Reed Clay: [00:00:00] AI needs five nines of reliability. And when you need that type of reliability, wind and solar become an issue. nuclear fits this perfect, threads this needle perfectly. 

Historically, nuclear's Achilles heel. it's perception and perception is reality

what we're trying to do is incubate the industry here in the state of Texas 

any bureaucracy is precautionary by nature. That's just the way they function.

Our load growth could potentially double in the next 10 years, which is quite a statement. 

What's unique about nuclear is that because we've built so little nuclear in the last 20 years or so, the industry has atrophied. so If we're going to build a lot more nuclear, what that means is almost completely regrowing the industry.

 I went out there to surf what I thought was a six or eight foot wave and it's turned into a hundred foot wave.    

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 Reed Clay, President of the Texas Nuclear Alliance. Texas has a vision for becoming the epicenter of America's nuclear resurgence, and Reed has been at the heart of aligning industry [00:02:00] players, state leadership, and regulatory frameworks to make it all happen.

In this episode, we explore the groundbreaking Texas Nuclear Summit, dig into why hyperscalers and data centers are driving massive electricity demand growth, and examine how Texas aims to position itself as a global hub for nuclear innovation and manufacturing. I hope you enjoy learning from Reed as much as I did.  

Reed, thank you for being with me today.

Reed Clay: Thank you, Andrew. Glad to be here. 

Andrew Kazlow: Okay. So Reed, my favorite question to ask, what are you excited about right now?

Reed Clay: Well, obviously nuclear energy, but I think in particular, as it relates to the state of Texas is just the groundswell of support that nuclear energy is really feeling right now. I think it's indicative of support. It's feeling across the country, but we just got off the heels of our first ever Texas Nuclear Summit in November and to be honest the reaction and [00:03:00] support and participation in that summit kind of blew us away.

And I think, frankly, blew a lot of the industry participants away. And we're also seeing a high level engagement from Texas government officials, from the governor to lieutenant governor, all the way to both chambers of the legislature in terms of really excited about what nuclear energy can do for Texas.

And something I'm sure that we'll talk about in a minute, which is the economic development opportunity that it presents for the state of Texas. You know, Should the state decide to embrace it the way I think we will. you know, Leading to that excitement is some anxiety. uh, the folks in this building behind me, we'll convene here in about 10 days to start our every other year legislative session, where we expect nuclear to be one of the, biggest topics going on. So that's both a source of excitement and anxiety. Uh, as it's, you know, we're kind of in the 11th hour before that begins. yeah, it's very exciting times with respect to nuclear here in the state of Texas. Frankly worldwide, but as a proud Texan, we like to think, [00:04:00] Texas is sort of the center of the universe. So we're very excited about, about its prospects here. 

Andrew Kazlow: Okay. So I have to ask Reed, what are some of the factors in your opinion that are driving this renewed excitement and energy and interest in the space?

Reed Clay: Yeah, I think it's primarily a confluence of two things. One is a pretty significant move over the last decade or two towards the need and desire to use cleaner sources of energy, particularly low carbon, no carbon sources of energy. you know, Nuclear, uh, certainly checks that box coupled with energy constraints around the globe.

Certainly, Texas is no exception to you know, what we're seeing in terms of a lack of energy to meet growing energy demand, something that has not been the case for many, many years. And nuclear's reliability, is frankly problem off the charts compared to other sources of clean, low carbon, no carbon energy, like wind and solar. Both of [00:05:00] those have drawbacks with respect to their ability to provide 24/7 you know, energy.

I think particularly as we, I guess the 3rd, but I think really just kind of the flip side of the coin of the reliability piece is the AI boom and the need for massive amounts of compute to really meet the interest in demand that's being driven by artificial intelligence. People like to say that, AI needs five nines of reliability.

It needs energy to be on 99.999% of the time. And when you need that type of reliability, wind and solar become become an issue. And nuclear fits this perfect, threads this needle perfectly between five nines of reliability on the one hand, and no carbon emissions on the other.

 That I think is primarily why you're seeing the interest in it. There have been some technological advances taking place in the background that I think are part and parcel to that. So there's this real interesting collision between needs on the demand side, [00:06:00] and innovation and investment on the tech side.

 We're seeing that collision and we're seeing the ripples from that collision right now. And I think we will for many years to come. 

