Chris Keefer: [00:00:00] This is the nuclear industry's moment to either sail or to crash.

I like the idea. I like the narrative, but I don't like false narratives. 

It's like an incantation. Just saying modular doesn't mean fast. 

Baseload is back, baby. 

There is probably no technology on the planet that is more sensitive to economies of scale.

Nuclear is ripe with very compelling narratives. 

They're science projects masquerading as commercial products.

Nuclear is a need to have not a nice to have technology.

They're hitting us hard on economics. And on construction risk. And those are actually good criticisms.

You need financial engineering. You don't need nuclear engineering and that's what's happening right now is we're getting nuclear engineering solutions to financing problems 

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 a bonus episode in our deep dive season, focused on angel investing in nuclear energy. [00:01:00] When three respected VCs mentioned nuclear on this show within a month late in 2024, I realized that something unique was happening.

So I've spent the last 90 days going deep. I'm interviewing nuclear experts, analyzing deals, and just trying to understand what this all means for angel investors. Now, while I originally planned for just five episodes, when I got connected with today's guest, I knew this was too good an opportunity to pass up.

Now the season will culminate in the release of the nuclear energy investing playbook, which has now been completed and will release in just a couple of weeks at the end of March in 2025. You can pre order the report today using the link in the show notes, or you can get it completely free by subscribing to the Diligent Observer and referring at least one friend.

My guest today is Dr. Chris Keefer, an emergency physician, President of Canadians for Nuclear Energy and host of the Decouple Podcast, which has been [00:02:00] tremendously helpful to me as I've learned about the space. As a vocal advocate for nuclear energy, Chris offers a refreshingly candid assessment of the industry's current investment landscape.

In this episode, we explore why the narrative hasn't fully translated into commercial success in many cases, particularly around small modular reactors and how they suffer from dis economies of scale, despite the appeal. Chris also breaks down the bear case for nuclear energy, explaining why conventional large scale reactors may actually be more economically viable than the more trendy quote unquote innovative solutions.

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

Chris, thanks for being with me today.

Chris Keefer: My pleasure, Andrew. Thanks for having me on.

Andrew Kazlow: Okay, so Chris, my first question for you is what are you excited about right now in the nuclear energy world?

Chris Keefer: Well, I mean, we have won the battle in a sense of social and [00:03:00] political license. I started in this world about five years ago, and things were not looking good. We were in the post Fukushima hangover. A lot of Western governments quite hostile to nuclear phase outs, unfortunately planned and executed in Germany. Interestingly planned and slowed down or reversed or partially reversed due to efforts of my own and other great advocates around the world. So, I think we're in a moment of a lot of promise from that perspective. That being said, this is the nuclear industry's moment to either sail or to crash.

And I think that's going to be a fascinating world to explore here in this interview.

Andrew Kazlow: Well, I'd love to get more into that, but say more about this social political license that you talked about. Double click for me, like what does that mean compared to the climate the last few years?

Chris Keefer: For sure. I mean, that means questions like, what about the waste? What about the accidents? These are the sort of questions that [00:04:00] environmentalists have been raising for decades. Indeed, the raison d'etre of the green parties in Europe was really opposition first to nuclear weapons, and that really quite quickly transferred over to nuclear power generation. It's what I call one of the greatest own goals of the environmentalist movement, particularly as the concern has shifted towards climate, where these movements are guilty of shutting down really important pieces of clean energy infrastructure, which are often replaced with natural gas. So again, five years ago, there were major, major issues and that was reflected in the government policies, you saw nuclear phase outs in my home country in Canada where about 15% of the nation's electricity is produced by nuclear power. We had a federal government who excluded nuclear from the green financing options that we have, like our green bond and didn't just exclude it silently, but compared it to a sin stock. We will not fund nuclear just as our green bond will not [00:05:00] fund the manufacturing of weapons, tobacco, alcohol, and why a green finance mechanism would even consider

funding the latter is unusual, but it's just to kind of point out that nuclear was not popular in the general public, and in policy circles. And that has radically shifted in the last four or five years. Part of that is the Russian invasion of Ukraine and Europe facing a major energy crisis in which the role of nuclear was elevated. And that's kind of rippled around the world and also the increasing importance in the West in particular of the climate narrative and nuclear energy's role in producing carbon free baseload power.

Andrew Kazlow: Love it. Well, clearly it's an exciting time to be in this space. Today, I'm very excited because you have generously agreed to help us think through the Bear Case for nuclear. You're clearly deeply involved in the space, deeply passionate. In the bio, it's obvious that this is something you are very for.

However, I think it's important for investors to [00:06:00] get a sense for what could go wrong, why this could fail, what could kill all of this momentum that we're seeing in the space and ultimately make it a poor investment. So, first of all, thank you for being willing to take that position today, and I'd love to just hear where you would start

if you were to prepare and present a Bear Case for why not nuclear, how would you start that conversation?

Chris Keefer: I'd say nuclear is ripe with very compelling narratives. You have a source of energy with energy density per unit mass, 70,000 times greater than natural gas. As a starting point, that's a pretty extraordinary story. And what that translates into is huge amounts of carbon-free power generated on a tiny land footprint with the least material resources.

