Interview with John Deal, Hyperion Power Generation

No presentation turned more heads—or spurred more talk—at the Venture Capital in the Rockies Fall Conference earlier this month than Hyperion Power Generation. The New Mexico-based startup is trying to turn an old idea into a novel technology—a nuclear reactor small enough to be shipped by train or truck but powerful enough to supply electricity to a small city or a large industrial operation. recently had the opportunity to sit face-to-face with Hyperion's chief executive officer, John R. "Grizz" Deal, and discuss his company and its unprecedented product. Here's what he had to say.

In a nutshell, describe how Hyperion Power Generation came to be.

John R. "Grizz" Deal: We were only actually incorporated a year ago. The technology has been worked on for the last 10-15 years at the Los Alamos National Laboratory. [Our VC backer] applied for and secured the commercialization rights through the tech transfer program at Los Alamos almost two years ago. So we got involved a couple of years ago and we have been moving the design of the reactor to a manufacturable product.

The difference here is it is really easy to build one computer chip, but it's really hard to build a million of them because there's quality control issues, there's supplier issues, there's raw material issues, so we're doing that part of this so we can build—well, of version one, we expect to build 4,000 reactors.

Small or not, that's a lot of reactors.

John R. "Grizz" Deal: The market opportunity is for half a million units today and it's growing, so selling 4,000 units of our first design is a pretty reasonable goal. But we've still got to be very, very careful about how we get that final design done.

That's what we're doing now. We're finalizing the design so that it's repeatable, it's replicatable and it's got a high degree of quality control behind it because, quite honestly, unlike a lot of products out there, we are extremely regulated. You wouldn't believe. And I'm glad that we're highly regulated—it's nuclear energy, after all; it should be highly regulated.

How tightly regulated is this technology?

John R. "Grizz" Deal: Just as highly regulated as the drug industry is the way that we put it. People are familiar with 20-year development cycles for biotech products. Well, we pre-empted the first 10 years of our quote-unquote product cycle because of the work that we're leveraging from Los Alamos. So, if you wanted to make an analogy between the regulatory environment for nuclear reactors and a medical device or drug, you could say we're getting ready to start clinical trials.

Do you have a working prototype?

John R. "Grizz" Deal: We're leveraging the design of a very common reactor, called a TRIGA reactor. There are 60-something of those reactors around the world. They are the only reactor that the NRC has licensed for unattended operation, meaning it's so safe that you can literally walk away from it. It's walk-away safe.

So we're taking that basic concept and then we're applying for some engineering modifications to get heat out of it. Right now, those reactors are not used to generate electricity or heat for electricity; they are used for academic purposes. You don't really get a working prototype until you get a license. You have to do it all simultaneously. It's kind of a chicken-and-egg scenario.

What's the size of this reactor? I've heard it described as ‘portable.'

John R. "Grizz" Deal: Transportable, not portable. Once you put it in the ground, it's there for its life because it's hot. It's about a meter-and-a-half across and about 2 meters tall, which is very small.

How much will one weigh?

John R. "Grizz" Deal: Fifteen to 20 tons, depending on whether you're measuring just the reactor itself or the cask—the container that we ship it in—as well. It was specifically designed to fit on the back of a flatbed truck because most of our customers are not going to have rail. We're literally going to get an 18-wheeler with a flatbed and put on it this very secure and very well established transportation container with our reactor inside it.

How much will one cost?

John R. "Grizz" Deal: About $25-$30 million each, depending on options.

What's the expected yield?

John R. "Grizz" Deal: It's about 70 megawatts thermal, and, depending on your steam cycle and how you're generating electricity, it's about 30 megawatts electrical, at the turbine. Thirty megawatts is tiny compared to traditional nuclear reactors and even coal plants, but we're going for distributed or grid-appropriate electric generators or for industrial uses—for mining, for heavy oil production.

Let's get technical for a second. What keeps this safe? What keeps this device from creating a runaway reaction?

John R. "Grizz" Deal: The way that you sustain a chain reaction for nuclear energy is through the use of a moderator. This is Nuclear Energy 101. A moderator is a necessary part of almost all power-producing reactors. What it does is slow down the neutrons so that those neutrons that are being shed by the uranium, as it breaks apart, can be grabbed by other uranium atoms. That fracturing process is called fission, and that's how you get heat.

In traditional reactors, you've got to have a moderator and then you've also got to have some way to cool it so it doesn't get out of hand. In our nation's light water reactors, the water serves as both the moderator and the coolant. So the moderator actually makes it go and a cooling system keeps it from going too far.

Our fuel is very unique. It's uranium hydride. UH3 is the chemical formula. Low-enriched, about 10 percent [uranium isotope]-235, the rest is U-238. By comparison, bomb-grade fuel is about 98 percent enriched.

You can't turn our fuel into a bomb. You'd have to re-enrich, re-process the fuel, so you might as well start with yellowcake. That's one of the neat safety features of our reactor. For nefarious purposes, our reactor has absolutely no value whatsoever.

What's so "unique" about your fuel?

John R. "Grizz" Deal: The neat thing about UH3, about uranium hydride, is it's a moderator and an emergency cooling system in one. It's chemical composition—and we say it's been designed by God to be the prefect nuclear fuel—when uranium hydride gets too hot, when the reaction gets a little out of hand, it will start shedding those hydrogen atoms naturally, which turns off the nuclear fires and, if necessary, cools down the reactor. This happens very, very fast.

So it's self-governing?