Andrew Kazlow: So talk me through some of the things that you're seeing, both at a federal and state level illustrating how government is just thinking about pushing these changes, like this is not a quick investment. These reactors are going to take decades in some cases to build and commercialize all of these newer technologies.

None of this is small potatoes. 

Reed Clay: Yeah, so historically, nuclear's Achilles heel. Some of this is myth and some of it is fact, but it's perception and perception is reality, right? So, you know, The two Achilles heels have been sort of safety concerns, which largely falls in my mind and to, especially as you compare it to other energy sources, relatively speaking, the safety issue is blown [00:07:00] very much out of proportion to the actual safety issues that exist.

However, that has long been a concern. That has the industry's kind of been mired in that perception. and then On the other end of the spectrum and somewhat related to the safety concerns is the immense cost to build large scale nuclear and frankly, the inability of the industry in recent history to deliver large scale nuclear, on time and on budget.

And so I think you've seen the switch flip for the most part, I don't think the safety concerns and some of the political activism that has animated some of those safety concerns has completely gone away. But I think for the large part, it's somewhat for generational reasons, the safety concerns have faded into the background and people have generally accepted that you know, nuclear really is safe, and can be particularly with the innovations that have occurred over the last few decades, since we really built, [00:08:00] uh, the last nuclear in this country, Vogtle 3 & 4 notwithstanding, which just went live in Georgia last year.

You're, You're seeing government start to focus on the cost side, and the ability to deliver these projects on time and on budget at a price that rate payers can frankly support. That is still the biggest problem facing the industry. It's the one that we talk about small modular reactors and some of those advancements and innovative thinking around how to deliver these projects in a minute.

We'll discuss what problem they're trying to get at. But when you talk about what governments are doing, they're trying to find ways that they can get out of the way on the one hand, from a bureaucratic and regulatory perspective while still maintaining proper safety oversight of building nuclear. And on the other hand, how they can actually stimulate the investment into these facilities, not unlike what you saw from Congress when they did the CHIPS Act and [00:09:00] things like that. When they decided they really needed to onshore some of the manufacturing of semiconductors. So I think just to break this down a little bit into those two categories, I just mentioned again, to reiterate kind of regulatory, pure bureaucracy on the one hand and then investment on the other. At the federal government, you've seen a lot of emphasis placed on NRC reform. There are two things going on there.

One is the current regulatory structure for licensing. Nuclear is antiquated in the sense that it is focused primarily on large scale nuclear projects and not on small modular or micro reactors. So that's one issue that you're seeing Congress take up. But frankly, the other is that the rules and regulations that have sort of been layered on over the years with the NRC reflect those safety concerns that I mentioned in the beginning.

And as we start to peel back the onion on those safety concern and realize that a lot of this is more myth than fact. We also see that some of the [00:10:00] regulations are overkill. And the way I like to talk about any bureaucracy is precautionary by nature. That's just the way they function.

They don't want to mess up. And so that results in you know, very cautious decision making. Well, the NRC has a precautionary mandate on top of a precautionary bureaucracy by nature. And so you've really seen a very stagnant agency and Congress has been very focused on that, passing a number of different laws trying to reform the NRC licensing process, both for large scale, and in particular trying to create a new pathway for these small modular reactors.

And you're seeing the NRC react to the congressional oversight there. I think the other thing you're seeing is a desire by the federal government to invest. And this is the second bucket that I was talking about. DOE programs that have invested in small modular projects. Like one of the projects that's going on here in Texas between Dow Chemical and X-Energy. 

Dow has a big [00:11:00] facility at Seadrift, which is down on the Texas coast, that has pretty substantial cogeneration assets that are aging out. Those are natural gas assets. And so when Dow went to look at replacing those, nuclear popped up and they formed this partnership with X-Energy, which makes small modular reactors and four packs that Dow is potentially going to have. X-Energy comment.

They're going to develop this project with X-Energy's technology to power that facility down there. Some of that will be, as I said, code generation and some of that will be energy that they may be able to put back onto the Texas grid. So it's kind of a win win for Texas. Very interested in seeing that project go forward.