We're talking copper, steel, all of the things that go into making a source of power generation. And so it's a compelling narrative. We're also in a moment. It's maybe changing a bit in the West, but we've been in a moment of real climate concern driving energy [00:07:00] policy, and nuclear is obviously very low carbon source of electricity, but there's a lot of thinking about, okay, we need to replace fossil fuel services right across the board.

Not just power generation. We need to replace it in industry and process heat. We should replace it in transportation. Hey, the US Navy runs nuclear powered submarines and aircraft carriers. Why can't we convert all of the large container ships over to nuclear? Heck, I mean, Why can't we do district heating?

Why can't we have nuclear powered cars? We tried that in the 60s with the Ford Nucleon. It was more of a joke of a concept vehicle, but you get the point. Why can't we replace diesel generators at mines and in remote communities with nuclear? It's a compelling story and I wish we could, but what I will say

in terms of this Bear's Case. There is probably no technology on the planet that is more sensitive to economies of scale. And what we've seen in the last decade or 15 years is the nuclear industry going into survival mode, post Fukushima, and in the context of really [00:08:00] plateaued electricity demand

and devaluation really of baseload power. That solution that was sought by the industry was a nuclear engineering solution, which was to fetishize the idea of small reactors and to use this magic word, "modular" to cover over the obvious dis economies of scale that are inherent in that approach. So I guess I'd sort of start there as an introduction. You have this incredibly compelling narrative. You have a power source, which has a lot of peculiarities and is uniquely perhaps prone to category errors. And I think that's a problem that angel investors are probably stumbling into. There's some, I think, very solid first principles arguments that's, are not circulating well within this industry, because in my experience, I'd say this is an industry that really doesn't tolerate a lot of free expression of ideas where there's not a lot of critical thinking

and where false paradigms can really run rampant as a result.

Andrew Kazlow: Well, I would certainly agree in that early investors, particularly angel [00:09:00] investors, are typically severely limited in terms of the depth of diligence that they can perform on any opportunity. And so the story, the narrative, even on the show, we've talked about how the entrepreneur's capacity to tell a compelling story is an indicator of success, that an early investor with limited awareness, limited depth must lean on in many cases, because it also connects to their capacity to recruit talent and tell the vision to the community. So, I'd love to double click on that, like a little bit more specifically, what are some of those stories that you see often go over the heads of folks that are less in the weeds and less capable of double clicking and really unpacking those?

Chris Keefer: Sure. So what I'd say is we all have our mental models through which we comprehend the world. And as a physician, I'll have mine. If you have other educational past or formations, you're going to have yours. And I think when we think about power generation, what is familiar to [00:10:00] us, to the lay public or maybe to someone who's interested in energy is combined cycle gas turbine, a coal boiler, maybe solar panels and wind turbines.

And so when you're trying to get your head around nuclear, there's a lot of potential for category errors. And so I think I'd start with really comparing nuclear. If we're going to compare it to another power source, I'd compare it to hydroelectricity. So this is a power source that has very high CapEx, upfront capital costs are high, that has very high construction risks, that has a very long return on investment cycle. We're talking decades, if not multiple decades. But that provides an incredible form of civilizational life support in terms of generating in the long term cheap, reliable baseload power, which is really the foundation of productive societies who still use heavy industry, for instance.

I think that's a good starting point. Now, there's been an effort as I was mentioning. And the last 10 or 15 years, again, in this post Fukushima worldview, [00:11:00] where there's not a lot of demand growth, where the idea of, and if we put a gigawatt of power onto the grid, do we know that we have customers there to buy the kilowatt hours at the backend?

Because that's pretty damn important to paying off the enormous amount of debt that we've taken on to build this facility. Because of nuclear's unpopularity at the time, there was an idea that, hey, the public governments are never going to finance nuclear again. It's too high risk. It's too unpopular.

So let's rebrand nuclear, and make it attractive to private capital. And that sort of means we got to go small, right? In order to be financeable. So let's drop down in size. Let's do a big rebrand. Let's tell compelling narratives. And maybe we can get something going here. Maybe we can survive as an industry. I think, I have a tendency to sort of wax poetic and provide overly long answers. But, it's a bit of a jumping off point for why small nuclear, I believe, does not have a strong business case.

Andrew Kazlow: Small modular reactors have clearly been the leading storyline, and even in my research, it's something that's talked often about. What I have found in the interviews I've done so far is it seems like the broader sense from within the industry is that what really is necessary for [00:12:00] this ecosystem to take the right next step forward is far less focused on these first of a kind, innovative things and far more focused on can we take a few more steps?

Can we get a few more iterations with 

what we've already done? Would you agree with that? Can you expand on that kind of within this context?

Chris Keefer: Absolutely. Yeah. So this is really important. I think, a lot of the VC money that's rushing into the nuclear space comes out of a mindset of disruption, technology disruption. That's where a lot of fortunes have been made. And I think, folks that have made a lot of money in the space tend to be techno optimists. They think about climate as a challenge, or they just pursue an energy abundance agenda. And I think, hey, let's look at other spaces that could be disrupted again. They look at nuclear and they see what seems to be real untapped potential. Again, the extraordinary energy density of E = mc². And so they often will leap into the space and expect the kind of innovation [00:13:00] speed at which they have within tech, which is super fast or they might say, can we SpaceX nuclear? Look what Elon has done with rocketry. You had this old industry, more abundant, maybe equivalent to NASA launches, expensive, not really innovating, and look what SpaceX did.

