Understanding the challenges of nuclear new build

With nuclear power firmly back on the energy agenda, Arthur D. Little’s study looks at the challenges facing owners, particularly in the context of many projects being run on tight time schedules by teams with little or no experience of nuclear new build. Together with in-depth interviews with market participants, the study draws on over 150 projects currently under construction or planned, totalling 562 new reactor units.

Dr. M. von Bechtolsheim, M. Kruse & J. Junker, Arthur D. Little, USA

Nuclear power is undergoing a renaissance, with 61 units under construction and about 500 further reactors already under contract or planned within the next two decades. More than 150 projects, many of them joint ventures, are competing to attract technology suppliers. If projects are implemented as their owners intend, global investment volumes will exceed thousands of billions of euros.

Typically, owners run their projects to very tight time schedules, but in many cases the project team is new to the nuclear sector or has only limited nuclear new build experience. This creates a set of issues and challenges that are as much managerial as technical, and call for professional management of nuclear new build ventures.


Arthur D. Little has compiled a comprehensive study of all ongoing nuclear new build projects, which shows that currently a decision on the supplier of the nuclear steam supply system (nuclear vendor) has been taken for 149 units (see Figure 1). The widely favoured light water reactor (LWR) technology includes 12 different reactor types or families of design, which are marketed by vendors as competitive standard designs.

Figure 1: Light water reactors already formally chosen by owner, as of June 2010

Selected for 30 units, the most common LWR designs are the Chinese pressurized water reactors of the CPR family. At present, they are under construction only in China and reflect the country’s ambition to establish a strong domestic nuclear industry. It is China’s national strategy to become a global exporter of its two nuclear Generation III designs in the future.

The Russian VVER reactor design family, developed by Rosatom, has been chosen for various new build projects, mainly in Asia, Russia and Eastern Europe. Seventeen units with this design are under construction and the decision has been taken to use this technology for another 12 units.

The design most commonly marketed by nuclear vendors in the western hemisphere is Westinghouse’s AP1000 (selected for 29 units), followed by Areva’s EPR reactor (selected for 22 units). The ABWR reactor design family, marketed by several nuclear vendors (GE”Hitachi, Toshiba and its subsidiary Westinghouse), is less popular in terms of units. At present, globally, there are plans to implement 15 units of the ABWR design.

Other reactors in the market are at an earlier design phase. These reactors have not yet reached a degree of design maturity that is broadly accepted by the market or licensed by regulators. Among them are Areva’s ATMEA1 and Kerena reactors, as well as GE-Hitachi’s ESBWR. Whereas the Kerena is under close consideration by some new build projects but has not yet been formally selected, the ESBWR has already been selected for one project to be implemented some time in the future.

There are two key technology considerations for owners who plan to implement a nuclear programme:

1. Given that first-of-a-kind engineering imposes tremendous challenges on the suppliers and owners from a technology point of view, reactor types already constructed several times have an advantage.

2. At the same time, depending on the timeline of projects that have already selected a certain type of reactor, competing projects might have a disadvantage in labour provision as well as reduced negotiating power.

Procurement and contracting

A detailed look at the procurement and contracting approach of new build projects reveals a correlation between the contract approach chosen and the owners’ experience. In general, three broad contract approaches can be identified: component (or multiple-package) approach with many separate contracts, island (or split-package) approach with few contractors, and turnkey (or EPC) approach with only one general contractor. This classification does not refer to the pricing structure within each contract ” an EPC contract does not necessarily have to be fixed price.

Of the 61 units currently under construction, only owners (or their project teams) with a high level of experience implement their new build using a component approach. Less experienced owners currently building a plant tend to choose either a turnkey or an island approach (see Figure 2).

Figure 2: Owner’s experience and contract approach of 61 units under construction, as of June 2010

There is a clear tendency among owners without much experience to shift as much responsibility as possible for design, interface management and overall risk exposure to suppliers, despite turnkey premiums. Looking at those projects currently at an advanced planning stage produces an even clearer picture.

