Are safety requirements the only driver of nuclear construction cost?

//Are safety requirements the only driver of nuclear construction cost?

Increasing safety requirements for nuclear construction leads to increase in cost – Why? to what extent? Which are the other factors? 

While sharing a post on LinkedIn about “China Powering the Future of Nuclear”, Stating that an MIT study found that construction of NPP is far cheaper in the East than the West. “In Korea, in China and the UAE, which is being built by the Koreans – the cost is $3,000-$4,000 per kilowatt,” compared to the costs in the West which is approx. $8,000 per kilowatt. An interesting comment made was – if those cost reductions are due mainly to technological saving in China or to stricter regulatory safety requirements in Western countries. I was intrigued by this and wanted to know more about how significant is the impact of safety requirements on the construction cost.

With this in mind, I recently conducted a research and wrote a 12 page report about the main drivers of construction costs.

Key Takeaways:

  1. US cost went from $1300/kW in the 60’s up till $11,000/kW nowadays
  2. China average costs are more than a third less than Europe, and 30% lower than the US
  3. Average nuclear reactor must go through $219 million in regulatory liabilities in the US
  4. The cost of building new NPP is nearly 20% higher than expected due to delays
  5. Due to Modularization, The Japanese ABWR construction schedules were reduced by nearly 20% and non-civil construction person-hours were reduced by nearly 40%

The full report includes the following topics:

  • Historical construction cost development
  • The US, France, S. Korea and China costs evolution
  • Causes influencing the cost
  • Potential factors to mitigate the increase
  • Post Fukushima effects on new builds
  • Hitachi pulls out of the Wylfa project in UK

The report aim to understand and assess the current situation of nuclear around the world. I’ve tried to put into perspective the main global players by providing facts and comparisons, however, I’ve tried to keep it as objective as possible to let the readers reach their own conclusion. I would be delighted to hear back from the readers about their opinions, point of views and personal experiences through the comment section.

Below are some excerpts from my report. For the full report, please email [email protected]

Historical construction cost development:

Nuclear construction has seen its climax during the mid-70s and mid-80s, from then, the balance of new build was always positive, more reactors would go online every year than shut down. However, the trend changed after 2002 and balance became negative, due in big part to the skyrocketing costs of new builds. To have a better understanding of the situation we have to segment this trend into two categories. Western countries (USA, France, Canada…) which have seen a significant increase in costs, and Eastern countries (China, S. Korea, Russia) which experience stable costs during the years.

The US costs evolution since 1954:

it’s important to note that the history of US nuclear power plant (NPP) construction is marked by a turning point which is the Three Mile Island (TMI) accident in 1979. This event has impacted the costs and construction of new NPP greatly in the US, as tougher regulations were imposed and American public acceptance dropped. TMI reactor partially melted down on March 1979 due to a combination of equipment malfunctions, design problems, and worker errors. This is the most important commercial nuclear incident in the US; even though no human casualty was to signal from it, it had an immense effect on regulations and the overall power plant operations.

nuclear-accident-at-three-mile-island

So, let’s begin our overview from the period between 1954 and 1968, the cost was obviously high for the first reactors with a $6800/kW. However, thanks to the learning curve and economy of scale the costs dropped dramatically to $1300/kW, meanwhile the reactor size augmented from 80 MW to 620MW.

The second phase, from 1964 to 1967 the bill kept decreasing by 33% as the costs were $1000- 1500/kW, while the reactor sizes kept growing 1100 MW.

For the third period between 1967 and 1972, 48 reactors were constructed and it’s interesting to note that all those reactors have been completed before the TMI incident. However, the costs rose to reach $2500/kW. Some studies attributed this trend to an increase in safety requirements. The most important costs peak was seen for the projects which started between 1968-1978, those were under-construction during the TMI event. the cost continued growing till reaching $11000/kW, the majority of studies done explain it as a direct result of much stricter regulations.

