our power market on behalf of wind and solar. So if you look at the queues for interconnection, which is sort of like the club to be linked up to the power market, right for all of everybody's waiting in line to get their ticket punch  

You know, so that's where you go. You're like, Hey, I've got this power project. Let me in. And they have their own vetting process or whatever. If you look at most of the power markets in America, again, 60% of the country, it's between 80 and 95% [00:27:00] wind and solar right now. So we're like way over selecting for that.

Which means you're going to have a lot of unfair competition in the market for base load power. And if you're like, well, if we get rid of these subsidies then that problem should go away, I would say maybe. What you need to understand is those power markets were actually designed with natural gas and wind and solar in mind in the first place.

They were meant to be baseload killers, and baseload being big coal, big nuclear. So again, location, location, location. Where is this person building? You know, I love my friends in Texas. I really want them to win. I hope they can get an SMR bill. I would not build anything in Ircott. I'm really sorry. On my show, I'm going to be interviewing some guy who I hope can change my mind about that because I think he's a really smart dude and he's working on it.

And like I said, always willing to be wrong with new information coming in. But like everything I know so far tells me I would not, I would not do that.

Super helpful. Okay, so back to kind of macro question, like other stuff that people [00:28:00] aren't talking enough about that you would get excited about The Nuclear Company. Big double click coming there. What else stands out? 

The other thing that I might get excited about Okay, sometimes I can't tell if I'm excited about this or anxious about it And it's the loans program office in the DOE. So the Biden administration was the most generous to nuclear since probably Dwight Eisenhower and a big part of that was what they offered at the loans program office which is a subset of the DOE that is meant to dole out money for cutting edge technology or necessary technology in the energy sector, right?

Emmet Penney: You'd see them as like derisking. Now, the LPO really screwed itself over in the Obama administration with Solyndra, which was a renewable energy company that used a bunch of government money and did absolutely nothing, uh, and filed for bankruptcy. So they've become really cautious. They were really cautious under Biden, even though they had a lot of money at their disposal.

Chris Wright, [00:29:00] who is the secretary of the DOE, is on the board of Oklo, an SMR company. He's very pro nuclear. He's pro geothermal. He's like an energy maximalist, right? He comes from the shale revolution. I think he's a really smart guy. What we might see is the DOE hold on to the LPO rather than let it go in order to be more aggressive than the Biden administration was.

And the reason to do that is there's no real reason that the LPO needs to, like, generate a profit as it's kind of doing right now from what I understand about how judicious they're being in their loans. It really just needs to break even. So we might see them lower the threshold for application to these loans or whatever.

That's something I'd really keep my eye on. I'm super interested in. I've been interviewing people for it for an article I'm working on right now. So that could be really exciting, right? And it's something that I think people don't talk enough about. And you might be saying like, well, I don't like the government getting [00:30:00] involved with that.

And I absolutely hear you. However, what you need to understand is that nuclear was invented by the government. It was like one of our first experiences with a technology that did that. That is the path dependency here. That is very, very real. And there has been no country on this earth that has ever built a nuclear plant without some sort of government involvement.

So, like, I live in the Commonwealth Edison footprint. The first reactor, I believe, that was built after Shipping Port in 1957, which was our first commercial nuclear plant, which was built by the government. and run by Duquesne Light and Power in Pennsylvania. Commonwealth Edison built a pressurized water reactor, like, the next year.

It took them, like, two years to build it. Something like that. That was mostly privately financed, but they still had a relationship with the Atomic Energy Commission that helped them do what they did, So this is what we're dealing with here, and there are reasons for that, and a lot of it has to do with nuclear's overlap with nuclear [00:31:00] weapons, not that they're the same thing, But they're a technology that people want to have a handle on, and safety issues with nuclear are real.

Just because we do it so well and we might have onerous regulations that we could strip down, doesn't mean that we shouldn't do it at all. There can be real issues. I saw some nuclear engineers talking about how containment vessels are super important for reactors, because if they aren't built the right way, you can have radioactive dirt that can then get into the air and is actually harmful.

