Bonus: Unlocking Nuclear Power at Scale with Bret Kugelmass of Last Energy

0:10Brett, thanks for joining us today. We're so thrilled to be chatting with you and also honored to be in the presence of someone with an OG nuclear podcast who Paki and I have listened to extensively. So thank you for your contributions on that front. Yeah, no, thank you. Always happy to share. Yes, this is particularly intimidating now that we're dealing with a nuclear podcaster, but we're going to kick it off with our traditional opening question, which is, what do you think the pie of energy sources in the U.S. looks like in the year 2050? 2050 is a hard number. Come on. It's like, that's too hard to predict.

0:45But I can say in 2100, it'll be 300, maybe 500 % nuclear, right? So it'll be 5x what we're doing today, and it'll be entirely nuclear, as I'm just broken up by source. But that's how I feel about the world, too. Like, the whole world, like, if you were an alien civilization that were to visit us at some point in the future, it would be obvious that not some of it, all of it would be nuclear. I mean, you're talking about orders of magnitude, raw fundamental physics advantage. It would be asinine to think otherwise. I love that take. And that is just so decisive and so you, Brett. So that's a great place to kick us off.

1:29This is going to be a real kind of softball question after that, but how did you get into nuclear energy? What was the spark or the thing that kind of got you excited and then got you to start Last Energy? Well, I just sold my last company and was looking to do something meaningful and started first a climate think tank research center, just my own personal vehicle to start hiring people and exploring a topic and putting money to work on something that I felt passionate about. But then within a couple months, after doing a survey of the energy sources, we realized nuclear stood far and above all the others.

2:06And frankly, it was just like misunderstood. Now at that time, it was still like a great mystery. Like, how is it that something that is already 10%, I mean, it's not small amounts, 10 % of the world's electricity and 4 % of the world's total energy consumption. Like, how is it that something, if that's so great, how could it stagnate, right? Like those two things don't make sense. And that took two years and meeting 1 ,500 people and recording 500 podcast episodes to actually figure out. Yeah, yeah. Well, maybe take us a little bit into that. You know, you've done so many interviews with so many incredible thinkers in the space.

2:40What are some of the big takeaways you've had or big aha moments or maybe even the synthesis of some of what you've learned about like, why did we stagnate and where do we go from here? Yeah, it's tricky because like what I'm about to say like sounds obvious, but also very hard to believe given our like society's emotional baggage when it comes to nuclear as well so one of the early facts that i learned about nuclear was that fukushima despite having three gigawatt scale meltdowns and every single safety system bailing couldn't manage to hurt a flaw okay so like that's i mean that's a fact but like that doesn't resonate well with us and so like why it doesn't resonate well with us is like part of the puzzle.

3:29That's like, how did we get up here? How can we all be so emotionally resistant to that fact that nuclear was never a hazard to begin with? Right? Remember, zero safety systems worked. Three full meltdowns, not a single injury. So if there is no hazard, and yet we all say that a meltdown is a catastrophe, it's the epitome of catastrophes, that's a little bit of a clue to how we got to this point. And so after studying the history of nuclear energy, what I realized was that around the mid-1970s, the industry turned against itself. And the companies that we thought of as selling nuclear power plants were in fact selling something very different.

4:09They were selling fear of nuclear power plants. They were selling safety systems. They were selling radiation protection. And so the industry turned on itself and through rent-seeking behavior, that's a term economists use to say, okay, let's just extract as much value out of what we already built instead of innovating, bringing new things to the fore. So through this rent-seeking behavior and using a very, very effective tool of regulatory capture, and now let's come to the regulatory piece as well. Congress created the Nuclear Regulatory Commission with unprecedented powers. They're actually, it's, It's a branch of government that's independent of the executive, right?

4:54Like the president can't tell them what to do. And that is an extremely powerful agency. So if you're going to capture an agency, boy, do you want it to be that one. And so the incumbents captured the regulator to insist on ever more protection in order to sell their new product, which was 10 times as lucrative as the old product, to sell fear of nuclear power. And so after being very, very successful and having done that for 50 years, this is how we can find ourselves in a circumstance where the facts say nobody gets hurt, even when all safety systems fail, three gigawatt scale meltdown simultaneously.