France costs evolution since 1957:

See Full Report

South Korea costs since 1972:

See Full Report

China Costs:

See Full Report

Causes influencing the cost:

Many causes have been pointed out as the main drivers in costs of new builds such as:

  • Design revisions during construction
  • The large size of the plant and labor costs
  • Regulations
  • Technology complexity
  • Lack of standardization
  • Lack modularization

Regulation:

Regulation is often seen by some as the principal problem behind the high increase in costs nowadays. I would admit it’s one of the factors contributing to the exponential increase, however, it’s not the only one neither the most sole factor. Regulation affects the costs in different ways (directly and indirectly).

The direct effects are first by demanding for more equipment and materials to ensure the respect of the strict rules. According to a recent study, in between the early and late 70s, the regulatory requirements in the US increased the quantity of steel needed in NPP by 41%, the amount of concrete by 27%, the lineal footage of piping by 50% and the length of electrical cable by 36%.

Second, the fees for nuclear regulation are an additional burden, The American Action Forum  (AAF) report that an average nuclear reactor must go through $219 million in regulatory liabilities. Representing $60 million annually per plant, of which $8.6 million in regulatory costs and $22 million in fees to Nuclear Regulatory Commission (NRC), and $32.7 million for nuclear liabilities.

Third, Approval time is very slow due to the strict regulation and takes many years to be done. This contributes greatly to make the costs skyrocket as stated by a research done by Imperial College London, the cost of building new NPP is nearly 20% higher than expected due to delays. In other words, it also discourages new power plant projects to be built.

Indirect effects are the consequence of strict requirements which applies to the fabrication of components. The cost of components increases considerably by forcing the supplier to adhere to qualifications and requirements that exceed the standards of other industries, which forces many of the suppliers to focus on other industries instead of nuclear as the profits decrease. In other words, the number of suppliers diminishes which obviously drive the prices up. No serious accident has ever resulted from a fabrication defect. The few times an incident occurred in NPP it was due to poor reactor design, human and operator errors.

Size, Labor Cost & Technology:

The size of the power plant in the West is constantly changing and getting bigger which implies the technology is changing and the skillsets are continuously evolving which suppresses the positive effects of learning by doing. In comparison, the offshore wind farms have experienced a positive learning effect which allows it to decrease by more than 10% each time the installed capacity doubles. Meanwhile, nuclear energy is one of the few industries where technological innovation seems to make it more expensive. Furthermore, by aiming for bigger size NPP, the West force themselves to deal with much more complex projects which implies longer lead times to build which automatically increase the cost per MW. Labor cost is also a factor but it’s quite negligible compared to the other reasons, according to Escobar-Rangel and Lévêque, the labor cost increase at a faster rate than inflation which in part explains the slight increase over the years of the costs. In addition, the US and France are subject to the first mover disadvantage of deploying an evolving technology as I mentioned above. The following are examples of projects that went well out of budget because they are implementing a dramatically new technology where the constructor cannot benefit from the expertise of previous projects.

  • A new nuclear plant (Vogtle) in Georgia that was supposed to take four years and cost $14 billion for two reactors is now expected to take 9 years and cost $27 billion.
  • A new nuclear plant in Finland that was supposed to take four years and cost €3.2 billion is now expected to take 14 years and cost over €10 billion.

The  Olkiluoto NPP in Finland was conducted by AREVA which thought that it could implement new technology and conduct the whole project by itself from a to z (usually they would only deal with the reactor technology), however, it was an incredible fiasco that led AREVA to bankruptcy.

Potential factors to mitigate the increase:

Standardization:

Standardization, in my opinion, is one of the most efficient ways to reduce costs; however, not every country can implement it, as one of the prerequisites is to have a single operator in the country such as the case in France and S. Korea. For instance, the US would have a hard time implementing standardization as they have multiple operators and vendors. Standardization is the construction of the same series of reactors, by doing so it is possible to gain from the economy of scales by benefiting from advantageous components prices and diminish the number of skilled labor per unit. Also, it permits the mitigation of uncertainty associated with complex technology projects which in turn facilitate the financing.

