Commercial Spaceflight

In this case study:

• History of the Commercial Spaceflight Industry
• Nuclear and Spaceflight: An Industry Comparison
• Major Setbacks in Innovation
• Role of the State
• Importance of Intellectual Property
• Regulator Comparison
• Major Innovation Success Stories
• Lessons Learned for Nuclear

In the early 2000s, NASA faced a challenge similar to that of today’s nuclear industry.

The space shuttles were set to retire in 2011, ending America’s only method for moving people and cargo into space and to the International Space Station. The shuttle program was also not considered a great success; it had proven far more expensive than originally planned, each shuttle flew less regularly than hoped, and there were two catastrophic failures (Challenger and Columbia), each killing seven astronauts. A successor program was started to replace the shuttles, but funding was limited. In 2004, the White House announced a major shift in NASA’s mission: it was now to support the development of commercial spaceflight, primarily to service the International Space Station. While this announcement was made in parallel with a new NASA program to develop its own successor to the shuttle program, in 2010 President Obama directed Congress to focus funding on the commercial programs.

The new Commercial Orbital Transportation Services program (COTS) dramatically shifted NASA’s policy toward the aerospace industry, changing the way services were contracted, regulated, and funded. Ultimately, the program was a success. Spaceports popped up across the country, and the United States went from zero private orbital launches in 2011 to more launches than Russia and Europe combined in 2014. As anticipated, the competition between private firms reduced the cost of launch services so much that the market has grown significantly, and the possibility of space tourism is becoming a reality, opening up a lucrative new market for US aerospace firms. In 2014, the commercial space launch industry had estimated revenues of $1.1 billion. Both Boeing and SpaceX, recipients of several COTS contracts, are scheduled to conduct human flights with NASA astronauts in 2018.

There are important lessons in the recent history of commercial spaceflight for the growing advanced nuclear industry. Like NASA, the Department of Energy (DOE) will need to shift its mission to explicitly support private-sector innovation. And beyond providing advice and expertise, federal research and demonstration priorities should take explicit guidance from the nascent advanced nuclear industry in exchange for clear requirements for inter-firm collaboration.

History of the Commercial Spaceflight Industry

Since NASA’s founding in 1958, the agency had strong and centralized control over research and development, but left final design and fabrication to a large network of private contractors such as Boeing, Lockheed Martin, and Northrop Grumman. The large geographic spread of NASA research facilities and contractors kept public support for federal spending at record highs. NASA programs have long doubled as means to bring jobs and investment to poorer regions of the country.¹ As late as 2014, almost two-thirds of US adults agreed that the International Space Station was a good investment of federal money.²

When Ronald Reagan was elected president in 1981, his goal of reducing the federal budget coincided with efforts inside NASA to explore more commercial possibilities for the space agency to invest in.³ In 1984, NASA changed its charter to encourage commercial spaceflight, but large barriers to entry remained, and there wasn’t a serious market demand. It was not until the Commercial Space Act of 1998 that the US government really started investing in the innovation network for commercial spaceflight and the industry began to take off. The act promoted commercialization across the space industry: the International Space Station, the creation of space ports outside of Florida, and more private launch services.⁴

The space shuttles were scheduled to retire in 2011, and the United States would need to develop a new vehicle for delivering crew and cargo to the International Space Station. The shuttles had not been an overwhelming success, with each mission exceeding a half-billion dollars,⁵ two major failures, and significantly fewer launches than expected. Without the shuttles, NASA would have to pay Russia approximately $70 million per crew member to fly to the ISS.

In 2004, President George W. Bush laid out a new Vision for Space Exploration policy, which called for increased funding for a comprehensive reinvigoration of the space program, to include completing the ISS, replacing the space shuttle, returning humans to the moon by 2020, and eventually landing humans on Mars. Congress funded the program with $16 billion,⁶ but there was opposition to the Constellation program from the beginning, which grew when the Obama Administration came into office. By 2009, in the midst of the recession, the appetite to fund such a program had evaporated, and eventually the Vision for Space Exploration program was canceled.