Let's SpaceX nuclear. Now, nuclear is something which iterates very slowly, and I think a good way to explain this, and again, I want to reference, I'm building off of a frequent guest of mine, James Krelenstein's ideas here. If you compare rocketry to nuclear, in terms of designing, testing to failure, getting a sense of cost. When you put a Merlin engine in a Falcon rocket and you launch the thing, you're burning for about 90 seconds. You are getting a lot of information and if you want you know, 99% reliability, you can sort of get that in 50 hours of launches, potentially. And you get a lot of information back and there's the potential to iterate a lot. [00:14:00] When we're talking about a nuclear power plants, the whole selling point here is reliability. So, let's talk about the pumps that move an enormous amount of water over the nuclear fuel to take away the heat and turn it into steam. That pump needs to run, in terms of making the economics of nuclear work, and those economics are reliability and high capacity factors. That pump needs to run every day, 24 hours a day, months on end

for a fueling cycle. Which is something like 18 months, maybe even two years. And so, the opportunities to innovate there are much slower. The opportunities to gather information are much slower. In terms of some of the advanced reactor concepts and the fuels that are required, how long does it take to iterate and test a new fuel?

You need to bombard it with radiation inside a reactor. And that might be a process that takes 6, 7, 8, 9, 10 years. Right? And then you gotta take it out, study it, see if there's been stress corrosion, cracking, or whatever else you're looking for, and start again. 90% plus of the nuclear reactors in operation in the world are [00:15:00] water-cooled, water-rated, water-moderated reactors. And they work very well because we've iterated them, not just since the beginning of nuclear, but the management of pressure vessels and steam as a working fluid goes back to Beginnings of the Industrial Revolution 1850s. And so, there's been many, many lessons, many iterations that have occurred along the way. And let's not forget that these conventional reactors took about 30 years to optimize performance. So capacity factors of these nuclear plants was 50%, 60% up until the 70s. Where there was a real leap in terms of performance lessons learned, and we got up into the 90s, 93% as the average capacity factor of us nuclear plants. And that is precisely what makes them so attractive to hyperscalers, for instance. Baseload is back, baby. You need 24/7 power for those kinds of facilities. And also for the sort of heavy industry that a lot of Western governments are looking towards reshoring in the sort of post-free trade, post-neoliberal era. If you have [00:16:00] nuclear power plants that are buggy. They're having lots of unplanned outages, probably less reliable than wind and solar. Because at least you know when the sun comes up and when the sun goes down, right? Unplanned outages and nuclear frequent ones, imagine that, right? You have a data center, you're mostly relying on a maybe a few different small modular reactors. But these reactors are so called advanced reactors that really have not been deployed at scale, where the lessons and iterations have not been learned. And they are crapping out frequently. That's a major problem. That's a problem for these applications for process heat. Dow Chemicals signed a deal with X-energy to provide high temperature process heat to a petrochemical facility. That facility costs multi billions of dollars and your power source is crapping out on you all the time and your production lines are going off. That's a big problem. And same for data centers as well. Amazon also signed X-energy to work on powering some of its data centers. These are puzzling technology choices for me. I can understand where they're coming from, in terms of some of the [00:17:00] contortions that I've outlined that the nuclear industry has had to take to survive in the last little while. But yes, I think in terms of where you're coming from, previous guests are starting to, I think, become much more aware of the need to really embrace the conventional, but very much improved technologies that have gone leaps and bounds since, say, the Chernobyl incident or Three Mile Island.

So many lessons learned and applied, and these are while using water as a moderator and coolant dramatically different reactors, which are more than good enough to power some of these baseload needs, which again are back in vogue.

Andrew Kazlow: So what I'm hearing is essentially the uptime problem and technical risks associated with new designs are so significant that there's a compelling case for, this is not a good near term investment for an early stage investor. Is that a fair summary?

Chris Keefer: Yeah, they're science projects masquerading as commercial products. 

Andrew Kazlow: I guess what I'm sensing is there's so many stories in that [00:18:00] vein. As I look at the early stage investment ecosystem for the nuclear energy space, like, what I'm seeing talked about is these, I mean, it's an SMR company, after SMR company, this new fuel, this new this, this new that. That's what I'm seeing talked about in the media. Help me concisely

hone into the

question or two, the pushback point or two, that would be

top of mind for you if one of these new "innovative" technologies was coming across your desk and you were a lay investor that had some familiarity but not the depth of background that you personally have. 

Chris Keefer: Don't get me wrong. There's a lot of innovation going on, and that's exciting, and that's great. And if you look at the history of reactor development, things started small, right? Little pilot projects, 10 megawatts, and then they scaled up to 100 megawatts. And then eventually they scaled up almost you know, universally, to the gigawatt level. So, we need to start small to [00:19:00] debug some of these issues. What's different now than in the past was in the 50s and 60s, these were science experiments occurring government funded national laboratories. Not venture capital coming in and saying, okay, you're going to get this reactor online and 5, 10 years and earn me a big return. No, that's not how it went. And again, even with established technology that you know, have an industrial revolution worth of iteration and problem solving took three decades to reach the kind of capacity factors that truly make it economic at this point. And so these expectations of when you will get that return, I think, are quite misguided. Now, I'm sympathetic to the idea that, hey, VCs are doing a public service here by investing in these innovators, because it's great that these pilot projects are starting out and getting some funding and we're hopefully going to debug. I'm fully supportive of that, but I just think that the expectations are too large and I think there's a lot of excitement right now in the micro reactor space. And again, this fits into this category of micro reactors, like a diesel generator. [00:20:00] We can deploy power data centers as a backup or just continuously we can deploy in remote minds, remote communities. There's a big problem with going small in nuclear. I mentioned before that I think nuclear is a slave to economies of scale in a fashion more so than any other technology I can think of. And that's because there's some inherent costs associated with nuclear. So, no matter how small your reactor is, even if it's putting out a power output to power two toaster ovens, which was Chicago Pile-2, the world's second controlled fission reaction, right? This is during the Manhattan Project. This reactor put in enough radiation into the room it was in that people would get fatal doses within minutes.

