Download PDF Fall Issue of The Bridge on Nuclear Energy Revisited September 15, 2020 Volume 50 Issue 3 The desire to reduce the carbon intensity of human activities and strengthen the resilience of infrastructure key to economic prosperity and geopolitical stability shines a new spotlight on the value and challenges of nuclear energy. Managing Drivers of Cost in the Construction of Nuclear Plants Thursday, September 17, 2020 Author: Eric Ingersoll, Kirsty Gogan, and Giorgio Locatelli To make a meaningful contribution toward clean, reliable, and economical future energy systems, nuclear power plants (NPPs) must be cost and risk competitive with other low-carbon technologies within near-term timeframes. Recent new builds in the United States and western Europe have suffered from two phenomena. First, they are expensive in absolute and relative terms: the cost per MW installed, along with the size of the plant, makes them among the most expensive power plants of any type. Second, they have all been delivered overbudget and late, making NPP construction a risky investment, which in turn increases the cost of borrowing money for new projects. Figure 1 But the experience in Asia has been very different. Many new build projects there are highly cost competitive with both fossil fuels and renewables. Figure 1 highlights this contrast, plotting the costs for a sample of representative projects, four in the United States and European Union, and a number of projects in four Asian countries. Understanding Differences in NPP Capital Costs Research helps to explain the differences. The Nuclear Cost Drivers Project commissioned by the UK Energy Technologies Institute (ETI NCD study; ETI 2018) reviewed pathways for reducing capital costs, which comprise those for base construction plus contingency, interest during construction, owner’s cost (including utility startup), commissioning (nonutility startup), and initial fuel core (adapted from GIF 2007). Through an evidence-based study of historic, contemporary, and future NPPs, the project identified a small number of factors that drive NPP costs and risks and highlighted characteristics common among low-cost NPP projects and others common to high-cost projects. Figure 2 Figure 2 contrasts the elements of capital cost across four groups of NPP projects: (i) a high-cost (first-of-a-kind) group based on current experience in Europe and the United States, (ii) a benchmark plant (“previous US median”), (iii) best-performing US plants, and (iv) low-cost plants based on current experience in the rest of the world (ROW). The first thing to notice is that despite wide variation in EU/US and Asian labor costs, this category is not the largest contributor to differences in cost outcomes. Second, the green bars show considerable differences in interest during construction, primarily reflecting the duration of construction and capital costs (interest during construction was levelized at 7 percent for all cases here)—projects that experience severe delays cost more. Third, indirect services costs (dark blue) also show substantial variation; they are driven by (in)efficiencies in design completion and the need to resolve quality and regulatory issues, which often entail extensive engagements with regulators and suppliers, additional design engineering work, onsite rework, and delays. The small sample of highest-cost NPPs shown here are first-of-a-kind (FOAK) projects being built in Europe and the United States after decades of inactivity in construction. In contrast, the majority of those at the low-cost end of the scale are nth-of-a-kind units. Evidence from NPP new build programs around the world indicates that FOAK plants represent a major investment in skills and capability. Significant productivity improvements and cost effectiveness can be gained in subsequent projects with respect to the project governance, workforce, supply chain, and regulators, in general illustrating the role of experienced leadership, design standardization, and mature capability in reducing costs, delays, and risks (Mignacca and Locatelli 2020). Ways to Reduce New Build Costs Of course, cost improvements are not automatic. A review of learning rates with different technologies showed that they vary according to the technology, time of the study, location, and other factors (Rubin et al. 2015). The nuclear industry has had among the lowest learning rates. The lack of standardization in design and the project delivery chain is a key reason for this poor performance. Once again, however, there is contrasting experience. South Korea has demonstrated a fleet build approach combined with good project management, efficient construction execution, and technology innovation to deliver new NPPs domestically and even in newcomer countries (e.g., the United Arab Emirates) at significantly lower costs than those recently experienced in Europe and the United States (Choi et al. 2009). It is reasonable to ask whether low-cost outcomes in China, Japan, and Korea, for example, are transferable to the US or European contexts, given cultural and economic differences and country-specific working practices. Evidence gathered in the ETI NCD study suggests that best practices leading to these low-cost outcomes are not country- or even technology-specific. In fact, as highlighted above, analysis reveals that