A Nuclear Power Uprate for Your Portfolio

by Johnny Terawatt | December 27, 2011 2:44 pm

What would you say if I told you we could generate 20% more electricity from a nuclear power plant generate less waste and at the same time making the power safer? Lightbridge Energy (LTBR) has the recipe.

Lightbridge started out in 1992 working on a fuel rod design that used thorium[1] as a complement/alternative to enriched uranium[2] rods. (Thorium is a separate, but very interesting story that has great long-term potential to generate weapons proliferation-resistant power and solve the impending uranium shortage.) There is now, however, a much hotter new idea from Lightbridge that grew out of their thorium research–an all-metal uranium fuel rod assembly that promises higher power with greater safety from existing reactors.

The Fukushima disaster of spring 2011 sent hopes for a nuclear renaissance evaporating in a cloud of steam. The tsunami knocked out primary and backup power to the plant itself, which prevented circulation of cooling water[3]. As the fuel rods heated to over 2000ºC the zirconium cladding reacted with the steam to form hydrogen[4] gas. This gas exploded, destroying the containment building and releasing radioactive materials. If Lightbridge’s all metal fuel had been used, the explosion and subsequent meltdown probably would not have happened.

In conventional fuel rods, cylindrical uranium oxide slugs are stacked in a hollow zirconium tube (the cladding). In the Lightbridge design, a uranium metal alloy is bound directly to the zirconium cladding (rather than as oxide slugs fitted in a tube). The fuel elements also have a cruciform (plus-sign) shape with a slight helical twist, which improves coolant flow. These design elements make for a stronger fuel rod which has dramatically better heat transfer, with operating temperatures of 380ºC instead of 1500ºC. Higher heat transfer and lower operating temperature means greater power output with lower meltdown risk. The design has been evaluated in a Russian test reactor and is currently be evaluated at Idaho National Labs (INL) under the auspices of the NRC, all paid for by the Feds. Expectations are for testing in a commercial reactor as early as 2017.

The future of nuclear power in the developed world is currently one of contradictions. Germany has renounced nuclear power but has no intention of rejecting France’s nuclear teat (Quelle ironie!). Japan[5] may never build any new reactors, but TEPCO is under pressure from industry to restart the undamaged reactors. In the US, new reactor certification remains at a glacial pace but existing reactors are being recertified apace. No countries other than Germany and Switzerland are talking about shutting down existing, working reactors.

So how can a nuclear fuel developer be a good investment in a post-Fukushima world? Fortunately, it’s not rocket science. The answer is power uprates of existing nuclear reactors. Lightbridge fuel designs can provide a 10 or 17% drop-in power upgrade to an existing reactor and 30% uprate of a new reactor. LTBR calculates this corresponds to a $45-68 million annual incremental cash flow for a single, typical reactor.

Moreover, the utility can tell its worried neighbors that their uprated reactor is going to make more power (carbon-free, by the way) with 15% less spent fuel per megawatt. And that a melt down like Three Mile Island or Fukushima is almost impossible.

I am not a physicist, but this looks like genius. We can still use the SAME reactors and the SAME fuel fabricators (No one’s rice bowl is broken by a novel technology that cuts them out). The utilities[6] make more power and do it more safely. (ir.ltbridge.com). The only risk is that INL testing will reveal some design flaw. From the hours I’ve spent listening to conference calls, interviews and investor presentations, such a serious flaw in the fuel seems very unlikely.

The company expects initial revenues from fuel sales in 2-3 years. Their market analysis forecasts market penetration of 6.5% in 2020, increasing to 33% in 2030, which corresponds to revenues growing from $181 million to $1.5 billion. That’s a lot of rice for LTBR and its investors.

Lightbridge’s current revenues are derived from consulting–much of it in the Middle East[7] where there is interest in both their uranium and thorium technologies. Management has strong ties with governments and fuel processors. Their Chief Nuclear Fuel Development Officer, Jim Malone has been asked to chair the World Nuclear Association’s (WNA) newly formed Fuel Technology Working Group. That group will work on standardizing reactor and fuel designs-like LTBR’s metal fuel.

LTBR has a market cap of only $26 million. The company forecasts an internal rate of return (IRR) of 47% in 2020 and 67% in 2025. How do we know that Lightbridge isn’t just a flash in the pan but is really ground zero for serious long-term nuclear investors? Simple–because the Feds believe in it. The NRC is already funding testing in its own reactor. No one at Idaho National Labs says “I wonder what’ll happen if I stick this in the reactor?” They have a pretty darned good idea this is going to work. We just have to be patient for the payout.

The nuclear power industry is not going away. It changes at a geologic pace and Lightbridge is positioned to profit handsomely from this tectonic shift. Today LTBR’s share price is quite depressed post-Fukushima (and post economic melt-down), but no more than uranium giant Cameco. So why buy now? Lightbridge is in a currently disfavored sector, has a game-changing technology that is not replicable and not yet widely understood. Oh, and the potential profits are enormous and sustainable.

This is the ground floor.

Surprising disclosure: I am long LTBR.

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