We don't have that problem because we do it so well, but that's a problem that we're solving for. I think that's a really important thing to look at  

Andrew Kazlow: So let me make sure I understand this loan program. This is essentially a funding source available to help get a lot of these more advanced technologies, these new modern innovative

Emmet Penney: approach is going. Or I have to say the LPO changed its tenor over the course of the Biden administration. So, and that had to do with [00:32:00] Jigar Shah. They released a report where they were like, next of a kind builds are more important than first of a kind builds. So we're willing to sacrifice on being cutting edge or investing in that to guarantee gains in cheaper base load power of a clean variety.

That we can't get from any other source. That's the main value out of 

Andrew Kazlow: nuclear.

So so like, give me an example of a next of a kind.

Emmet Penney: Yeah, so next of kind would be building the next AP1000 reactor from Westinghouse. That's the reactor we know how to build. That's really, to me, like, what this hinges on, is whether we can pull that off in the next two years. If we can't pull that off, then it's anyone's race, but that means that we have to extend our time horizons.

Right, so then we're talking about maybe not any new nuclear on the grid for 20 years.

Is why nuclear renaissance is a mistake for an idea. We have the potential for a renaissance, but there's no renaissance until something hooks up to the grid and starts churning out power.

Andrew Kazlow: So the attention is essentially shifting from, okay, we have all these great ideas. Awesome. [00:33:00] Paper reactors. I just read the Rickover, uh, classic paper. The attention seems to be shifting, at least at the LPO, to, okay, how do we lock in some of these gains? Really make sure that we get a foothold and we take a step instead of a leap?

Emmet Penney: I wouldn't be surprised if some of that posture was maintained at the LPO, even during the Trump administration. That's difficult to tell. Trump is very hyperbolic. Some people read that as exciting and other people read it as lying. In politics, it's always hard to split the difference between those two things.

And we also, it seems like there's a new coalition in the GOP, but nobody knows what actual form it will congeal into once it's installed in power. There's also a world where that program gets stripped. This will all be about how the transition shakes out or whatever, but I think it's a really important thing to keep an eye on.

And if it's maintained at all, very exciting for nuclear.

Andrew Kazlow: So let me ask a little bit more about political risk, because I think that's a massive part of [00:34:00] any investment in nuclear, given what you just talked about. And there's a specific story that I recently came across that just blew my mind. This was the Barnwell, uh, nuclear fuel reprocessing, reprocessing plant.

Apparently this, you may know about this more than I do, but there's this plant in South Carolina that was like $300M of private investment to process nuclear fuel. And when Jimmy Carter was elected. Just refused to grant the license to operate. And so it essentially mothballed the plant. They were unable to operate 300 million functionally down the drain.

All these companies sued the government I 

afterwards.

And, it just blew my mind how significant the risk is from a private investment standpoint and that regulatory opinion and climate could change like that dramatically dependent on the political. 

infrastructure at the time. 

And so I think there's a unique level to that, that applies in nuclear

[00:35:00] that's more intense than the average energy investment, given the, everything you just talked about. So give me like your take on who do I watch? Like, what are the things that I look at if I'm an investor and I want to get a read on this. If I'm watching the, what the treasury is going to do, I know who to watch.

Who are the people that are kind of signaling what the future could look like from a public policy standpoint on the nuclear industry more broadly? Like what are the major names?

Emmet Penney: Okay. So I think that's actually a harder thing to look at in the US because it's already so decentralized as a system. Like our electricity system and then nuclear in general, I would say keep an eye on Westinghouse, They're kind of like the pokey little puppy over here a little bit, right?

They're making a lot of noise in Europe. They're inking a lot of deals there. They're not really doing much in North America. I think that's a problem. So if they start saying, you know what, we're [00:36:00] really going to get back in the game after the difficult experience and all of the stuff we had to learn and take on and even buy up brand new to make the construction of units three and four at Vogtle possible, then that's a huge, that's a very bullish signal for there being successful builds in nuclear, because they're the ones that know how to do it at this point.

Everybody else, they're trying. And like I said, rooting for everybody, don't expect a lot. Now, the other thing that I would look at, a lot of major banks are backing out from net zero commitments including Goldman. So what does that mean for nuclear?