5:30And yet emotionally, we all feel very different. That is five decades of the government and all of the institutions associated with the government. The government is set up not just in the U.S., but internationally. Their standards bodies and institutions and universities have created this conflict between reality as it exists today and our emotional reality. Tell us a little bit about the regulatory piece. Like, we've heard about the regulatory ratchet, right? Like, you know, every few years there was some new thing, new thing. You know, you went from the Atomic Energy Commission to the NRC. That was in and of itself just giving like straight, straight incentive for more regulation.

6:18Talk to us a little bit about that and maybe where we are. Question on you. Can you justify the need for a specific regulator for nuclear power? When we know as a fact, if every single safety system fails, no one dies. how can we possibly can you justify this can you explain why do we need a regulator at all well it almost it almost makes me wonder well what about all the other dangerous industries out there too like how are we regulating those what about just like let's what about like the law like if you kill people you're in trouble like you know there's probably some other there's probably some other mechanisms here yeah exactly like we don't have a regulator for trains we have the Department of Transportation that has a lot of things under it.

7:04That makes a lot of sense. Yeah, we should have rules. We should have regulations. Buildings should be built to codes and standards. But we already have a regulator for buildings. So why does nuclear not just use that regulator to regulate their buildings? We've talked to so many people and kind of asked this question about, you know, how do you turn nuclear around? How do you build more nuclear? What went wrong? And it's funny, people think that the regulators kind of were an issue, like regulation was an issue back in the 70s. And it seems like there's almost a fear or maybe people are sick of blaming regulators at this point for everything that's going on.

7:38But it doesn't come up as one of the biggest things that's standing in nuclear's way now. What would be your kind of take on all of that? I would disagree with the premise. I would say people are finally coming to realize that the regulations and maybe even the regulatory bodies are not necessary to preserve the goal of the regulators, which is safety for society. Safety is to a light water reactor. Safety is built in. Melt it down. Nothing happens. It's yeah, it is just interesting that I thought everybody was going to be like, we need to get rid of the NRC. And a lot of people are just like, yeah, it's great.

8:13So now, you know, we have plants running safely 99.99 % of the time, and it's actually not that burdensome. And like the real problem is just, we don't know how to build things anymore. You're probably talking to people in industry and they're trying to sell you something. So let's say like the advanced reactor community, they're trying, they want a regulator, right? Because why else would you move to a safer reactor? If it's safe enough already, like without a regulator, there would be literally no incentive to sell the advanced reactor product. So of course, yeah, when you talk to enough advanced reactor people, they love the idea of regulations.

8:47That's how they sell their product. I've heard you make the regulatory capture point on podcasts before. And I love it because it's just so different than anything else that I've heard. What is the benefit to, you know, when you say it's 10x more lucrative to sell fear, like how are they monetizing that regulatory capture? Yeah, that's a perfect example. Okay, so what is a gigawatt coal plant cost, right? Let's say a billion dollars. What is a gigawatt nuclear plant cost? Ten billion dollars. What is the difference functionally between a coal plant and a nuclear plant? If anything, a nuclear plant should be cheaper because you don't need all the fuel handling equipment.

9:30You don't need all those coal yards. You don't need all the trains going to them, right? You can drive the fuel up on a truck. So if anything, a nuclear plant should be cheaper than a coal plant on a per megawatt basis. And yet it's 10 times as expensive. So where did all that money get spent? Well, regulatory requirements. Yeah, and if you even look at people think about the single bolt that you use in building your factory out or your plant out is 10 times as expensive. Everything is 10 times as expensive. So, of course, it all adds up to being 10 times as expensive. Well, let's look at a specific example with Vogel.

10:08So people like to talk about how much concrete goes into nuclear plants and how that's not environmentally sound. Well, that's crazy. On a per megawatt hour basis, per megawatt basis, whatever you want to compare it to. and then you can create a ratio between that and the amount of concrete poured. It's negligible. Negligible. But people love to cite this number. Well, look,$2 billion out of that$10 billion was spent on concrete. Well, no, it wasn't. The concrete itself costs a small fraction of that. But the regulatory requirements on how do you pour the concrete, and then by the way, with the Vogel plant, when they poured it just a little bit wrong, When they put that rebar an eighth of an inch off instead of a quarter of an inch off, and a regulator came up and put a little flag on that, they made them tear up a billion dollars of concrete.