previous US best practice experience (expressed in 2017 USD, and with a standard interest rate during construction of 7 percent applied across all units) corresponds reasonably with current ROW experience, as shown in figure 2 (DOE 1986, table 5-4). Several studies have identified factors that are key to determining the cost and risk of NPP new build projects (e.g., Buongiorno et al. 2018; ETI 2018). Table 1 reports the main cost drivers and corresponding stakeholders for a new NPP construction project, along with actions that can reduce the impact of each cost driver. Table 1 page 1 Table 1 page 2 A highly focused, deliberate program can drive down costs and improve efficiency of the construction process over time through consistent, rational implementation of best practices, regardless of location, if there is a strong commitment from the major stakeholders. Literature on the cost of megaprojects, across a variety of sectors besides nuclear, validates these points (e.g., Locatelli 2018; Merrow 2011). Further Cost-Reducing Options In addition to the adoption of best practices for project management and execution, new technologies may further reduce cost and risk even for GW-scale conventional light water reactors. Examples include the use of seismic isolation to reduce the need for site-specific design changes, and advanced construction materials such as high-strength reinforcing steel and ultra-high-performance concrete to reduce the installation cost of concrete structures (Buongiorno et al. 2018). Even more radical cost reductions could come from new delivery models in industries that already deliver large, low-cost, high-quality, and complex machines at the scale of NPPs. Shipyards, aircraft factories, and auto manufacturing plants are good examples. Learning from these other industries demonstrates that steep, near-term cost reduction is achievable by shifting from traditional “stick-built” construction projects to high-productivity manufacturing environments such as a shipyard or factory. Moving from traditional construction to a highly integrated manufacturing, assembly, and installation process on one site could enable high-quality, repeatable processes, with quality assurance designed into every step. For example, thanks to the standardization of design and suppliers, the aerospace industry achieved over the decades extraordinary cost reduction and safety improvement, making flying safe and convenient. Conclusion The nuclear sector in the United States and Europe needs to shift from artisan-crafted projects to standardized repeatable products, with NPP planning based on a few replicable designs delivered by a consistent network of experienced suppliers. It is up to the nuclear sector to shift its mindset and lead this transition. The nuclear sector must also engage with its many stakeholders to explain why nuclear products instead of projects can deliver lower costs and other wider societal benefits. This is important to create the societal “pull” in the same way that has made flying safe, convenient, and affordable today. References Buongiorno J, Corradini M, Parsons J, Petti D. 2018. The Future of Nuclear Energy in a Carbon-Constrained World. Cambridge: Massachusetts Institute of Technology. Choi S, Jun E, Hwang I, Starz A, Mazour T, Chang S, Burkart AR. 2009. Fourteen lessons learned from the successful nuclear power program of the Republic of Korea. Energy Policy 37(12):5494–508. DOE [US Department of Energy]. 1986. Phase VIII Update (1986) Report for the Energy Economic Data Base Program (DOE/NE-0051/3). Washington. ETI [Energy Technologies Institute]. 2018. Nuclear Cost Drivers Project: Summary Report. Loughborough UK. GIF [Generation IV International Forum]. 2007. Cost Estimating Guidelines for Generation IV Nuclear Energy Systems. Paris: OECD Nuclear Energy Agency. Jergeas G, Van der Put J. 2001. Benefits of constructability on construction projects. Journal of Construction Engineering and Management 127(4):281–90. Locatelli G. 2018. Why are megaprojects, including nuclear power plants, delivered overbudget and late? Reasons and remedies. arXiv:1802.07312. Merrow EW. 2011. Industrial Megaprojects. Hoboken NJ: Wiley. Mignacca B, Locatelli G. 2020. Economics and finance of small modular reactors: A systematic review and research agenda. Renewable and Sustainable Energy Reviews 118(2020):109519. Rubin ES, Azevedo IM, Jaramillo P, Yeh S. 2015. A review of learning rates for electricity supply technologies. Energy Policy 86:198–218. Eric Ingersoll and Kirsty Gogan are managing partners of Lucidcatalyst. Giorgio Locatelli is a professor of project management in the School of Civil Engineering at the University of Leeds.  The ETI NCD study analyzed a range of current and recent projects against a “benchmark plant” representing the median experience from the US fleet build recorded in DOE (1986).  Indirect services costs comprise field indirect costs, construction supervision, commissioning and startup costs, demonstration test run, design services off- and onsite, project/construction management services off- and onsite, and contingency on indirect services cost (ETI 2018). About the Author:Eric Ingersoll and Kirsty Gogan are managing partners of Lucidcatalyst. Giorgio Locatelli is a professor of project management in the School of Civil Engineering at the University of Leeds.