You're seeing investment from governments through things like the DOE LPO, the loan program that they've got in place. The grant program that they created to jumpstart that X-Energy project is another project that's sort of a direct investment that you're seeing. And then, the last thing that I would mention is, 

Congress [00:12:00] has taken a huge look at the fuel cycle and understanding that that supply chain is a potential issue for the industry. On the one hand, they've decided we're going to stop importing Russian or foreign enriched uranium. That frankly creates a little bit of a problem, but realizing that problem, you're also seeing Congress start to wonder about how they can invest in the fuel supply chain here in the United States, not unlike sort of what they did with semiconductors and chips.

And so those two main buckets are, I think, where you're seeing government primarily play. When you talk about state governments, you're really talking more about the second bucket because for the most part, the regulatory environment, and the things that are driving the significant cost of developing nuclear from a regulatory perspective

is the NRC and not necessarily the state government. We do have certainly environmental regulations that developers will need to deal with here. And that's something that we're going to look at to make sure that we've got a clear pathway [00:13:00] that is both properly regulating the safety and the environmental impacts of this, while also making sure that you know, we've got a pathway to develop these projects here in the state of Texas. But really, you know, what we'll be advocating for here in the next five months or so when the legislature convenes is some of that direct investment that falls into that second bucket, really what we're trying to do is almost incubate the industry here in the state of Texas by bringing some of the state's very healthy fiscal situation to bear on that problem.

Last session, leadership here made a huge investment in natural gas through the Texas Energy Fund. I would expect they're going to do, that was very successful, it was over subscribed. I would expect you'll see them invest in those again. But one of the things that we have done over the last couple of years and we'll continue to do is tell them, and hopefully recruit them to do a similar type program for nuclear, where we can start [00:14:00] to develop new projects in the state of Texas. In some ways, nuclear offers even more

in terms of a return on investment than the natural gas did. Both offer a huge benefit to the Texas power grid, which like most grids across the world, is really struggling with. Finding the amount of energy needed to meet peak demand. Texas maybe faces that problem to larger degree because of the rapid growth that we have had and will have, at least if you believe the projections. Our load growth could potentially double in the next 10 years, which is quite a statement. 

So the one return on investment is just the, what it does for the grid and what it does for the reliability of electricity here in the state of Texas for both residential and business consumers. The second really is that, there's an economic development opportunity here. 

Oil and natural gas are the backbone of the Texas economy. That's not going to change.

Reed Clay: That's something that we boast about, we're proud of. And from our [00:15:00] perspective, at the Texas Nuclear Alliance, we don't see that any differently. What's unique about nuclear is that because we've built so little nuclear in the last

20 years or so, the industry has atrophied. so If we're going to build a lot more nuclear, uh, what that means is almost completely regrowing the industry. That presents a huge economic development opportunity for the state of Texas, both in terms of capital investment, jobs, impact to GDP,

tax revenues, both at a local and state level. And so that return on investment is potentially huge and it's something that you know, we're really trying to educate policymakers on that. There's kind of a twofer here with respect to an investment in nuclear. So yeah, that, that's kind of what I see going on from a government perspective at both the state and federal level. 

Andrew Kazlow: So next up, I'd like to understand a little bit more about your story and the Texas Nuclear Alliance specifically. So, it seems like the timing of the creation of the Nuclear Alliance coincides pretty nicely with winter [00:16:00] storm Uri.

Say more about the formation of this organization, how you personally got involved and why you're so passionate about it.

Reed Clay: I think, Uri is probably as good a single catalyst as you'll find. It's not the singular catalyst for this idea to, in fact, the idea of predates Uri. But you know, if we were looking for the most proximate cause, it's probably Uri and the realizations that came after that, that frankly, to be very blunt, Texas had overbuilt

wind and solar or intermittent sources of energy to build out its grid to meet the growing demand. I hesitate to say Uri is really totally a cause of that. I mean, the largest cause of Uri was a massive winter storm, the likes of which I'm looking for some wood to knock on around here that we probably won't see again.

I mean, to put it in perspective, all 254 counties in the state of Texas, which as you, you know, is a huge state uh, and a pretty temperate one, [00:17:00] was under a deep freeze warning for multiple days with you know, a crazy amount of frozen precipitation. And if you want to talk about what happened to the Texas grid first and foremost, it was literally an act of God or natural disaster.