And so they had to put up five feet of concrete shielding around that reactor. How many power point reactors have you seen, micro reactors that don't show any shielding? That starts to change the picture a little bit. Okay, shielding, that's not a showstopper. Okay, but here's another issue. When you have a very small reactor core, you leak a lot of neutrons, and neutrons are what you need in order to split [00:21:00] that Uranium-235 and unleash that incredible amount of energy. And so what's often required is fuels that are much higher enriched. Or fuels that are accident tolerant. And these fuels are very, very expensive. And again, the whole promise of nuclear is, yes, you have a high CapEx, but your OpEx is low. A natural gas plant, not cheap, but cheap-ish to build. And your overall cost over its lifetime is the fuel. That's different with nuclear because the fuel is supposed to be cheap and so you run into those kind of issues. Another example of economies of scale, if you have to refuel a gigawatt scale reactor once every two years, it's a little bit of an ordeal. You're offline for a few weeks, but you get that job done. If you have to refuel 10, 100 megawatt reactors, or if we want to get even crazier, a 110 megawatt reactors, that's a huge amount of operational exertion that has to happen and cost. I can go on.

I mean, licensing regulation. These are all high costs that the reactor entails, no matter what the size is. And so this [00:22:00] really, I think, pours some cold water on the whole concept of micro reactors that I think is a showstopper. Unfortunately, I wish it wasn't. Because, hey, I wish some of these compelling narratives were true. I wish we could replace these diesel generators and power remote communities provide abundance in terms of heat and power. I like the idea. I like the narrative, but I don't like false narratives. In terms of some of these first principles arguments, I think that they're not being engaged with enough in this space. The industry doesn't encourage them because let's face it, vendors are trying to attract capital, no shame on them for, as you were saying, one of the key skills of a founder is convincing people, right?

So you're not going to give them the full picture and there's not like a peer review out there to sometimes call bullshit

Andrew Kazlow: So you talked about technology itself being like viable and actually being able to make that happen. You talked about uptime. You've talked about some of the economies here, which is another big Bear point is, is can this actually deliver the cost [00:23:00] savings that are ascribed to it? What are some of the other categories that you find compelling from, those that are short nuclear?

Chris Keefer: Oh, yeah. I mean, I think I've hit you with a lot up front here. You know, I guess other issues which plague nuclear no matter what the size, in the West is human factors and workforce availability. So, I mean in the 70s and 80s, we deployed nuclear at an incredible scale here in my home province of Ontario. We built 20 large nuclear reactors, commissioned them in 22 years. One of the fastest additions of clean energy the world has ever seen. This basically is what got us off of using imported US coal. France, similarly, 56 reactors commissioned in about 20 years. But this is a product, a little bit of a different time.

When our youth were not learning to code, they were learning to weld. Where we had a large skilled trades workforce and the reality is a lot of the kind of extremely high-skilled craft labor that's required is not on tap in [00:24:00] the West. So, I'm Bearish in the West. I think, we need to get going. We need to find ways to scale that up. But the other issue, if my thesis is correct and large conventional nuclear is what has the greatest chance in terms of just the proven economies of nuclear power, then you need public finance. You need low cost capital. And that's not VC capital. That's not private equity capital. I think that's another challenge. And again, I don't mean to cast too many aspersions. I think, a lot of microactive developers, these are good people. They believe in what they're doing and hey, maybe I'm wrong. And maybe this is the vehicle with which private equity and private capital can really make nuclear bloom, but I don't know. I'm not seeing it.

Andrew Kazlow: It's funny you mentioned the human problem recently had, Reed Clay with the Texas Nuclear Alliance on the show talking about that problem specifically and how there's this need to reengage and reinvest in that human supply chain just to build the talent expertise because almost [00:25:00] all of it is maintenance mode, right?

The ecosystem we have is maintenance mode, not a huge volume of let's go build this again. 40, 50 years since we really had material ecosystem wide investment in new development aside from Vogtle 3 and 4.

So that point completely aligns. And I think policymakers are starting to come around to the need for that, but to your point, it could take a while.  

Chris Keefer: I think this is a good leaping off point as well for the magic word, the incantation that is supposed to dispel the problem of economies of scale and nuclear, and that is modularity. It is a good concept and the funny thing is that it predates the small modular reactor craze, right?

We have large modular reactors. The AP1000 is a large modular reactor. The advanced boiling water reactor deployed in Japan and Taiwan, large modular reactors. Uh, the last, uh, Canadian have to bring up the CANDU, The last CANDUs that were built in China, modular reactors. Some of these were built [00:26:00] extraordinarily fast. The last CANDUs in China were amongst the fastest ever constructed in China, and China can build reactors quickly. The world record in terms of the fastest time from the nuclear concrete base mat to grid connection, was in Japan with a large 1400 megawatt reactor, done in under 40 months. 