The Commercial Orbital Transportation Services program, however, upended the old model of spacecraft development in 2008. The policy innovation was to ditch the model of government procurement, a move that had bipartisan support.⁷ This shift was implemented through a series of competitive Space Act Agreements to demonstrate commercial launch vehicles and sign contracts to deliver cargo to the International Space Station.⁸ NASA put the entire development process in the hands of private companies—it thought that smaller firms would be more innovative and able to deliver significantly cheaper launch services than the large, incumbent aerospace firms.⁹ These funded agreements offered much more flexibility to companies than traditional contracts. One of the most important aspects of these programs was that NASA didn’t down-select technologies; it awarded funding to any company that met a predetermined set of criteria, and it allocated funds based on need, not technology. NASA was also explicitly trying to develop a robust commercial spaceflight industry, not solely to find a single company to deliver cargo. On this basis, NASA also awarded non-monetary agreements, which provided companies advice and consulting from experienced NASA engineers.

Through this effort, NASA encouraged collaboration between companies to identify shared challenges, such as educating the investment and insurance communities and developing a customer base for non-NASA orbital transportation services.¹⁰ It also helped match companies with vendors, and stimulated entrepreneurship along the supply chain, by hosting events that brought applicants and suppliers together under one roof. NASA’s status as a disinterested third party played a key role in allowing different companies to come together.

The United States went from zero private orbital launches in 2011 to more launches than Russia and Europe combined in 2014.

What was unique about this new mission for NASA was that it wasn’t just giving funding to procure or contract commercial services for cargo transportation; it was tasked with fostering an entire commercial spaceflight industry from the ground up. It knew the barriers to entry were going to be large, and that previous aerospace contractors had been colossal manufacturing firms that may not have been able to develop new designs quickly to meet NASA’s needs (which sounds similar to today’s large nuclear firms). But the ulterior motive was that NASA thought that commercial spacecraft could open up a large private market beyond the International Space Station—launching communications and monitoring satellites, for example. NASA wanted to make sure that American companies could take advantage of its experience in spaceflight to be successful in this new market. More importantly, NASA felt that its mission should be on the cutting edge of space travel and research, and that it should find cheaper (and private) ways to perform routine tasks like delivering people and cargo to the ISS and launching communications satellites.¹¹

Before COTS, there already was a fledgling private spaceflight industry, thanks to the launch of the X Prize Foundation in 1996, which offered a $10 million prize to the first team that could launch two people (or an equivalent weight) to a certain altitude, return to Earth, and repeat the launch within two weeks (i.e., successfully launch a reusable craft). The teams that competed for this prize had over $100 million in private investment. NASA wanted to encourage this industry, while also helping it to mature and meet the quality standards needed for transporting humans into space. As former NASA administrator Michael Griffin explains, “Broadly speaking, the market for space services has never enjoyed either the breadth or the scale of competition which has led, for example, to today’s highly efficient air transportation services. Without a strong, identifiable market, the competitive environment necessary to achieve the advantages we associate with the free market simply cannot arise.” Similarly with nuclear, there are many private companies working on advanced designs, but it’s not clear there will be a strong market for them.

Figure Source: GAO. Commercial Space Launch Industry Developments Present Multiple Challenges (2015).

Nuclear and Spaceflight: An Industry Comparison

Similar to the commercial aviation industry in the United States, the government had to step in to support the commercial spaceflight industry to return the United States to its former glory. Both in aviation and rocketry, the United States was an early leader, but lost commercial dominance to European and then Asian competitors.¹² But carefully crafted federal support in the form of defense contracts, procurement, and R&D investment has returned the United States to dominance in commercial launch services. Perhaps the same success can be seen in nuclear power. Governments around the world are still some of the largest customers of payload launch services (mainly for communication and other monitoring satellites). However, NASA hoped that by spurring a commercial launch industry, costs would decline enough to disrupt the market, opening up launch services to much smaller payloads and customers and eventually creating a space tourism industry.

Major Setbacks in Innovation

The failures of NASA’s state-led space shuttle program fostered a bigger push into private launch services. After the loss of space shuttle Columbia during its return to Earth, the public’s impression of the shuttle program was severely affected, and the decision to extend the lives of the shuttles multiple times came under intense scrutiny.¹³ While commercial spaceflight is a relatively young industry in the United States, it has seen its share of failures. But unlike large, public space programs, commercial spaceflight sees failure as a sign of healthy risk-taking and competition.

NASA originally awarded COTS Phase 1 funding to two companies in 2006: SpaceX and Rocketplane Kistler (RpK).¹⁴ However, RpK failed to meet private fundraising milestones, and NASA terminated their contract in 2007. In 2010 RpK filed for bankruptcy. But the failure of RpK freed up NASA to sign a COTS Phase 1 agreement with Orbital Sciences instead in 2008.