But I do think that what came out of that was taking a deep, hard look at You know, what a responsible grid looks like from a generation mix. What we started to see after that is the mix was too reliant. It was too heavy, wind and solar and, wind in particular at that time.

Solar, at least in the state of Texas, has the benefit of providing a lot of energy at a time that coincides with peak use, which is five o'clock, six o'clock in the afternoon, in the middle of August. That's typically what has been our peak demand here in the state of Texas in ERCOT.

Wind is a little bit different. It's more mercurial, much harder to kind of get a beat on when it's going to be blowing and when it isn't, and it had become [00:18:00] 30% of our install capacity and only producing a much less significant fraction of that.

And now I'll go backwards, so that realization was in layered on top of some work I had done both when I was working for the state of Texas and then, since through my consulting business around nuclear waste. I got exposure to what what frankly, I think are the pretty fantastical politics around nuclear waste and frankly, that you know, anti nuclear waste. My very oversimplified explanation of that politics is fear mongering, which is latching on to a very sympathetic issue.  

Overblowing the safety and environmental impacts of that issue in order frankly, for an ulterior motive, which is to stop the development of nuclear energy. And if you look back at the 1970s, when the anti nuclear movement was really gaining its stride, the waste issue was kind of the choke point that they used.

So through [00:19:00] my work on nuclear waste, I was kind of exposed to those politics. And those two things kind of got married in the aftermath of the Uri when I realized that frankly, the fantastical fear mongering around the waste issue was in large part the reason why we had to turn to something like solar and wind instead of building nuclear. Then as I started to dig into the nuclear issue, I learned that the two sites here in Texas, both of which have two reactors, Comanche Peak, which is a Vistra property and South Texas Project, which is a partnership between Constellation CPS Energy, which is San Antonio utility and Austin Energy, which is the same for Austin.

Both of those have 2 reactors. Both were supposed to eventually have 4. Both were going down the regulatory path work to expand to 4 reactors, or in other words to build 2 more each. And then Fukushima happened. The sort of 1970s fear and politics came rushing back to the surface and scuttled [00:20:00] both of those projects.

If you look at Uri and what it did to the Texas grid, and if you look at peak demand and scarcity, times when ERCOT is scarce. You start thinking about what had happened if we had built. Comanche 3 & 4 in South Texas, 20 years ago, a lot of the issues that we're dealing with and on a hot summer day in August or a very cold spill you know, here in January or February, they're frankly not issues necessarily. Because the capacity factor of a nuclear power plant is 95%, wind is less than 50% in the winter.

It's probably even less than that. Those things just kind of coincided, uh, around the time of Uri for me, and I looked around and my kind of day job is advocating for people before state government. And no one was doing that for the nuclear industry. That's where the Nuclear Alliance came from.

Andrew Kazlow: it's fascinating because it feels like, I [00:21:00] mean, I've been looking into this space for 45 days and it feels like this season is really unique. It's like, there's been this kind of sleeping technology, this sleeping source of a massive amount of potential benefits for our economy.

That's just been kind of latent for 40, 50 years and almost got excited and almost got going, uh, in you know, 06, 08 timeframe, then it trailed off again. And here we are within the last 24 months, seems like there's the beginnings of some more interests and largely driven by this increase in macro demand, which is going to lift all ships, but there's a specific need, like you mentioned earlier for this 99.999% uptime with these data centers and related technology. So it's a fascinating and exciting season. And I think the work that you're doing, it sounds like is being very well received. You mentioned that you've been [00:22:00] shocked by the level of support. Is that accurate?

Reed Clay: Yeah, totally.

Everything in life is timing and a lot of timing is, is luck. Frankly, when you know, this idea came to me several years ago, and even when we started to work on it a couple of years ago, the level of excitement and you know, I use the word tailwinds that the industry is experiencing right now where they didn't exist. And I feel a little bit like I just saw this guy who caught some, I'm not a surfer, so, forgive the lingo, but caught some, maybe some believe maybe it's the largest wave ever surfed. And he's dwarfed by this wave.

You know, I think I, I went out there to surf what I thought was a six or eight foot wave and it's turned into a hundred foot wave. So, so A little bit caught up in that which is a great thing, right? I mean, it's really lot of tailwinds for the industry that has led to a lot of interest in nuclear both from a desire to [00:23:00] coalesce and associate with one another in the form of an industry group like the alliance, but also a lot of interest from government officials who realize the reliability impact, and benefits that nuclear can have.