Here, owners without any new build experience opt overwhelmingly for a turnkey approach. A component or island approach has been chosen for only a single project. This snapshot of the approaches to procurement and contracting reveals two key insights:

1. Actual market behaviour shows that inexperienced owners are aware of the inherent risks of island or component approaches. They do not overestimate their own capabilities.

2. Prior to deciding on the contractual approach and level of responsibility to be assumed by the owner’s project team, owners need to undertake a detailed assessment of their own competencies to develop a comprehensive procurement/contracting strategy.

Supply chain

For suppliers and owners alike, it is important to understand critical issues such as global problems with the availability of critical components, insufficient willingness on the part of the financial markets to support nuclear new build, and the availability of skilled labour.

I. Heavy Forgings

Analysis of demand and supply with regard to typical long-lead items (e.g. nozzle shell flange for reactor pressure vessel) shows that the issue of bottlenecks for heavy forgings has been largely resolved. This holds true at an overall level and on a reactor design-specific level.

An assessment of demand and supply for large forgings for the first wave of nuclear new build until the year 2024 indicates that sufficient forging capacity will be available in time. This means project delays caused by non-availability of forging components can be avoided and timely slot reservation is no longer that critical.

This projection includes the capacity of the 14 000 tonne presses needed to manufacture ultra-large forgings from heavy steel ingots for the different reactor types. According to capacity projections from suppliers such as Japan Steel Works, Sheffield Forgemasters and Areva/Sfarsteel, sufficient capacity will be available by the time nuclear new build projects require the manufacture of large forgings to begin.

Owners should be aware that expanded or new production lines carry with them the risk of lower quality in the period immediately after start-up, and must monitor carefully whether suppliers will be able to produce components to nuclear-grade quality. Proof is still required that problems with quality do not effectively negate newly expanded capacity.

The Arthur D. Little study finds bottlenecks could arise in other areas of the supply chain as well. In total, the study examined 153 key plant components; 25 were considered potentially critical. In Central Europe, for example, there are only a few suppliers of heavy lifting and transport equipment. Depending on overlaps in schedules, this could cause delays.

à‚ II. Skilled Labourà‚ 

In contrast with the issue of long-lead items, a highly critical and already prevalent issue is the lack of qualified and experienced personnel. This situation is especially critical in Central Europe and among member states of the EU, where regulatory requirements ” although less prescriptive than in the US, for example ” demand considerably more skilled staff.

Based on different labour-demand scenarios, the Arthur D. Little study indicates likely shortages in several labour categories. If project schedules achieve their current projections, more than 65 000 people will be needed to work on nuclear new build throughout Europe by the year 2018.

A more realistic scenario, which takes into account the fact that not all planned new builds will be implemented, still estimates a labour-demand peak of 35 000 people ” not taking into account upstream supply chain labour involved in the manufacture of equipment and components.

Closely linked to the issue of overall labour shortages is the specific challenge of having enough suitably qualified and experienced engineers. The many new build projects undertaken by owners with only low or moderate levels of experience typically necessitate the integration of a strong ‘owner’s engineer’ into the owner’s project team.

At the same time, the project team itself needs enough people with the required competencies to act as intelligent customers. Nuclear regulators today typically adhere to the intelligent customer principle, requiring the owner’s project team to retain sufficient technical knowledge of the services being provided by a third party to specify requirements competently and manage quality delivery of the services.

In an optimistic scenario, a peak of 6500 nuclear, conventional and civil engineers will be needed by engineering consultancies, suppliers and owners in Europe within the next decade. In a more realistic scenario, the Arthur D. Little study still estimates over 3000 people will be required.

Due to the labour situation in nuclear new build, there is a general need for the industry to attract young professionals and to invest in education, training and career prospects. At a project level, owners facing tight labour supply need to achieve a good understanding of the resources and skills they require over time and the skills they already have within their domain. It is clear the issue of labour needs to move up the strategic agenda for project owners.

