Korea Hydro & Nuclear Power (KHNP) has signed an agreement on the key terms of a nuclear fuel supply contract with US nuclear fuel supplier Centrus. This agreement marks a significant step in diversifying KHNP’s nuclear fuel suppliers and strengthening nuclear cooperation between South Korea and the United States.

The key terms agreement is a preliminary document outlining the main conditions such as contract duration, supply, quantity, and price before the legally binding contract is signed. Under the agreement, Centrus will supply nuclear fuel to KHNP from a new centrifuge plant that Centrus plans to build in the US. This move is expected to enhance the stability of KHNP’s fuel supply by diversifying its sources of enriched uranium.

Hwang Joo-ho, President of KHNP, noted that, through the agreement “we have taken a step closer to securing a stable new nuclear fuel supplier”. He added, “It is also significant that we have created an opportunity to pre-emptively secure fuel needed for future SMRs [small modular reactors].”

Centrus is the only company that has received approval from the US Nuclear Regulatory Commission (NRC) to produce High-Assay Low-Enriched Uranium (HALEU), which is used as fuel for next-generation nuclear reactors and SMRs. HALEU’s higher efficiency and safety make it a crucial component for advanced nuclear technology, and securing a supply of this fuel is a strategic move for KHNP.

Centrus said the agreement represents a “commitment to support construction of new uranium enrichment capacity at Centrus’s American Centrifuge Plant in Piketon, Ohio”. It added: “The purchase commitment from KHNP covers a decade of deliveries of Low-Enriched Uranium (LEU) to help fuel Korea’s large fleet of reactors.”

Centrus noted that it has now secured a total of $1.8bn in contingent sales commitments to date, including KHNP and, as previously disclosed, other customers, to support deployment of new capacity. “These commitments, including KHNP’s, are contingent upon the parties entering into definitive agreements and also upon Centrus securing the substantial public and private investment necessary to build the new capacity.”

“This supply commitment is a key building block as we work toward the public-private partnership that will enable us to re-establish a large-scale, US-owned uranium enrichment capability,” said Amir Vexler, President & CEO of Centrus. “We are honoured to have the support of KHNP in this critical endeavour and strongly committed to meeting their long-term requirements for assured, affordable, supplies of enriched uranium to fuel their reactors.”

Under contract with the US Department of Energy (DOE), Centrus has deployed a cascade of 16 advanced centrifuges at the American Centrifuge Plant in Piketon. In late 2023, the plant began producing HALEU. Subject to securing sufficient funding and purchase agreements, Centrus plans to scale up the plant with additional centrifuges for large-scale production of low enriched uranium (LEU) for existing reactors as well as HALEU for the next generation of advanced reactors.

Deployment of new domestic uranium enrichment will require a public-private partnership that combines robust federal investment with private capital and commercial purchase agreements. Centrus is competing for federal funding under a series of Requests for Proposals issued the by DOE aimed at jump-starting US production of LEU and HALEU. To date, the US Congress has provided more than $3.4bn for this effort.

However, Centrus provides a lengthy explanation of its Forward Looking Statements, which indicates significant uncertainties relating both to Uranium supplies from Russia and US government funding for HALEU development.

In May, the Prohibiting Russian Uranium Imports Act was signed into law banning the import of unirradiated, LEU that is produced in the Russian Federation or by a Russian entity. The ban entered into force in August and will remain in place until the end of 2040. In July Centrus received a waiver from DOE allowing it to import low-enriched uranium (LEU) from Russia’s TENEX for delivery to US customers in 2024 and 2025.

The waiver process was put in place to ensure US NPPs do not face supply disruptions while the US works to build up its domestic LEU capacity. According to the US Energy Information Administration, Russia has been supplying about 24% of enriched uranium used to fuel the US fleet of 94 commercial reactors Russia has roughly 44% of the world’s uranium enrichment capacity and supplies approximately 35% of US imports for nuclear fuel.

Centrus draws attention to “particular risks and uncertainties” that could cause future results to differ materially from those expressed in its forward-looking statements, which “may be exacerbated by any worsening of the global business and economic environment”. These include “risks related to our potential inability to secure additional waivers or other exceptions from the ban or sanction in a timely manner or at all in order to allow us to continue importing Russian LEU under the TENEX Supply Contract or otherwise doing business with TENEX”.

This could arise because of (i) US or foreign government sanctions or bans imposed on LEU from Russia (ii) TENEX being unable or unwilling to deliver LEU, receive payments, receive the return of natural uranium hexafluoride, or conduct other activities related to the TENEX Supply Contract, or (iii) TENEX being directed by Russia to limit or stop transactions with us or with the United

Centrus also notes “risks related to whether or when [US] government funding or demand for HALEU for government or commercial uses will materialise and at what level”. In addition, there are “risks regarding funding for continuation and deployment of the American Centrifuge technology”.

Other risks relate to Centrus’s ability to perform and absorb costs under its agreement DOE to deploy and operate a cascade of centrifuges to demonstrate production of HALEU and its ability to obtain new contracts and funding to be able to continue operations. Centrus is also concerned that it may not obtain the full benefit of the HALEU Operation Contract and may not be able or allowed to operate the HALEU enrichment facility to produce HALEU after the completion of the contract or that output from the HALEU enrichment facility “may not be available to us as a future source of supply”.