10:56One billion dollars. So then critics of nuclear might look at the – they're citing facts, right? They're citing statistics. Look at the amount that was spent on concrete, but they're not telling the whole story. It's not like there's that much concrete. The concrete just costs 100 times as much on a per volume or per mass basis. What do we do about it? I mean, so we ask the second part of the question, which is how do you build more nuclear? To your point, I think a lot of the people who are more in the large reactor camp say, we just need to build a lot of these things and we'll get better at doing it.

11:29Then we talk to entrepreneurs. We have to just build kind of around the system or build in space or build. What's the answer in your mind of how we start building more nuclear and how we get it around the regulatory capture? Yeah. So our thought was, after studying this for two years and realizing that this was the problem, that there was not a technology problem. That it would have been fine if we just kept building. My favorite two plans, Point Beach 1 and 2, there's 1 ,100 megawatts for you at less than$1 ,000 a kilowatt built in under three years, 1968 to 1971. you want. So in the ideal world, we're just building 10 ,000 of those everywhere where you need power plants, all across the world, all across the grid, exactly like you see, 1968 technology.

12:13I got no problem with that. But how do we get from here to there? Because you still need to put together a lot of money to do that. And the people who have money aren't going to necessarily fund that idea or take the risk on that. And so our thought was go small and go to different regulatory environments where their paradigm is fundamentally different. And so we went to the UK as our primary market, where as kind of a matter of like a cultural quirk of history after World War II, when after the Manhattan Project, we kicked all of the UK scientists out and said, screw you guys, you can't have nuclear technology.

12:49They went, ha ha ha, we memorized all of these equations, we're going to build our own independent nuclear industry. And so they're very independent from the US. And so if you're looking for a regulator that works on a performance basis, how safe your system actually is, we'll regulate you according to that instead of a doctrinarian basis, a prescriptive basis. Hey, fill out all of these boxes. That's where you go. And so that's what we decided to do, build smaller and build in the UK. How are you guys seeing or how do you think about the cost curve, I guess, in terms of will it still take you a lot of money to build your first, but you expect to see a really precipitous decline?

13:32Or I guess maybe starting to shift into business model and how this works. Maybe talk to us a little bit about the manufacturing process and how you take things from here. Yeah, certainly. So, yes, the first time you build anything, it's going to be expensive. not only is it going to be expensive it's going to be 30 to 50 times as expensive like as we thought it was going to be um and only with like true drill sergeants as project managers can you overcome that and i mean like you can't be nice like none of this woke nonsense none of this like oh it has to be a happy office environment none of this not yelling at people if you want to get something on time on budget you need to have people who will scream at other adult professional human beings.

14:17That's how the construction industry works. That's one way to keep it to 30 % cost overruns instead of 50 % cost overruns. We're hiring in the UK for that right now. It's top of mind because I'm interviewing people. I'm like, okay, are you willing to scream at another adult human being? Okay. Yeah. Okay. That's a qualifying question for us. That's amazing. Are you manufacturing in the US or the UK or both? Both. Both. So our prototypes are here in the U.S. So we can keep, because engineering is here in the U.S., we want to keep it a little bit closer to, we want to keep the iterative learning cycle a little bit closer to home and have people in closer proximity to each other.

14:58And then we are going to offer up to bid, you know, whoever wants our manufacturing or factory, you know, we're going to, you know, like Amazon HQ2, we're going to go around the world and we're going to say, what are you going to offer us? And the UK is, you know, one of the places at the top of the list. The US might be. We'll see what incentive package they can put together. And we'll take it from there. Thanks for listening so far. Hang on. We'll be right back after a quick word from our sponsors. We should probably go back one step and have you tell people what you're building at Last Energy.