All right, so under four years. It's extraordinary, extraordinary. These were modular reactors. Now the AP1000 also modular in the US took nine and a half years. That's why I joke. It's like an incantation. Just saying modular doesn't mean fast. And that was particularly an issue in the US.

 I have a series of episodes on what went wrong at Vogtle. But a part of that is again, , move your, move your workforce and the project into factories, because what we've seen in the last 20, 30 years is construction site productivity has kind of gone down and manufacturing productivity, not quite exponential, but it's gone up a lot, right?

So it makes sense. Move more of the work into a manufacturing facility. That being said, if you're [00:27:00] manufacturing things simultaneously to a bunch of different sites and your supply chain is not coordinated, they don't have the right incentives and modules show up that are not on spec, this can really throw off your critical path and really slow you down.

And that's a little bit one of the many contributors to sort of what went wrong at Vogtle. That speaks really to not just the craft labor, but also the project management skills, which are so vital with nuclear. And just to be Bearish, uh, yet again, what I'll say about nuclear is it is a need to have not a nice to have technology. Nuclear energy is just, again, I think I'm a overall a Bull on the technology. I think it's a fabulous technology. I think it's a civilizational builder. I think it contributes to human flourishing in terms of the kind of human factors that are developed in craft labor and project management and physics, all sorts of things,

right? But it takes a huge societal mobilization to do and to do it well. And so where you see nuclear deployed around the world is generally where it was a need to have. Here in Ontario, we were dependent on importing coal from the US. France, I [00:28:00] mean, they were burning oil for a good part of their power generation because of how cheap oil was in the 60s and early 70s before the OPEC crisis. 

They built nuclear for that. Japan, they burned off their coal for the Meiji restoration and the industrialization of Japan, and the reason why there's two big nuclear power plants in the Fukushima Prefecture is because that was a coal-heavy area, and they transitioned a lot of those workers into nuclear, but Japan was out of energy. Since the closure of their nuclear feed, Japan has spent hundreds of billions of dollars more than they would have on the importation of fossil fuels. So again, another place where it's a need to have technology. Why was Diablo Canyon saved? Because it's a need to have power plants, right? They're forecasting blackouts when taking 10% of the state's electricity, particularly reliable based on electricity offline. That's what led to this remarkable turnaround where you had a Democratic supermajority in the Senate voting almost unanimously to save a nuclear reactor.

 All this to say that again, nuclear requires the mobilization of your best and brightest. It's a beautiful, inspiring thing to see, [00:29:00] but there are easier ways to make power. I'm personally, I think history is showing that the climate imperative is not a strong enough one as a sole motivator to motivate that if you have cheaper sources of power around. America would be on building at 16th or 17th. They'd be in construction mode on that many reactors and they would have suffered through Vogtle, but they'd be applying those lessons and getting costs down. You guys have natural gas cheaper than water. So what are we going to say?

Andrew Kazlow: Well, on that point, I think that's one of the most obvious counterarguments to the case for nuclear. Clearly, electricity demand is beginning to accelerate, and assuming that continues, there's going to be additional draw and potential additional demand in the ecosystem. But to your point, natural gas is just so cheap right now. The alternatives are abundant.

Say more about why those alternatives might make more sense [00:30:00] from an economic standpoint, as this demand curve continues to accelerate than nuclear.

Chris Keefer: What I think is interesting is the power sources that are being chosen in the Western world. In the Western world is largely a neoliberal world that's changing slightly under trump but it's yet generally a world of private equity financing energy projects and private equity is very good at funding wind and solar projects, especially with just some juicy government subsidies and PPAs and tax credits, etc. But

these are small projects you can scale into large projects, but they scale modularly, adding extra wind turbines, adding extra solar panels. They're very low construction risk. And generally speaking, they provided pretty good returns. Again, a lot of subsidies on board. Natural gas, again, it's deployed under its own weight with private capital. Fairly low risk construction projects pretty quick to build. Utility executives don't panic about the idea of building a natural gas plant, because it's going to [00:31:00] cost you, I don't know, 800 million for a gigawatt scale gas plant. You pretty darn confident your supply chain is working well. You've got lots of experienced workers. I think gets built in a couple of years and you're running cheap natural gas through it, right?

Private equity is not good at is building hydro dams or nuclear, which is a lot like a hydro dams. Or again, we're talking about a huge upfront capital cost and a high construction risk, right? It's worth paying the price to develop the skills to reduce the construction risk. It's worth pension funds and patient capital getting into fund these projects in the right environment, but that's not an environment we're really seeing in the Western world. And if you have an abundance of cheap fossil fuels, you could have sort of Biden-esque policies that might slow that down a little bit, but even under Biden, there was a ton of natural gas deployed. Even with a so called climate hawk in the White House. Now, I don't know, we have a climate chickadee or whatever. Those concerns are taking a big back seat and I really do think that hurts the prospects for nuclear in the US.  

Andrew Kazlow: I love this [00:32:00] point about need to have and how reactive we are. Like you take the small scale situations within any company, right? We've all been there. There's a big meeting tomorrow and we have to get this thing ready and we hit go and stay up all night, get it done. I love taking that idea to the macro scale and like, oh my gosh, we need an extra dozen gigawatts like in the next year or whatever the number is for this particular project, how are we going to get there? I think your point about spinning up another natural gas plant.