New build challenges

As building new nuclear power plants is one of the most complex technical undertakings, owners often face tremendous financial risks.

A typical investment of €5 billion ($6.3 billion) per unit and long project-execution times of about 2″15 years from first feasibility studies to the start of commercial operations impose a high degree of uncertainty. Tight regulation in many countries, including rigid safety requirements, challenging financing requirements and public reluctance add further complexity that needs to be handled professionally.

An inaccurate understanding of project risks and inaccurate prioritization of critical activities often lead to significant delays and budget overruns. Projects in Finland (Olkiluoto 3), the US (South Texas 3 & 4) and France (Flamanville 3) have demonstrated these risks dramatically.

Historically, several factors have led to cost overruns, including:

  • Start of construction before design completion;
  • Insufficient incorporation of regulatory requirements into design and lack of reliability of licensing process;
  • Insufficient schedule integration and communication between suppliers and owner;
  • Lack of strategic and operational planning by the owner (milestones etc.);
  • Insufficient control and progression of the new build project (time, costs, quality etc.);
  • Poor interface definition and management between involved parties;
  • Hesitant implementation of counter-measures for identified risks and constraints; and
  • Lack of timely provision of suitably qualified and experienced staff.à‚ 

In addition to these key challenges, discussions with members of the different functional areas of new build projects, such as engineering, commercial, licensing and legal, reveal that a lack of understanding of other departments’ requirements and the natural interdependencies between the different tasks of a project’s subject areas often delay decision-making.

This is amplified by an unspoken reluctance among project members to deal with the high degree of uncertainty involved in nuclear new build, which sometimes impedes progression of the project.

All these issues show that, while the technical complexity of nuclear new build is widely recognized, the management challenges are often underestimated along with the call for professional management of nuclear new build ventures.

Lessons learned

The Arthur D. Little study reveals that countries and utility companies planning a nuclear new build should heed the following lessons:

1. The first requirement for a nuclear new build project is a well-structured and thoroughly organized approach specifying activities, roles and responsibilities, the organizational structure over time, and a master plan in order to avoid surprises and speed up project execution.

2. Especially for joint-venture new build projects, owners need to define effective decision-making, steering and governance mechanisms. These mechanisms must ensure a transparent, reliable but still flexible and broadly accepted decision-making process by owners and the project team alike. Within this approach, a criteria-based stage-gate process should give guidance to the joint venture’s shareholders regarding their role in verifying and signing off major decisions.

3. Owners should not overestimate their own skills and management capabilities. For owners with only limited or moderate experience, an EPC (turnkey) approach ” with a limited owner’s scope and contractual structure based on a hybrid-pricing model ” is often the best solution.

4. Deciding on the reactor technology too early cuts negotiating power and strategic flexibility. Procurement needs as much competition as possible while closely considering technology selection and licensing needs. This calls for the development of an optimal procurement approach for the plant, often including pre-qualification of suppliers.

5. Just signing one or more delivery contracts for the plant (e.g. EPC contracts) is not sufficient. Achieving a high degree of design maturity (nuclear, conventional and balance of plant) prior to contract fixing is needed as a baseline for achieving a well-structured contract. Here, early works contracts with more than one nuclear supplier help to establish this baseline.

6. Nuclear new build is not only about selecting the right technology and signing a contract with a consortium. The matter of financing the nuclear power plant, including financial engineering, needs to be handled with the same care. It needs to be addressed early during project development to secure a reliable financing scheme.

These lessons and others from ongoing nuclear new builds show that project success depends on a combination of factors. However, project decision-makers rarely manage projects from a holistic perspective and underestimate the interdependencies that exist between important project activities. Again, the lessons learned provide evidence that the management challenge of nuclear new build must not be underestimated.

Dr. Matthias von Bechtolsheim is director of the Energy & Utilities Practice, while Michael Kruse is a principal in the Energy & Utilities Practice and Jan Junker a consultant in the Energy & Utilities Practice. For more information visit Arthur D. Little’s website (www.adl.com).

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