15:29Yeah. So we build a 20 megawatt electric standard PWR. We pride ourselves on being the least innovative nuclear company out there. We focus on innovation around manufacturability and not around nuclear technology. So we won't touch the core physics, chemistry, you know, as much as people like to say these 19, you know, because there were like 50 different types of reactors built. As much as people like to say that they're proven because the National Labs built them once. No way. You've got to operate something for 30 years before you begin to see what random corrosion issues happen, which bolts wobble loose on your pumps due to the frequency of how you arranged your pipe hangers.

16:10You've got to really have decades of expertise. And by the way, that affects your economics today because it affects the rate at which you can borrow construction capital, the operational performance into the future. So this is why we decided to settle on just the standard PWR, shrink it down, design it for manufacturability. So how do we build 10 ,000 of something a year? That's what we think of even on our first power plant. Now, granted, there's going to be design improvements and iterations and continued design for manufacturability. But what I direct our engineering team to do is you're thinking about the big picture.

16:47You're thinking about high throughput manufacturing. That's how we need to make design trade-offs decisions now. When you say that you're building it as a manufacturing company, what nuclear-specific challenges to manufacturing are there that you couldn't take from another industry? Or is it just taking best practices from a bunch of industries and applying them to nuclear? What are the specific challenges? In our early rollout, it's going to be best practices from offshore oil and gas platforms, where what they do is they put an extremely high premium on labor in the field because they're in the field is like out on an ocean platform.

17:25And so, you know, given the historical record of nuclear companies, most of the money gets spent from like construction, you know, mess ups and delays in schedule and, you know, high, you know, interest rates on your construction loan. We go after that like very intensely. And so, yeah, we treat it as if it's an offshore platform and we say we will do anything, pay almost anything to minimize skilled trade labor in the field. So that comes from like offshore oil and gas first and foremost. And then as we begin to level up in terms of our throughput, that's when we're going to transition more to airplane manufacturing techniques.

18:06And then even beyond that into automotive manufacturing techniques. There's been a lot going on in the last few years. I mean, you started working on your precursor to Last Energy, just exploring, talking to people. What was that starting like five years ago. So yeah, I guess, um, October or five years ago. Anyway, I'd love to, I'd love to get from you. You know, you were interested in this well before I was, or PACI was, um, maybe we could talk a little bit about the last five years and what you've seen changing. There's, you know, there have been, it feels like just so many more people aware of nuclear energy now for the first time, um, more, especially Democrats being supportive of it.

18:44What have you seen as like the changing tide or the changing, um, perspectives here. And then I guess going into the future, has it been sufficient? Do we still need a lot more paradigm shifting for nuclear to be successful? That's a difficult question to answer because a lot of the things that I see that people are very excited about, if they haven't studied the industry, like we'll come to realize that we went through this 10 years ago and 10 years before that. So like there are always like waves of like grad students coming out of their PhDs saying, I learned about this cool new reactor in the 60s and I'm going to like bring that to the market.

19:18And that happens every 10 years. And every 10 years, there are some problems. So from that perspective, I want to say that nothing's actually new, but actually things have changed. We also saw that during the first oil crisis, this is when France got very, very serious about their belt out of nuclear. And we're entering into a similar macro paradigm around energy security, energy access, global security issues that is going to drastically shift any government's calculus on how much effort they want to put behind accelerating nuclear deployment. I want to go back to the company just for a second.

20:00One of my favorite things to explore in this is how you're thinking about financing the whole thing. Obviously, equity only isn't the right move. Like what's the capital stack look like in the beginning and then over time? Yeah. So let's differentiate between two different types of equity. So there's corporate equity. And that's what most people think of, like, let's say from the VC community. So this is where you sell part of your company, your top level company, and everything along with it, all of your IP. And so that's where you sell that to an investor for some amount of money, some percentage for some amount of money.

20:32And that's you raising money for the company. and then you use those proceeds to grow value for all the shareholders. So that's corporate equity. Then you have project equity. And sometimes people call this project finance, and sometimes people call this project debt or some combination of project debt and equity under project finance. Project finance is where you would set up an SPV, a special purpose vehicle. And you're putting certain assets in that vehicle, in that corporate entity. But that corporate entity is wholly owned or subsidiary or joint venture. of your corporate entity. And that SPV, now you can sell off shares to that to different people.