We know what that looks like. We know the timeline. You can piece meal it. It's so much more digestible than this new unwieldy, scary, in a lot of way, technology known as nuclear.

I think that's so on point.  

Chris Keefer: I think what's interesting is the anti-nuclear opposition no longer fear monger about three eyed fish and dangers of radiation and even accidents all that much. They're hitting us hard on economics. [00:33:00] And on construction risk. And those are actually good criticisms. What I will say, just to give another sort of mental image is nuclear. I think is a lot like, it's a juggernaut. It's a train or something versus called renewables, like bicycles. And maybe natural gas plants are like cars. Easier to manufacture, mass manufacture, build supply chains for nuclear.

These are big chunks. Require the best of the best. Require skilled craft labor, et cetera. And so getting it in motion in terms of an industry requires a number of train cars or number of projects and just a large amount of investment, of capital, of human resources, of government support, et cetera.

Once that locomotive is rolling, look what's happening in China. I saw a really interesting infographic recently of nuclear expenditures around the world in the last five years, the West has spent more on nuclear than South Asia has, and yet South Asia is where all the growth is. And it's because they're building reactors for $3,000 a kilowatt. Vogtle was probably $14,000. It's hard to keep up with the inflation adjustment right now. [00:34:00] But they're building three, four nuclear plants for the cost of one of ours. And they're doing it in five years. They've got the wheels rolling on that train. But a part of it is because they're state capitalists.

They have some of that private sector dynamism. It's obviously planned and controlled, but they have a sense of strategic priority and we've covered this recently on my podcast. China as an electro state. China rapidly electrifying, not because of climate, but because they're the world's largest importer of oil. Just the geography of China, they have this island chain, they have the Straits of Malacca that they have to move these imports through. And heaven forbid, should there be a conflict over Taiwan, they are uniquely vulnerable to naval blockade and to losing that oil supply. Oil is often referred to as the lifeblood of an economy.

It's literally what makes everything move from cars to transport delivery trucks, diesel trains, farm machinery, everything. If that's cut off, that's a big deal. China has succeeded at [00:35:00] plateauing while their economy continues to grow at plateauing their amount of oil usage.

And they've done that with electric vehicles. They've done that with electrifying a lot of industry, and that is to avoid a dependence on oil and they're doing it quite effectively. So it's a state strategic priority to do that just as. And this sounds ridiculous to say that George W. Bush, was some kind of a state capitalist. And of course he wasn't right. But you have to remember in the early 2000s. The US was facing what they thought was a natural gas shortage. I think natural gas peaked at $14 or $15 per million BTU on Henry Hub. There were entrepreneurs that were setting up LNG import terminals because things look so grim in terms of an energy crisis and energy independence crisis. And nuclear was hot because that is a great way to make a lot of electricity. And so how does that work in a neoliberal economic system? Well, you got to do some financial engineering and that's what Bush did. One of the most free trade neoliberal presidents there was the loan programs office was began.

In order to provide that low interest, low cost [00:36:00] capital to get nuclear projects going.

And there were combined construction and operating licenses issued for about 16 gigawatts of nuclear power in the early 2000s. We were on the verge of a renaissance. And that's why I say, again, if the fracking revolution had not happened, I think we'd be a good ways into that. Even with Fukushima, cause we wouldn't have a choice.

They'd be need to have not nice to have nuclear reactors.

Andrew Kazlow: You move past the questions, the issues. It's just, we have to figure it out when it's a

need to have.

Chris Keefer: And this is what's needed is if you're serious about deploying the nuclear, which I think is ultimately economic, the large nuclear, the proven nuclear, right? The stuff that doesn't have a burn in period of decades to reach technological maturity and adequate capacity factors. You need financial engineering. You don't need nuclear engineering and that's what's happening right now is we're getting nuclear engineering solutions to financing problems or social license problems, even. That's even more ridiculous. And again, we've won on social license. But right now this is my fear.

And I guess my Bear's Case is that the nuclear industry is about to, in the West is about to fall flat on its face. Partially, you know, it's its own fault and [00:37:00] partially it's just the economic system that we find ourselves in, which is not conducive to nuclear in the way that it is for natural gas or wind or solar.

Andrew Kazlow: You talked about the changing macro perception to, it's now this focus on economies and cost overruns because Vogtle is so in the face for the West. I think it's interesting to see that transition in the public perception. What could be the next transition is if some of these widely cast visions for SMR don't pan out and then the public grows disillusioned with the opportunity in general. Do you see that happening? With the next 

iteration here?

It's a huge risk. I mean, it's almost miraculous that we do have the amount of social and political license we have given the construction blowout at Vogtle but also across Europe with the European pressurized reactors that have built there. The nuclear industry in the West desperately needs some Ws.