The very first launch attempt for SpaceX’s Falcon 1 in 2006 suffered a fuel leak fire that destroyed the rocket and payload. The second launch attempt of the Falcon 1 more than a year later was successful, but the payload failed to reach the required orbit. The third attempt of the Falcon 1 in 2008 also failed after the booster collided with the engine during staging.¹⁵ In June 2015, a SpaceX Falcon 9 rocket exploded two minutes into the flight, destroying the entire capsule full of supplies destined for the ISS. In September 2016, a SpaceX Falcon 9 rocket exploded during a prelaunch test, destroying the $200 million communications satellite payload.

Other companies also suffered failures. In 2007, a test on some of the engine systems for Scaled Composites led to an explosion that killed three employees.¹⁶ A 2014 accident during a test flight of a Scaled Composites launch vehicle resulted in the death of the copilot.¹⁷ Also in 2014, an Orbital Sciences rocket exploded on launch, destroying 5,000 pounds of cargo headed to the International Space Station. This launch would have been the third of eight contracted deliveries by Orbital Sciences to the ISS.¹⁸

Despite hyped promises of radically cheaper payload delivery, the first mission to the ISS for SpaceX ended up costing about the same per pound as NASA’s own space shuttle, between $9,000 and $27,000 per pound of cargo,¹⁹ although that figure is already out of date as the price is declining sharply. Elon Musk claims that their newer rocket, the Falcon Heavy, can deliver cargo to orbit at a cost of $2,000-$3,000 per pound.²⁰ Even SpaceX’s main competitor, United Launch Alliance (ULA), has come to admit that they cannot compete with SpaceX on price. Launch services from SpaceX started at $60 million in 2015, with ULA charging the military $125-$200 million per launch.²¹

Despite the success of SpaceX in returning the United States to dominance in commercial launch services, the Federal Aviation Administration (FAA) continues to overestimate the number of commercial launches it expects to review each year, suggesting the industry is growing slower than expected.²²

Role of the State

In the early days of spaceflight, the high cost, complexity, and military importance of rocketry kept the industry largely in the hands of government. And the Cold War drove the United States to invest heavily in spaceflight as means to compete with the Soviet Union. When NASA’s funding peaked in 1966, it was 3.8% of the total federal budget.²³ But even as a consumer, the role of the US federal government was significant. Historically, the United States manufactured 70% of the world’s satellites annually (by revenue), and 75% of these satellites are manufactured for the US government. Therefore, the United States is the largest customer, by far, for payload launch services.²⁴ And for most of America’s history in spaceflight, the government was the sole entity launching both public and private cargo into orbit. In 1986, in response to the Challenger accident, NASA ruled to no longer fly commercial payloads on the space shuttle. American companies were already launching commercial payloads, but they were starting to lose out to European and Asian competitors.²⁵

The Commercial Space Act of 1998 set broad goals for the development of commercial space activities, including the promotion of more spaceports. But it wasn’t until 2004 with President Bush’s US Space Exploration Policy, which set targets for space exploration and commercial development, that commercial spaceflight truly boomed. And in 2005, NASA Administrator Michael Griffin allocated $500 million to launch the Commercial Orbital Transportation Services (COTS) initiative,²⁶ which sought to create an innovation support network for commercial spacecraft, as well as fund demonstrations and then procure transportation services for the ISS.

This program had two phases. In Phase 1, NASA offered prizes to any team that could demonstrate specific goals, like delivering cargo to low Earth orbit. The purpose of this phase was to stimulate interest and invest in teams that could then compete in the next phase. Over 20 companies submitted proposals in this phase, and NASA awarded several Space Act Agreements (different from contracts in that they allowed flexibility for failure). Only two of these agreements were funded, with SpaceX and another company sharing the $485 million. The other agreements were unfunded, but NASA offered technical assistance and facilitated their demonstration.²⁷ Phase 2 consisted of a competitive contract, in which teams submitted designs for rockets that could deliver cargo to the International Space Station.

NASA was tasked with fostering an entire commercial spaceflight industry from the ground up.

Following on this program, in 2010 NASA announced the Commercial Crew & Cargo Program Office (C3PO), which offered a series of competitive grants for companies to develop vehicles to transport crew to the ISS. The first round granted $50 million to five American companies for research and development of potential spacecraft designs (although they received proposals from almost 40 companies). The second round awarded $270 million to four companies to further develop and demonstrate their designs, and they had to meet a strict timeline of milestones to receive their funding. Three additional proposals were selected without funding, which meant that NASA would consider them for services in the future, but they would have to develop their technology with private capital. However, this selection by NASA did bestow a level of approval, which helped the companies raise funding.