Furthermore, standardization reduces construction cost through learning by doing effects, and in the same time enhance safety. Another important benefit from it, is the reduction of lead time which is one of the main drivers of costs. It’s important to have a well-thought-out strategy to implement standardization as they are tradeoffs to be made, the most vital of which is technological advancement. A country needs to assess the pace of technological change which would not impact the benefit of standardization.

Modularization:

See Full Report

Small size reactors (SMRs):

See Full Report

South Korean example:

S.Korea has demonstrated that it was possible to maintain the costs low over the years. As mentioned earlier the Korean nuclear fleet have been consistently low compared to the West as a result of many factors. Even when increasing the size of their reactors over the years from 1000 MW to 1400 MW their construction time decreased. The reasons are a disciplined culture which follows strict centralization and standardization. All the players from the builders to suppliers passing by design and components remained the same over a 40 years period. This consistency led to more efficient work, shorter construction time and economy of scales. To portray this model we have an example from the interview done by Forbes, which interviewed 3 senior Korean construction managers. He finds out that the managers were working together since the 80s and have constructed the same type of reactors since then. They were able to build 8 reactors together over a 35-year period. The results are stunning as the first 2 reactors at Shin-Kori site took 6 years to build, the third and forth took four and a half which represented a 25% time gain. Noting that the size grew by 40% from 1000 MW to 1400 MW.

Post Fukushima effects on new builds:

See Full Report

Hitachi pulls out of the Wylfa project in UK

Another example of the impact of construction costs problem is the Wylfa nuclear project in Wales, UK. The $26 billion projects have been put in hold by the Japanese conglomerate Hitachi which are considering to abandon the project completely as the negotiation with the British government is in an impasse. UK was one of the few Western countries betting on nuclear, they were counting on this project and the Cumbria project (Toshiba) among others to create a nuclear renaissance in the country and replace their aging nuclear fleet.

Nevertheless, the two projects mentioned above went into tremendous issues and the latter (Toshiba) was officially abandoned. The Cumbria NPP was supposed to cover 7% of UK’s electricity, however, it will never see the light under Toshiba as they have troubles finding buyers and the costs kept going up. Toshiba claims that it will suffer a £125 million loss as a consequence of this decision. A couple of months later, it’s the other Japanese giant “Hitachi” which will aggravate the British nuclear situation by halting its Wylfa project. Hitachi is seeking more financial support from the British government as Hitachi struggled to secure funding from Japanese companies. The initial agreement was that the British government would provide $18 billion in loans, and the remaining to be provided by Hitachi. Hitachi had been soliciting many of its fellow Japanese companies to gather this sum such as Japan Bank for International Cooperation, TEPCO, Chubu Electric Power, Development Bank of Japan. However, those companies think that the costs are too high and the investment does not make sense. Even within Hitachi, internal opposition arose as they believed that the project was too risky. For the moment the project hasn’t been abandoned completely but the probability is high. This situation opens the door for the Russian and especially the Chinese to take over the project. CGN have already shown interest in taking over; however, due to political distrust from the British, the operation is not easy to deal with. CGN is already working on the Hinkley Point project in the UK along with the French “EDF”. British officials don’t exclude the possibility of working with the Chinese on the Wylfa project but with some prerequisites to meet from the Chinese such as they have done in the Hinkley Point project. They need to partner with a Western company to be able to get the deal.

Insights:

Safety requirements play an important role in the increase of the construction costs nowadays, however, it will be a great mistake to put all the blame on safety requirements. As discussed in this paper many other factors need to be examined and dealt with such as size, technology, lack of the standardization. Also, intangible factors should be taken into consideration, to mention but a few, the lack of practice from the Western countries as they have not built for some of them any reactor in decades plays a role. For instance, many people consider this factor as one of the causes behind the Olkiluoto fiasco.

To summarize, as an answer to the introduction question, Safe requirements are part of the problem but Western companies cannot hide behind this to justify their huge cost deficit compared to Eastern countries.

By |2019-07-17T12:05:40+08:00July 17th, 2019|nuclear-industry|0 Comments