They need some wins. Right? And we've just been racking up L's. You know, the L's from [00:38:00] advanced reactor companies failing to meet expectations are not going to be as devastating, but that has been a lot of it. The nuclear industry has revived its image in part by really overhyping these concepts and by being so damn confident about it. So in Ontario, we're about to start construction, final investment decision coming in a few months, maybe changed by Trump's trade war against Canada. Cause we are about to de risk technology for an American company, GE Hitachi. Take on that 1st of kind of risk to build the West 1st grid scale SMR, both 300 megawatts. If the trade war doesn't snuff it, there's risk to this project, right? The Tennessee Valley Authority, which is quite involved in thinking about deploying the same reactor. So, uh, invested to the tune of tens or even $100 million. They released integrated resource plan about TVA deployments, and they forecast that 300 megawatt SMR would have a cost of something like $18,000 in installed kilowatt. Now Vogtle was with inflation, 15,000 installed kilowatt. That's first of a kind, and they did say the [00:39:00] cost could come down, but one of the big cases in Canada for deploying this small reactor is, well, it's not really for Ontario, where we have a massive grid, and we're really actually talking more about large reactors as the SMR height fails, but we're going to deploy in some of our prairie provinces.

Those happen to be oil and gas provinces and the idea that a utility out there is going to cough up. Let's be charitable, not 7 billion, but say 5 billion for 300 megawatt nuclear reactor versus 400 million for a 300 megawatt gas. Reactor to a certain gas reactor, gas turbine to take advantage of stranded Canadian oil and gas. It's a hard sell. I'm very worried that this paradigm is not going to take off. I am, I guess, heartened in terms of my Bull Case, Ontario has pivoted in terms of our plans beyond the small reactor back towards large modular reactors. We have shown incredible capability here in Ontario. We've been finishing nuclear mega projects, $3, $4 billion mega projects, essentially engine swap outs of our existing Canada nuclear reactors ahead of schedule, on [00:40:00] budget. We figured out an integrated project delivery plan. We've trained up the skilled workforce. We've dialed in the supply chain. So, I do think that's Ontario could well lead on this nuclear renaissance. And also we don't have, we have to import that natural gas, right? 

Chris Keefer: We don't have it. We don't have coal. We don't have natural gas. So nuclear is a need to have. And so I think we've got the right ingredients.

 I'm coming across as like a total pessimist up until now. I got to make a little, we'll work at a little bit of the Bull's Case here.

Andrew Kazlow: I love it. For anybody that's confused by Chris' perspective, there's an entire show called Decouple podcast that I highly recommend where he breaks down the Bull Case, and much more. So one question I do have for you, Chris is on Vogtle. Give me the three to five minute and breakdown on what did go wrong.

I know you've got a lot more content, but give me the cliff notes on why, like why did that just massively under deliver relative to the timing and cost expectations? Because I think that is such a compelling argument for a bear to say, Hey, look, [00:41:00] the Chinese are doing it for this. We did it for this.

Like how on earth are we going to bridge that gap?

Chris Keefer: Okay. So again, I'm going to reference my frequent guest, James Krelenstein, who hasn't taught me everything I know about nuclear, but he's taught me a lot. And I'm sharing his analysis on Vogtle. And I think it's a very special one because again, the industry is not doing a great job at talking frankly about its failures and what it's learned from and how it's going to do things differently. What's interesting about the Vogtle reactors is we have a case control study. And that is that China embarked on building the same reactor technology, the AP1000 a year or two before the Americans started. Now you'd expect China, their median build time for nuclear reactors is about five and a half years. So you'd expect something like that. It took them nine years, and it took us, well, you guys, we're in trade war time, so I'm a

little less generous with you know.

It took you Americans, uh, nine and a half years ago. That's only a six-month difference. So what the hell's going on there? And so that's not explained by, [00:42:00] Hey, the supply chain is obviously far more geared up in China. The workforce is geared up. They're banging reactors out every year. So, that wasn't the key difference there. And that extra six months, I mean, the Vogtle builds struggled through COVID. If China, especially with COVID zero policies in China, like they probably would have gone 10 years, right? So what was the common factor there? China has a tough regulator. It wasn't a difference in regulation. It wasn't a difference, as I mentioned again, in supply chain or the human factors, et cetera. The design wasn't finished. And the way that nuclear reactors have come to be regulated in the 70s and 80s, part of the huge issue and the regulatory burden and the price spike was that you got a license to construct the plant. And then before you're about to turn it on, you've got a license to operate it. And with some of the safety changes that were made post Three Mile Island, you'd be partway through building and the Nuclear Regulatory Commission would say, actually, we don't like that system.

You got to tear it out and replace it. And so what the industry said is, listen, just give us clarity. We want a combined [00:43:00] construction and operating license. So if what we give you needs to, we need to have certainty about the design we give you. And the NRC said, okay, fine. And so Westinghouse said, we've got to finish design and give that to the NRC, got it approved, but the design wasn't finished. And so they did a bunch of things that weren't up to spec. The work orders couldn't be organized properly. The design wasn't ready. That's the one commonality that you really see between the Chinese and the Americans. And that's why that build was such a problem.

Now, the Bull's Case here is the design is now finished. There's reference plants. There's work packages. There's a lot that's been learned. And so the next AP1000. There's no doubt it's going to be faster and built more quickly. And we see that in China, where they've actually upgraded that plant to 1400 megawatts, they just brought one on in five years. Meeting their sort of median build times. Now, whether the US can shave off three or four years. I think that's unlikely. That's is where those supply chain differences will be seen. But again, great case control study, both the Chinese and Americans took a long time on those [00:44:00] first of a kind units.