For the third round, NASA took proposals and awarded three agreements for complete designs which had to include spacecraft, launch vehicles, launch services, ground and mission operations, and recovery. These agreements totaled over $1 billion, but all three companies are over halfway through their 18 designated milestones. In parallel, NASA began a program of product certification, which would develop engineering standards, tests, and analyses of the systems’ designs for these three companies.

Now NASA is working with just two companies, Boeing and SpaceX, on demonstrating all the technologies needed for delivering their first human payload to the ISS, originally scheduled for 2017, but both pushed back to 2018.²⁸ While the funding for this entire program was quite high compared to nuclear industry budgets, it’s a useful model of slowly increasing the difficulty and complexity of proposals, winnowing out two ultimate contract awards from an original 40 applicants. NASA’s effort was also aided by ancillary private prizes like the Ansari X Prize, the Google Lunar X Prize, and the Northrop Grumman Lunar Lander Challenge. These prizes generated a lot of excitement and investment from small companies, but it was NASA that ultimately provided the market for these space services. Additionally, it is inspiring what they were able to develop and demonstrate in just a decade.

Along with the awarded agreements, NASA’s C3PO developed systems for knowledge sharing, setting up conferences for proposal applicants to meet with equipment contractors to develop industry standards, share best practices, and build out a supply chain.²⁹ They also helped develop the legal framework for these private companies. NASA had experts in intellectual property, procurement, and commercial law create the structure of the COTS program,³⁰ and NASA officials provided guidance to COTS applicants on the regulatory process.

Importance of Intellectual Property

As the spaceflight industry has shifted from public to private in the United States, there has been a noticeable rise in patenting.³¹ One of the major appeals of the newly created Space Act Agreements was that partners would broadly retain intellectual property rights.³²

Regulator Comparison

The birth of the commercial spaceflight industry coincided with President Ronald Reagan's executive order that, among many other things, designated the Department of Transportation (DOT) as the leader agency to enable commercial launch capabilities.³³ The DOT delegated responsibility of regulating commercial spaceflight to the FAA.

The FAA’s Office of Commercial Space Transportation oversees and regulates many different aspects of commercial spaceflight, but primarily licenses launch activities. The FAA is responsible for (1) reviewing applications for experimental permits, (2) licensing launch and re-entry operations and sites (spaceports), and (3) completing safety inspections of all licensed and permitted launch activities. Finally, the FAA is also charged with promoting commercial spaceflight, although some contend this role is better played by the Department of Commerce. For launches that fulfill Space Act Agreement milestones, NASA certifies the vehicles, while FAA certifies the launch.³⁴

Most notably, the Commercial Space Launch Amendments Act of 2004 set time limits on the FAA review period for applications, requiring the FAA to make determinations on launch license applications within 180 days and decisions on experimental permit applications within 120 days.

After the passing of the Commercial Space Launch Amendments Act in 2004, the DOT also delegated regulation of space tourism to the FAA. However, the act prohibited the regulation of the safety of crew and other space tourism participants during a learning period that originally extended to 2012, but has now been extended to 2023.³⁵

The federal government also indemnifies FAA-licensed launches against accidental and catastrophic damage. Federal indemnification was seen as a requirement to keep costs low and the United States competitive initially, as China, France, and Russia also offer indemnification.³⁶ However, the federal indemnification program could be replaced with an industry-wide pooled insurance program in the future. The need for such indemnification is already evident, as an explosion during an Orbital Sciences rocket launch in 2014 caused $13-$15 million in damages to the launch pad.

Major Innovation Success Stories

While SpaceX stands out as a rock star in the commercial launch sector, federal policies have proved successful in broadly stimulating the commercial spaceflight industry across the board. The United States went from zero commercial launches in 2011 to more launches in 2014 than all other countries combined.³⁷ This growth is largely dominated by SpaceX launches, as they now provide launch services cheaper than those of foreign competitors. NASA has signed Space Act Agreements with a half-dozen companies, and has provided smaller research grants to develop specific subsystems. As of 2016, there were ten commercial spaceports licensed across the country.

