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June 29, 2023
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Earlier this year, Georgia-based Southern Company notified its investors that unexpected construction issues would once again delay the startup of two new reactors at its Vogtle nuclear power plant near Augusta.1 With this latest setback, which extends the construction period from the originally projected seven years to now 14 and counting, the build’s final price tag will exceed USD$30 billion, more than double the initial estimate when the project was first permitted in 2009.2
The Vogtle announcement highlights the challenges confronting the nuclear power plant (“NPP”) industry in the United States, which remains both the top global nuclear power producer and among the oldest. While about 19 percent of U.S. electricity is currently generated by NPPs, the average facility is more than 40 years old, and there are currently 21 U.S. nuclear power reactors undergoing decommissioning.3,4,5 Today, except for a few large, troubled projects, NPP construction in the United States and in Western Europe has ceased, with focus shifting to decommissioning and dismantling.6 On the other hand, Eastern Europe, the Middle East and East Asia have found a way forward, with several new NPP projects progressing.7
“Unlearning” Curve To clear away some of the variability in analysis, NPP builders focus on Overnight Construction Cost (“OCC”), which pares financial cost to ascertain the efficiency of a given project. The analysis of OCC reveals several trends. Notably, a robust learning curve prevailed in the U.S. industry from its start until the Three Mile Island nuclear accident in 1979, when costs worsened substantially. Now, it is common to speak of an “unlearning” curve.8
We can learn much by studying both the NPP builds in the West and those in developing economies, where speed, management and quality are facilitating successful builds. Indeed, project managers across all markets have adopted new, cutting-edge risk and cost control strategies, not to mention revolutionary plant designs that utilize a “modular approach” (see more below) to better manage budgets and time frames for what is now a clean, safe and reliable power source.9 The industry shift toward Gen IV, also known as small modular reactors (“SMRs”), has begun to scale down the risk of megaprojects, not only through management of size but also through the adoption of new technologies and approaches that reduce variability and facilitate more progressive construction techniques.
As the world continues to recognize the externalities of fossil fuels, technical experts have begun to leverage industry innovations like those stated above to prepare for a global nuclear renaissance.
The Old Nuclear Model
Investors, utility managers and policymakers have long understood that nuclear projects face outsized construction challenges, making them cost prohibitive and politically risky. There are several reasons for runaway costs and prolonged timelines:
- Cost of delays: The two largest factors in construction expense are the amount of capital needed and the duration of the commitment. Delays drive up costs since investors require remuneration for lengthened financing periods. Delays also postpone the break-even date for a plant.
- Changing regulations: The need to alter plans midstream due to regulatory change hinders completion. Traditional plants, with their larger footprints, are especially susceptible because of the idiosyncrasies involved with their site locations. The very complexity of large projects also forces builders, regulators and third parties into an iterative dialogue, which can lead to disagreements and litigation that cause further delays.
- Bespoke builds: The singularity of NPP construction, especially in the United States, with extensive customization and almost no reliance on centralized, off-site manufacturing, keeps costs high. While nuclear, like other industries (e.g., pharmaceuticals), faces extensive R&D and rigorous testing requirements to license new products, it is difficult to test nuclear systems except at scale.10
The New Nuclear Model
Although there is no cure-all for avoiding unexpected issues with NPP megaprojects, investors are increasingly optimistic about the real progress being made through effective cost and risk management and project controls. These measures aim to mitigate the impact of unforeseen events, prevent worst-case scenarios and reduce construction costs at quantifiable rates.
Examples of these best practices include efficient design-build techniques like modular approaches; preemptive cost and scheduling risk identification; ongoing coordination with project superintendents, schedulers, project engineers and other site personnel; and continuous risk assessment and project cost forecasting. There are two primary approaches using this framework:
From FOAK to NOAK
Within the nuclear industry and engineering in general, the concept of “first of a kind,” or “FOAK,” describes the problem where one-off nuclear power plants (unique sites with custom designs tailored to a specific customer) cost considerably more than later versions, known as “nth of a kind,” or “NOAK.” A recent MIT study reported that a second unit, if similar and located near a FOAK, costs 30 percent less than a FOAK in general.11
The U.S. Department of Energy (“DOE”) agrees that repeat deployments are expected to drive substantial savings through the economy of multiples.12 In fact, the DOE estimates that reductions of between 30 and 40 percent are reasonable based on recent projects, which have taken roughly twice as long as expected and have had a high failure rate for components. This has led to unnecessary expenses in direct and indirect labor and materials, which are key drivers of overnight capital cost. To avoid these problems, project leaders should invest heavily in upfront project planning and scheduling.