And changing views on, I would say sobering views on the real safety issues versus the perceived and manufactured ones. you know, it's been the last six to eight months, 12 months have been a whirlwind. And, you know, I think the next six to twelve months is going to be the same, just ton of interest here in the state of Texas and marrying that interest from industry with the interest inside the Capitol.

Going back to the very first question you asked me that potential collision of ideas and energy that is about to take place here across the street for me is very, very exciting and could really propel Texas to the center of the nuclear industry for you know, many, many years to come.

And I think we're [00:24:00] on the precipice of that happening. 

Andrew Kazlow: Reid, let me ask you one last question. This is kind of a thought exercise for you. If you were an investor and you had a balance sheet that you were looking to deploy and you were interested in nuclear within that, what are two or three of the categories or the facets of everything that it's going to take to make this happen over the next couple of decades that you would get smart on and that you would spend some time focusing on as you consider where to deploy those dollars.

Reed Clay: I'm going to, I'm going to give you four, some of these overlap and, maybe eventually very overlapping. But right now they're not. The most obvious is our utilities. I think, frankly, the increase in demand ought to interest in investors.

I I won't speak to current valuations. I think the utilities have experienced a pretty good 2024 in terms of you know, stock appreciation and market cap, but I still [00:25:00] think, you know, when you start looking at the demand for energy. And not just from AI, but particularly from AI and the sort of like philosophical desire by I think the federal government and frankly, some state governments to make sure that we are leaders in AI.

Frankly, I think the CHIPS Act and the semiconductor on shoring is the first big move into making sure that we're sort of leading the way on AI. So when you start thinking about what the demand picture looks like for energy. I mean, utilities have to be of interest. And when you look at what utilities are doing with respect to nuclear. You got Constellation, who's restarting Three Mile Island for Microsoft.

Vistra with a big purchase last year, of some nuclear assets. I think that's one place I would look for sure. Those are obviously publicly traded companies. So that's maybe not the category that your listeners are primarily focused on. The obvious one is small modular developers, [00:26:00] micro developers. There's dozens of them right now, which are very much in the angel venture

kind of phase some of them are a little bit further along. Definitely doing some homework on who the developers are and finding you know, which ones have real promise. Maybe betting on a basket of those is definitely something I would, I would be thinking about.

Again, I mentioned the fuel cycle earlier. The federal government has a national security interest in ensuring that we have a secure and robust nuclear fuel supply and with Congress's decision to prohibit you know, Russian uranium, that puts a lot of onus on developing a fuel supply chain here you know, in the US. The constituent parts of which we have all of it.

However, we don't have enough of it. So you got very big uranium miners here and in Canada. Those are mostly publicly traded. So [00:27:00] again, maybe not the investments that primarily interest your listeners. But then I think you're going to see companies come out and try to solve this problem, including startups about how we mine uranium, how we enrich it, how we recycle it.

You're seeing some of the developers talk about recycling it. So that's another category. I think that's two, right? And then the third is a very broad one, which is the ecosystem that is going to have to be rebuilt for the manufacturing, either large scale or small modular reactors.

This is an industry that, if we're going to develop it, like we need to develop it, it is not at all in the state that it needs to be in, which is going to require significant investment, significant innovation in terms of manufacturing. And paying close attention to what's coming down the pike with respect to that.

I think, maybe that's a little bit [00:28:00] further out on the horizon, but it's definitely something that I would be paying attention to as well. I said four and now I'm forgetting the fourth. So I'll leave you with three.

Andrew Kazlow: That's great. I think you combine, I think you hit four. I got utilities, SMRs and their developers, uh, the fuel cycle and the ecosystem. and Ecosystem So yeah, you, you got the four. 

Reed Clay: I 

Hit four. Good. 

Andrew Kazlow: We'll Reed. This has been a blast. We will wrap things up here. Thank you so much for joining me today and for your work to help grow this ecosystem, uh, very appreciative and look forward to staying in touch and seeing what's next.

Yeah. 

Reed Clay: Yeah. absolutely. Thanks for having me, Andrew. Appreciate it very much. 

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.