21:11So that's still equity, but a different type of equity, and it's non-dilutive to Topco. So from that perspective, yes, you can sell equity, and that's what we are doing, but we're selling equity in the power plant corporate entity in the physical asset and the real asset itself. Cool. And is that in the beginning, before you've rolled out 20 of these, What's your cost of capital look like over time as you get more and more successful rolling out these projects? Yeah, the first two are going to be expensive, like really expensive. Because at the end of the day, we still are a new entity without a proven track record.

21:48And even though we are eligible for this category of capital because we have chosen only proven technology, no material science risk, no physics risk. And we might be the only ones that are eligible for this capital category. it's going to be expensive capital. Yeah. So like, you know, it could be like 15 to 20%. Yeah. And then I guess staying kind of nitty gritty here, you mentioned the one kind of person that you're hiring, which is a project manager who's going to yell at people. How else do you think about building out this team? Okay. Well, yeah, that's like on the construction side. And that's like when you deal with contractors and that's where you deal with, you know, and other engineering services firms as well.

22:32You need real drill sergeants. Otherwise, on the corporate side, we're building out everything that any tech company would have. An engineering team. Within the engineering team, there's true development. There's R &D. There's sales engineering. Within your commercial team, you've got sales. You've got marketing. You've got biz dev. You've got partnerships. You've got court dev. On general administrative, all the things that you think about. IT, HR, yada, yada, yada. And then if there's anything I'm missing. And then we also have like a product department because we take a, we think of ourselves as a product company.

23:09We like to think of ourselves more like Apple than Schlumberger, right? Like we think of ourselves as we want to deliver a physical good that is beautiful and that has an emotional component to it as well that we want to make our customers love, right? We think like the idea of a customer like loving our product is important. You probably won't hear that much from too many construction or power plant engineering firms. So that's a whole department itself that crosses between sales, marketing, and engineering. And then who are those customers? Who are you selling to once the product is complete?

23:51So we have eight contracts representing 51 of our 20 megawatt power plants. So roughly a gigawatt of power sold so far. These are PPA contracts. So this tells, you know, this essentially establishes a price that a customer will pay us if we deliver that power. We don't get that money right now, but we do then sell off that long-term cash stream in order to project finance our projects. Those counterparties are represented by the automotive industry, you know, with like EV car batteries, steel manufacturing, pulp and paper, cement. and data centers. Data centers. Are you talking to Microsoft? Yeah, Microsoft's the big news right now, right?

24:35Actually, one of our early investors is the former chairman of the board of Microsoft, Dave Markhart. So I'll just leave it at that. That's great. I mean, what a great fit that could be. I guess you'd have to get through the NRC first. No, no, no. Microsoft is an international company. That's true. You can just work with non-US entities. Yes, that's totally fair. That's totally fair. By the way, most of the world's electricity market is not US. And the prices in the US aren't that good. So that's why any founder of a nuclear company that's planning on selling in the US, I'm like, why? You want to sell a product for one-third the price and have the highest bureaucratic burden?

25:20Right, right. Not a good combination. Like you are hanging fruit as an entrepreneur? Oh, it's because you have a family and you prefer to live in the U.S. and you don't want to move your whole family abroad. That's why. Oh, I see. Yeah, yeah, yeah, totally. Companies. I was just going to say, following up on that, will you guys try to go through the NRC eventually? Or is it just like, let's just stick international, see how that goes and not have to worry about that for a long time? Yeah. So maybe I was a bit cavalier before. We deal with all U.S. nuclear regulatory bodies where we should and where we have to and also where we think it's important to as well.

26:00We think it's important, the objectives that the Department of Energy, the NNSA have, and even the NRC have when it comes to exporting nuclear technology. So we're in regular communication on those fronts. However, when it comes to applying for a construction and operation license in the U.S., that is not even on our roadmap. Yep, yep, got it. And do you need to, I guess, work with the NRC to some degree to be able to export? Yes. To export under part 110 to export physical equipment attached to your primary coolant system, you have to work with the NRC on that. Getting back to Microsoft for a second, does the insatiable need for electricity that these companies are going to have?