The DOE projects that if advanced nuclear deployments can successfully reduce costs from estimated FOAK to NOAK, their overall levelized cost of energy (“LCOE”) would decrease by approximately 25 percent, from USD$87 per MWh to USD$66 per MWh.13 (Note: Estimates of the LCOE of nuclear energy vary enormously.) Spread over 10 to 20 successive build sites, this reduction in LCOE would enable advanced nuclear to realistically compete with other clean-electricity generation sources on a cost basis when considered as levelized cost.14 Roughly 80 percent of the levelized cost of NPPs consists of these construction costs.
Modularity
Modularity is a form of construction where the NPP is built in defined steps: Each step has its own set of experts, and each is similar to the steps taken to build adjacent or not-too-distant reactors.
Modularity centralizes the manufacture of components, allowing for mass production and standardization that supplant the bespoke and customized approach of older models. This efficient approach lowers construction costs and speeds the process, while standardization leads to a more uniform approach to reactor assembly, additionally reducing labor costs.15 NPP builders can use modular fabrication for engineering systems of all sizes and scales, much as automobile manufacturers do with multiple car models. This flexibility will help builders take advantage of smaller reactors.
The MIT study found that modularization, when used judiciously in plant construction and component fabrication, could be a viable cost-reduction strategy in advanced reactor designs. Especially for countries with high labor rates and low productivity, modular construction in factories offers pathways to reduce labor requirements (i.e., high labor costs at the plant site).16
In two earlier articles, we presented a fresh look at the system value of nuclear power plants and new financial frameworks to support third-party financing. As the nuclear industry transforms and the world looks toward a new energy future, the associated risks are expected to drop, and the rewards to rise.
Footnotes:
1: Amy, Jeff. “Georgia Nuclear Plant Again Delayed at Cost of $200m More,” AP News, February 16, 2023. https://apnews.com/article/georgia-power-co-southern-climate-and-environment-business-3b1d6c65353c6a65b1ccfddede753ab7.
2: Ibid.
3: “Nuclear Explained - Data and Statistics.” U.S. Energy Information Administration (EIA),. www.eia.gov/energyexplained/nuclear/data-and-statistics.php. Accessed June 5, 2023.
4: “Nuclear Explained – Nuclear Power Plants,” U.S. Energy Information Administration (EIA). https://www.eia.gov/energyexplained/nuclear/nuclear-power-plants.php. Accessed June 5, 2023.
5: “Locations of Power Reactor Sites Undergoing Decommissioning,” NRC Web, August 15, 2022. http://www.nrc.gov/info-finder/decommissioning/power-reactor/index.html
6: "Decommissioning Nuclear Facilities,” World Nuclear Association, May 2022. https://www.world-nuclear.org/information-library/nuclear-fuel-cycle/nuclear-wastes/decommissioning-nuclear-facilities.aspx
7: Matsuo, Yuhji, Akira Yanagisawa, and Yukari Yamashita. “A Global Energy Outlook to 2035 with Strategic Considerations for Asia and Middle East Energy Supply and Demand Interdependencies.” Energy Strategy Reviews, 2., no. 1, June 1, 2013. https://www.sciencedirect.com/science/article/abs/pii/S2211467X13000527
8: Lovering, J. R., Arthur Yip, and Ted Nordhaus. “Historical Construction Costs of Global Nuclear Power Reactors.” Energy Policy 91, April 1, 2016. 371–82. https://www.sciencedirect.com/science/article/pii/S0301421516300106
9: “A Global Energy Outlook to 2035 with Strategic Considerations for Asia and Middle East Energy Supply and Demand Interdependencies.”
10: “The Future of Nuclear Energy in a Carbon-constrained World,” MIT Energy Initiative, 2018. https://energy.mit.edu/research/future-nuclear-energy-carbon-constrained-world/
11: Ibid.
12: “Pathways to Commercial Liftoff: Advanced Nuclear,” U.S. Dept of Energy, March 2023. https://liftoff.energy.gov/wp-content/uploads/2023/05/20230320-Liftoff-Advanced-Nuclear-vPUB-0329-Update.pdf
13: “LCOE.” Lazard’s Levelized Cost of Energy Analysis – Version 16.0,” Lazard, April 2023. https://www.lazard.com/research-insights/2023-levelized-cost-of-energyplus/
14: Roques, Fabien. “Taking a Fresh Look at the System Value of Nuclear Power Plants,” FTI Journal. FTI Consulting, March 29, 2023. https://www.fticonsulting.com/insights/fti-journal/taking-fresh-look-system-value-nuclear-power-plants
15: “Pathways to Commercial Liftoff: Advanced Nuclear.”
16: “The Future of Nuclear Energy in a Carbon-constrained World.”
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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June 29, 2023
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