Well, it means something really important. A lot of people don't know this, but there are a lot of banks that excluded nuclear, most banks actually, excluded nuclear from green financing.

Andrew Kazlow: No kidding.

Emmet Penney: Yeah. Now, this is changing in both the Europe and the US. Last year in the fall, I was in New York for an international nuclear financing meeting [00:37:00] where I was drowning, I was up to my eyeballs in nuclear financing data from all over the world because we were listening to people from major banks and nuclear companies talk about how this is going.

So I think the banks are going to be what's really important thing. And it seems like they're getting on board. The Ukraine war had tonic effects on people's realism when it comes to energy and its necessity, that's especially felt in Europe. So I think that we are starting to see banks decoupled from these renewable only commitments, which means that they will be more amenable to spending things, to spending money on things like nuclear

which perhaps they didn't feel comfortable doing before because with the way ESG works or whatever, who knows where that was going to end up or how people were going to look at that or what that was going to mean for them. Now they're like, yeah, we don't care. So I think that's a really good sign for getting like durable, long term capital involved in this space.

And like [00:38:00] I said, it's not just Goldman, there were a few others. Javier, he wrote the world for sale. He writes for Bloomberg. He was writing about it on Twitter. So if anybody. This comes out in that time. This is January 3rd. You probably dig up an article from him at this point about it. I'm sure once come out, but, uh, so I think that that's something to look at.

So you want to look at where major banks are investing. You want to look at what Westinghouse is doing. And then you want to look at what SMR companies are already failing. That's going to be really instructive. So The Ultra Safe Nuclear Company, I think it was called, just filed for bankruptcy at the end of last year.

I think that's gonna happen. I don't want to talk out of school, but I have some instincts that even some legacy SMR companies are probably going to file for bankruptcy within the next couple years here, I just based on cash burn and some other things. Now, the other thing to look for is what the states decide to do. So, we have some states in America that have moratoriums on building new nuclear.

California is one [00:39:00] of them. We have some states that have tried to undo those moratoriums. So one's my home state, which is Illinois, which did it in probably the dumbest way it possibly could have. And what it did is it said, you can't build any of the reactors that we already have up and running here, making us one of the cleanest states in the country and the most nuclear state in the

country. You can only build advanced SMRs because they're quote unquote safer. I think the problems with that, I think, might be a little obvious if you've been paying attention for everything that I've just said. Connecticut was like, you can build new nuclear, but only on the site that's available at the Millstone plant in Connecticut already.

So really, like, one utility can build one type of reactor, at one place in Connecticut. So it's better than nothing conforms to some of the stuff that I've said, but, you know, not the most hopeful signal. There are other states, I think, that will get rid of their moratoria de facto or de jure, right?

So whether it's like, a lot of these moratoria are like, we need something like a national waste disposal [00:40:00] site, which will never happen because the companies, because the NGOs that fought for those laws are also the ones that oppose there being the creation of any such waste disposal site, right? So that was their way to get a nuclear ban on the books, was a sort of talk out of both sides of their mouths.

I think, well, if you start to see more states do radical repealings of these, like if Illinois readjust this posture, because it wants data centers to come into the state. If Connecticut does the same or Connecticut gets so fed up with how dysfunctional the power market it's in behaves that it's like full send on nuclear.

That's all we got, because we don't want to keep opening up more land for transmission and wind turbines and solar panels or whatever. That's also a bullish sign to pay attention to. So if you have anybody working at desk and it's their job to take a look at, like, what's happening with state law or whatever, get that in their Google alerts. Um, so that they can see what's going on.

Those are things that I would be looking at.

Andrew Kazlow: Okay. Let me change topics. Last key question [00:41:00] There's a lot that has happened over the last 100 years since the nuclear world really started to pick up What are some of the major names as you look back that have influenced today's thinking on this space that an investor would be stupid to not spend some time getting familiar with?

Emmet Penney: Totally. Okay, so you brought up Hyman Rickover's paper on Paper Reactors, uh, which is a classic. So Hyman Rickover created the Nuclear Navy. And when they canceled his aircraft carrier reactor program, his consolation prize was building the first civilian nuclear plant, which he kind of didn't really want to do, but did it anyway. And because he wanted to maintain control over the nuclear technology, and he was a very ambitious guy.

