10 November 2023
NuScale Power, a U.S.-based company, has announced the cancellation of its plan to build a small nuclear reactor in Idaho, U.S. The Japan Bank for International Cooperation (JBIC), had invested in NuScale in April last year, together with JGC Holdings Corp. and IHI Corporation. JBIC’s investment in NuScale was $110 million. In September of this year, JBIC transferred a portion of its investment to Chubu Electric Power Co. Both investments were made through Japan NuScale Innovation, LLC [i].
At the time of JBIC’s investment, we pointed out that even under their new guise of “small modular reactors,” SMRs are no different from conventional nuclear power plants in that they have problems such as radioactive contamination over their life cycle, nuclear waste, accident risk, and the risk of becoming targets of terrorism and war. We also pointed out that SMRs, which are touted for their economic efficiency, actually increase the cost per unit of electricity generated, and argued that investors should not invest in high-risk SMRs.
Some media reports have attributed the cancellation of the project to increased construction costs due to inflation and high interest rates. We believe, however, that this is a result of the economic vulnerability of SMRs becoming apparent. In January of this year, NuScale raised the target unit price of electricity for the construction of the cancelled small nuclear reactor project from the $58/MWh announced in 2021 to $89/MWh. This is the unit price minus government subsidies of approximately $30/MWh, so the actual unit price will be $119/MWh. The unit price of large-scale solar with storage in the U.S. is expected to be $45/MWh in 2022, falling to $25/MWh in 2030[ii]. The lack of cost competitiveness of NuScale’s SMR was obvious.
NuScale listed its shares on the New York Stock Exchange last May, but its stock price has been falling since around August of last year, dropping to $2.08 as of the closing price on November 9, 2012. There is no doubt that JBIC has incurred a large unrealized loss due to the decline in its stock price. There is also concern that NuScale will run out of cash[iii].
In general, in corporate accounting, if a listed security declines 50% or more from its book value, or even if the range of its decline is between 30% and 50%, it can be categorized as a “significant decline in market value” and must be written down unless there is reasonable proof of its recoverability. NuScale’s stock price is currently down approximately 80%.
JBIC is a public financial institution wholly owned by the Japanese government, and JBIC should disclose the amount of the loss and clarify where the responsibility lies for putting public funds into such a highly speculative business with not only environmental and social risks but also questionable economic rationality.
[i] Japan NuScale Innovation, LLC is the second largest shareholder with 19,285,070 shares and 8.4 % ownership as of June 6, 2023.