SpaceX started developing rockets in 2001 using their own money. In 2005, they announced that they would begin developing a new rocket design, the Falcon 9, which then went on to win an award from NASA in 2006 to complete development and demonstration. The original agreement with NASA had a deadline of 2008 for the first demonstration flight , and 2009 for completion of all three demonstration missions. There were various delays, but SpaceX completed all required demonstration launches by the end of 2010. NASA signed an additional agreement with SpaceX that was fulfilled in 2012 with the successful docking of a Falcon 9 with the International Space Station. To summarize, SpaceX went from announcing the development of a new rocket to berthing with the ISS (the first private spacecraft to do so) in seven years, but it only took four years from announcement to first launch.

The successful delivery of cargo to the ISS by SpaceX was not only important because it was the first private spacecraft to do so, but also because it signified an entirely new paradigm in spacecraft. The initial cost of payload delivery, roughly $9,000 per pound, was comparable with what NASA’s space shuttle had achieved. But the real disruption came from smaller spacecraft and modular engines on the rockets, allowing for faster learning and development.

The successful delivery of cargo to the ISS by SpaceX signified an entirely new paradigm in spacecraft.

For the past few decades, the launch vehicles available to commercial customers have been very large and offered infrequent launches. Therefore, satellites evolved to be very large to take advantage of the full launch payload, and to ensure long-lived satellites that would not need repairs.³⁸ This kept many smaller satellite developers out of the industry as they could never afford the large launches.

One of the most potentially disruptive innovations in commercial spaceflight is SpaceX’s development of reusable first-stage vehicles. Reusability could influence all aspects of commercial spaceflight, and other companies—and countries—are beginning to duplicate SpaceX’s innovation.³⁹ Another important technological innovation is SpaceX’s reliance on modular, off-the-shelf engines for launch vehicles. In the past, many rockets had their own unique engine or set of engines, which took up much of the development funding and time.⁴⁰ SpaceX chose to design their Merlin engine for both the first and second stage (with slight modification for the second stage). They also made a conscious decision from the start to design an engine that could fly aboard different rockets in different configurations, and opted to use the same general design for multiple stages. This has allowed them not only to reduce costs in development and production, but also to build up manufacturing and operations experience much faster. Each Falcon 9 rocket utilizes ten engines.⁴¹

The fly-by-wire technology that revolutionized commercial aircraft was originally developed for spaceflight. However, the use of more automated systems and controls developed in aviation are now coming back to launch systems. Particularly, in most of the launches licensed to date, flight abort decisions were made and implemented by humans.⁴² Many companies are working to develop instruments and systems that can detect and correct for problems without human intervention, reducing the risk of catastrophic failure. The FAA will need to figure out how to license these novel systems.

Lastly, while the demand for launch services is still relatively small today, the drastically lower price to launch may open up new markets for these services. In particular, the cost to launch a person into low Earth orbit is reaching a point where space tourism might finally become a reality.

Lessons Learned for Nuclear

NASA has been able to stimulate intense private-sector activity through a combination of prize funding and network building (both between public and private institutions and between private and private). At least a priori, there is no reason why today’s nuclear-focused public institutions shouldn’t do the same.

The commercial space industry also benefited from favorable regulation, particularly a moratorium on regulation for its first ten years (later extended to twenty years).⁴³ The federal government also provides indemnification against catastrophic accidents exceeding private insurance, up to $500 million per launch. Both of these policies were justified because commercial spaceflight is a young industry and was thought to be uncompetitive with Russian, European, and Chinese firms that are heavily state-supported.

The nuclear industry should look to NASA, which was able to stimulate intense private-sector activity through prize funding and network building.

Like NASA, the Department of Energy (DOE) will need to shift its mission to explicitly support private-sector innovation. Beyond providing advice and expertise, federal research and demonstration priorities should take explicit guidance from the nascent advanced nuclear industry in exchange for clear requirements for inter-firm collaboration and publication of results and technical data from publicly funded research and demonstration projects.

DOE should also, as NASA has done, identify explicit innovation targets and provide staged public support to companies that can demonstrate viable technologies to meet them. This approach should apply to both the supply chain, whether it is forging advanced steels or developing novel fuel manufacturing capabilities, and to funding prototypes and demonstrations. Establishing key performance criteria and predicating public funding upon meeting those criteria can incentivize multiple firms to take multiple approaches to solving technical challenges and experimenting with novel assemblages of fuels, coolants, and materials.

The authors would like to thank Prof. Per Peterson for first getting us thinking about commercial spaceflight as a useful case study for nuclear, and Joe Mascaro for his very helpful feedback and insights.