John R. "Grizz" Deal: It's self-governing. We have the patent on this specific application of uranium hydride for nuclear energy. But the discovery that uranium hydride was not appropriate for letting a chain reaction get out of hand (to make a weapon) was made decades ago. It was sort of like, "Gee, that's a dud," because, at the time, they were only interested in a chain reaction that resulted in some sort of explosion.

That work was picked up by our now-CTO, the scientist who invented the product, Otis "Pete" Peterson at Los Alamos, and he said, "Wait a minute! You're generating an awful lot of heat there. It just doesn't get out of hand. That's actually a good thing if you want to generate power."

He was always thinking about distributed electric, always thinking about how you take nuclear energy and put it in the middle of nowhere essentially, without all the infrastructure, without all of the yards of concrete that a traditional nuclear reactor incurs. So there are no cooling towers; our cooling system makes steam for extracting heavy oil out of the ground, generating electricity or supplying power for many other possible needs. It is self-regulated. It's analogous to a battery.

Where do you anticipate first deploying the product? Is it safe to assume outside the United States because of the red tape involved?

John R. "Grizz" Deal: We've already signed up our first customers, Romania and the Czech Republic. They were looking at a very high infrastructure cost for an electric grid, but are now doing a distributed model.

So how do you get dependable, base-load power? Wind is not base-load capable. Solar is certainly not base-load capable. They're not always there. You can't store electricity; you generate it and then you use it or lose it.

Those people—and virtually every country in the world, to some extent—rely upon United States Nuclear Regulatory Commission licensing as a basis for their own licensing. So we are seeking a design certification and a license from the U.S. NRC, even if we never install one in the U.S.

[Other countries] won't rely on [NRC licensing] completely, but they will leverage that work.

So an NRC license will get you in the door?

John R. "Grizz" Deal: Right. It's a lot like the FDA and how getting licensed in the [European Union] helps you in the U.S. and vice versa.

How long will each reactor last?

John R. "Grizz" Deal: Probably eight to 10 years, but that depends on your use because it is load following. The more you use it, the faster it is used up, just like a battery. Again, there's that battery analogy!

Could an owner recharge it by inserting more fuel?

John R. "Grizz" Deal: No. That's actually a design feature. Unlike any other reactor design on the planet, there is no in-field refueling. We seal it at the factory, ship it out to the location, they use it for eight to 10 years, and then we go get it and take it back to our factory for refurbishing and refueling.

There's a lot of skepticism toward nuclear energy in this country, including the waste it produces. What are your plans for disposing of the spent fuel?

John R. "Grizz" Deal: We're going to take it back to the factory and we're going to reuse most of it.

The waste that comes out of our reactor after powering 20,000 homes for 8-10 years is about the size of a football. Using coal and gas over the same time frame, the waste stream for just you, after factoring in CO2 emissions, would overflow Mile High Stadium in Denver. So our waste stream is very concentrated, and yes, we have to do something with it, but there are known ways of dealing with it.

The U.S. has a different political philosophy, but from a technical standpoint, dealing with waste is really not complicated. It's a regulatory complication, it's a political complication, it's a social complication. We have enough uranium to power the planet for the next thousand years, but the problem again is the waste, so you want to handle that waste in a smart manner and not just put it in a pond somewhere.

Depending on where the waste originates will determine how we dispose of that waste because there are different regulations depending on where you are in the world. We know how to deal with it. For security reasons, we're not disclosing what will happen to it, but it's not going to just sit in some bucket somewhere. Recycling was "baked in" to our reactor design from the beginning.

That 30-megawatt net power generation, could you express that in lay terms? How much power is that?

John R. "Grizz" Deal: Thirty megawatts is enough to power 20,000 U.S. homes or, internally, we've figured out that would equate to about 100,000 homes anywhere outside the U.S.

There's not a lot of 100,000-home places out there in the developing world, so they're going to have enough electricity to power residential, plus industrial, plus clean water, plus sewage. It's everything; it's not just powering homes.

Let's talk about your backing. What stage are you guys at as far as financing?

John R. "Grizz" Deal: From a financial perspective, we're really very far along. We're going to get this out the door for less than $100 million.

Because of the way that energy financing works, we're not going to add inventory. You order it, you pre-pay for most of the cost, we manufacture it and then we deliver it within six to 12 months. That's how the financial mechanism works on the manufacturing side.

This is not an issue for us of getting enough capital; it's getting the right kind of capital because when you're developing a company that's got such broad-based global implications, you want the right kind of investors that are going to really help us along in our development, not just provide cash.

How many rounds of institutional funding have you raised?

John R. "Grizz" Deal: This is only our second round of financing that we're currently in. We've not closed it.

What can you tell us about your Series A?

John R. "Grizz" Deal: Our Series A was funded by the Altira Group out of Denver and, again, we don't disclose our cap table. We've done a lot in the last year on very little money because we were able to leverage all that basic research time. And we continue to pay Los Alamos to do things for us on the manufacturing design and we're involving other large nuclear labs, plus industry, in this.

And your go-to-market time frame is four-and-a-half years?

John R. "Grizz" Deal: Yes, 6/13 is the number that sits above my desk. We ship in June of 2013, our first customer install. We will make that date.

We have an engineering plan that goes out in a couple of years, but we built in a robust contingency. Even though we have a very well thought out engineering plan, we have already put in twice as much calendar time as we need to go to market because you just don't know. There could be regulatory issues, supplier issues ….

Again, we're not trying to rush. We're not competing against some release by Microsoft or something Exxon is coming out with. We're alone in the market space with this.

Nuclear energy is very traditional, it's very well known. Word about this kind of reactor—a uranium hydride reactor from Los Alamos—it was first talked about 20 years ago. This is not a new product; this is a new product coming out to the market.