Getting familiar with him and his biography, there's a 200 page great biography of him that just came out, uh, called Admiral Hyman Rickover, Engineer of Power. Totally investing. You [00:42:00] also learn a lot about like his ideas of management and what he thought was going wrong in corporate America's management structure at the time.

And you may agree or disagree with some of those ideas, but you get a comprehensive view of what this supremely influential man thought and did in America. One guy that we don't talk about very much anymore, but was hugely influential on the anti nuclear side, is a man named Amory Lovins, who loves to advertise himself as, uh, educated at Harvard, though he never graduated.

And he, not, you know, and I don't begrudge anybody not graduating from anywhere. I do think it's funny to advertise yourself as having been educated from a place that you never graduated from. So he was something of a really convincing charlatan that had a big impact on Jimmy Carter's ideas about nuclear in the late 70s.

And he founded the Rocky Mountain Institute, which is a clean energy think tank that has offices in both Colorado, D. C. and Beijing. [00:43:00] And his whole thing is like, we can do renewable only, that's the way to go. The most important thing to read from him is a brief essay called, The Soft Energy Path, or something like that, from Foreign Affairs in 1976.

It is hard to underestimate how influential he was. I would also say that, like, understanding how Americans think about energy and clean energy in particular, comes from the Whole Earth Catalog, which was a really powerful, magazine. So if anybody's familiar with the Steve Jobs commencement speech, where he says, stay young, stay foolish, or stay hungry, stay foolish.

He's quoting directly from the Whole Earth Catalog in that commencement speech. Huge impact on Silicon Valley culture. There's a whole bunch of books about it. I would say look into that. There's a brief biography of its guy, Stewart Brand. Stewart Brand helped make Amory Lovins popular, and then ended his friendship with Amory Lovins when he, [00:44:00] Stewart Brand, changed his mind about nuclear and someone leaked a draft of his forthcoming book in the 2010s where he promoted nuclear energy to Amory Lovins, who took him down in the grist.

And it ended their multi decade friendship because Embry Lovins was so unreasonable and cruel to him. So you can take a look at The Whole Earth Method, I believe, is that book from Stewart Brand. He represents somebody who went from this sort of crunchier green granola guy to a guy that came to really appreciate

urban density, GMOs, energy, and stuff like that. And I think he's been a very influential voice, uh, on that side of things. I think that's sort of like all I have right now in terms of people. We actually haven't had a lot of thinkers that do a lot of, um, I would say, this sounds condescending, but I don't mean it this way, like higher level cultural thinking about nuclear, because most of the people in the nuclear space are, for good reason, doers, not [00:45:00] thinkers, right?

They're not word cells like me. And so we just don't have a lot of that. oh, I can also recommend an essay by a nuclear engineer called, Is the Energy Debate Really About Energy? That was written in the, International Atomic Energy Agency Bulletin in the early 80s. And he had sparred with Amory Lovins in congressional hearings and stuff like that.

And it's sort of his take on the fundamental assumptions of the anti nuclear pro green movement. And it's like an eight page essay, really well written. Some shocking and insightful stuff in there. And I think that could be really useful to help people think about what energy means to society. What trade offs are and how we've been thinking about those for the last few decades

Andrew Kazlow: Love it. Super helpful. We'll definitely double click on all those and include them in our final output. Emmet, any final thoughts for the listener?

Emmet Penney: yeah, I would say that uh, if you plan on dabbling your toe [00:46:00] in nuclear, the most important thing you can do is more homework.

Never trust ad copy, ignore press releases. Really do the homework.

Andrew Kazlow: Well, with that Emmet, we will wrap. Thank you so much for joining me today. This has been a pleasure. I've learned a ton and we'll definitely be watching this recording a couple of times because, uh, this was, this was great.

Emmet Penney: Yeah, hey, thank you so much for having me on, man. This was a blast 

Andrew Kazlow: Thanks for listening to this episode of The Diligent Observer. I'm your host, Andrew Kazlow. And if you're looking to make better bets as an angel investor, subscribe for more at thediligentobserver.substack.com.