Andrew Kazlow: Fascinating. We'll highly recommend those episodes for a lot more detail. Chris, one other question area for you that is getting a lot of attention in venture ecosystems, but I haven't heard a lot of conversation about from industry professionals, and that is Fusion. I have to ask, tell me why Fusion doesn't work?

Chris Keefer: Okay. I have this, well, I'm borrowing a joke from my friend Dylan Moon, but, um, do you want to hear a joke?

Andrew Kazlow: Love a joke.

Chris Keefer: Hydrogen. Do you want to hear another joke? Fusion. So listen, something that's like truly, truly extraordinary is that humanity went from splitting the atom, recognizing that they had split the atom. In 1938, Lise Meitner, Otto Hahn et al, right, to commercial nuclear power in 1956. So in 18 years, we went from discovering the phenomenon to a commercially viable nuclear power plant. We also had nuclear submarines [00:45:00] slightly before 56. So, that's not to say there wasn't a incredible investment through the Manhattan project that didn't spur that along. But again, from discovery of the phenomenon to deployment, figuring out the engineering 18 years, extraordinary. When did we really discover fusion? Well, hydrogen bomb, right? 50s, and we have gotten nowhere close getting any kind of reliable fusion power out. There was a big announcement, I think, out of Lawrence Livermore Laboratory that they'd had a positive Q, meaning more energy out than in, but it discounted the megajoules of energy that came in from the laser to initiate that process. There's this idea that fusion is just splitting water. No, the fuel is deuterium and tritium. These are isotopes of hydrogen. They're rare, they're expensive to produce, right? So the fuel ain't cheap. And then depending on the type of fusion reactor, the Tokamak reactors, like ITER over in Europe, I mean, you're needing to have

some of the hottest temperatures in the solar system confined as a plasma, right next to some of the [00:46:00] coldest temperatures in the universe. These magnets, which are down close to zero degrees Kelvin. And then there's neutrons that are screaming off of this reaction and tearing apart all of the materials that you have around the reactor.

 I was talking to an ITER physicist and he was saying, like, the problem is our reactors are eating themselves. There's just the engineering complexities of fusion are probably an order of magnitude more difficult to overcome than fission. And what do you get at the end? You get a baseload stationary power generator.

That's harder to build. So, how does that solve nuclear fission? How is it better? Well, people say there's like a little bit less waste, but waste isn't really a big problem for nuclear power. Like, when you really strip it away and compare it to other power sources, nuclear produces the ideal waste. It's solid, it's produced in tiny volumes. We can account for every gram ever produced. And it just sits there getting safer with time. And within 500 years you could hold it in your hand, you'd be fine. So I think fusion is kind of sold as you know, solution, um, that even the greens can get behind [00:47:00] because it doesn't yet exist.

And some of the challenges haven't quite come about. Um, but the other thing is, people often say it's going to solve all our energy problems. And that's that same thing I was talking about in the beginning, this idea that, Hey, we could have nuclear powered cars and airplanes and container ships and generators and everything else.

No, you end up with a really, it's less power dense, actually than fission. You end up with a really large power plant producing based on electricity, which isn't such a hot commodity. Maybe the hyperscalers will prove me wrong on that.

Andrew Kazlow: So if you had to guess a timeline on first viable fusion reactor, give me a 

number, a range.

 I gotta repeat the really lame joke, which is, you know, 20 years in a 20 years, it will be 20 years from then. There's exciting research going on. I don't want to come across as like a total pessimist and, uh, you know, Debbie Downer, I think science is awesome.

And I think, you know, it's training up some really cool people and we're doing some really exciting science. And there's probably going to be interesting spinoffs from this, materials, development, et cetera. I think, when humanity is faced with sort of existential [00:48:00] crises or the perception of existential crises in the 50s, 60s, 70s, that was fears around population, sort of Malthusian fears that we're going to run out of resources and we're going to be too populous. There was a lot of magical thinking that actually occurred in the nuclear world. That was the era of, you know, we're going to make the deserts bloom. We're going to have so many nuclear plants desalinating. Kind of the agro, atomic complex screening, the Sahara, cause we just have this unlimited energy, right?

Energy would be too cheap to meter. There's a kind of euphoria around it and the imagination runs wild. And I think it runs even wilder when you have an existential threat. In the context of climate, we're sort of back there again. And we see, I think, fantastical thinking on the nuclear side. To some degree, we see it with renewables, certainly a lot. Some of the sort of net zero modeling studies are a wonder to behold. But in any case, I think fusion sort of falls victim a little bit to that. And I think in the end, temporary expectations a little bit. Nuclear did something extraordinary. It didn't  become the dominant or only source of electricity on the planet.

It didn't make all the deserts bloom. But, you know, it's worked its way up to be a very [00:49:00] significant portion of the mix in a number of countries where it's been a need to have resource where their economic growth would have been very much hindered by not having that cheap, reliable power. So let's celebrate it. But always bring a little bit of realism to it, because I think that's going to help make the best decisions, the best investment decisions and, you know, the best decisions for our society is more broadly.

Well, Chris, I will end us there. This has been fantastic. Thank you so much for coming on and sharing these candid insights. And I think your breakdown of the Bear Case would be very, very helpful for our audience.

Chris Keefer: All right. Well, I look forward to it and it's all about the battle of ideas. I could well be wrong on a bunch of them. What I celebrate is, is debate and just having an open conversation and just tearing ideas apart again, to figure out what the best path forward is. So Andrew, so much again for having me on.

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.