New Projects, Nuclear, Reactors

Are nuclear costs really that high? (Part II)

By Steve Blankinship
Associate Editor

Nuclear new build programs under way in Russia and China could offer some lessons to U.S. developers hoping to see a renaissance in nuclear power generation.

That’s the view, anyway, of Ed Kee, vice president of economic consulting firm CRA International. A former U.S. Navy nuclear engineer, Kee traces his nuclear industry experience to the last period of nuclear capacity growth in the U.S. during the 1970s and 1980s. Back then he worked on litigation stemming from stranded cost cases. More recently, he has been consulting with companies looking at new plants, mostly outside the U.S.

“The Russians and the Chinese are really building reactors and building a lot of them right now are doing it in a way that are lowering their costs a lot,” says Kee. The Russians and the Chinese have established large state-owned companies to design and build nuclear power plants, even factories to produce components for their standardized reactor designs. The reactor systems are built in modules and shipped to construction sites.

“The Chinese are building CPR-1000 units (a local Generation II design based on the French Daya Bay PWR units) really fast and really cheaply.” he says. “The Russians are building their Generation III VVER plants inside Russian and also selling these plants to China, India, Iran and in Eastern Europe.”

The costs of Russian plants are lower, especially for internal markets, because the sales are from the government-owned reactor supplier to a government-owned utility. This both internalizes and eliminates the transaction cost and risk assignments that exist when commercial reactor vendors and construction companies sell to commercial utility buyers.

“It’s one government entity building its own reactors, and that takes a lot of risk and transaction costs out of the equation,” he says. “They can do things the cheapest way.” While concerns exist about quality and safety, the Russian and Chinese nuclear industries have largely adopted the West’s safety culture and approach. “Chinese nuclear regulators have set standards that are even tighter than ours in some ways,” Kee says.

The Chinese bought four Westinghouse AP1000 units and had two units at Sanmen under construction. They also built a factory to manufacture AP1000 modules and are working to develop a local version of the AP1000 for the Chinese market, having purchased the intellectual property rights to the design. Kee says he wouldn’t be surprised if the Chinese were selling the Chinese variant of the AP1000 outside China in the future, perhaps at lower prices than Westinghouse.

“I do not see the Chinese looking to the U.S. market until their internal market is more developed,” Kee says. Obtaining NRC Design Certification approval for their AP1000 variant and NRC approvals for their component manufacturers would take many years. In the U.S. new nuclear cycle, a lot of time and money is spent navigating the NRC approval process.

Managing Construction Schedules

A key issue for managing or reducing projected construction costs in the U.S. is to shorten overall construction schedules, says Bob Evans, vice president of New Plant Services for Enercon Services Inc. The company supports deployment of new nuclear power plants and ongoing operations of the current fleet.

“All of the designs currently under consideration in the United States rely heavily on modular construction techniques like the AP1000s being constructed in China,” he says. Areva has already announced plans to build new facilities in Virginia to help fabricate modules for their EPRs. “Once we fully understand the potential savings in schedule associated with using modular construction techniques, we may see decreases in planned construction schedules and the overall capital costs for the new units,” says Evans.

He adds the U.S. nuclear industry has learned an enormous amount about planning and scheduling major evolutions. “Our large constructors are routinely replacing steam generators at our operating nuclear power plants in less outage time than has been budgeted,” he notes. “The same intense planning and scheduling of all tasks and craft activities will be applied to field construction of our new nuclear power plants. As we better define all the details of the construction schedule, we may be able to tighten up the proposed schedules to accelerate construction and reduce costs.”

Costs Viewed Over the Long Term

Kee says the current estimates of high nuclear power plant costs in the U.S. should be placed into perspective. “When we get to 2030 or so, we can look at the actual costs of the new U.S. nuclear power plants. I expect that many of these plants will be built at a cost that is close to current estimates. Despite the experience at Olkiluoto in Finland, I do not expect that the next round of U.S. nuclear power plants will have significant cost overruns.”

A new nuclear plant’s cost also must be looked at in relation to the future price of electricity when considering the viability of an investment of this magnitude, says Mitch Singer, a spokesman for the Nuclear Energy Institute.

“Nuclear plants are expensive to build but they have the lowest operating costs of any source of electricity.” With electricity costs expected to increase dramatically in the ensuing decades various economic studies have determined that nuclear is generally a competitive option for baseload generation in the 2015 and beyond time frame, Singer says.

Nuclear is a viable option for America’s energy mix without any carbon tax. But if carbon constraints are implemented nuclear will look even better.

“Companies facing mandates to lower their carbon footprint simultaneously with needing to add significant generation know that nuclear is their best option” Singer added.

Kee notes a general effort in the U.S. to restart the nuclear industry in terms of manufacturing, engineering and talent infrastructure, and that the cost of this startup is embedded in the first round of new nuclear plant cost projections. “If the U.S. does get back into the nuclear plant building business again and we get 10 or 12 new nuclear plants built, we will have established an industry again in this country and you might well see the costs come down.”

In South Korea and Japan (and more recently Russia and China), a domestic nuclear power plant supply industry has been built on the back of domestic utility orders.

French Model

The model for this national nuclear industry approach is France, where in the 1970s and 1980s, the government owned and controlled most of the economy including the nuclear supply industry and the electric utility. France’s electric utility, EdF, built the current French nuclear fleet by placing large multi-unit nuclear power plant orders with French suppliers. This nuclear fleet was built with an infrastructure all inside France and the French nuclear plants were even sold into the export market.

“France is trying to do that again with Areva’s new EPR design, but they don’t have the internal order book this time,” says Kee. “They are hoping to sell some of the EPR units in the export market, along with a few in France, so when they start to replace their old nuclear units in France they’ll have a mature design with a well-established supply chain and a better cost position.”

In short, the high costs being published about new U.S. nuclear units reflects the additional cost of re-establishing the nuclear industry in this country. “Just as one example, the current cost for qualified nuclear welders is probably higher today than it would be if there was an active nuclear construction program with a lot of nuclear welder jobs underway here,” says Kee. “Today you have to price into your bid the cost of acquiring and training skilled labor.”

“Inadequate” Government Support

Evans also points out that all new nuclear power plants in the U.S. will be using sophisticated three dimensional modeling of the plant design. “This should facilitate rapid resolution of any construction interferences identified in the field and assure that construction is not delayed.

After a half dozen or so new nuclear units are built in the U.S., the costs may be lower as designs are validated, the builders have experience with actually building the units, module and component factories are established, and a more mature supply chain and skilled work force is established.

The question is whether the U.S. will build enough new nuclear plants in the first wave to get through the learning curve. Most utilities will require a loan guarantee. However, the $18.5 billion in DOE loan guarantees currently available may mean that only a few new nuclear plants get built in the first wave.

Singer says the loan guarantee volume is clearly “inadequate.” Nevertheless, the industry is confident a “handful” of new plants will be constructed and operating in the 2016-2017 time period.