Stability Seen in New Nuclear Build Costs

Issue 3 and Volume 3.

By Brian Wheeler, Associate Editor

As power companies globally continue to expand their power generation capacity to keep up with growing demand, nuclear power is firmly in the mix of available options.

But as projects come to life across the globe some in the industry question the viability of a nuclear renaissance. In particular, the price tag associated with new build could be a deterrent for companies wanting to move forward with new nuclear operations. A study earlier this year by the Organization for Economic Co-Operation and Development found that the world median for overnight nuclear capital cost is $4,100/kW. And in the period from 2004 to 2008, there was an extreme price escalation for commodities, such as steel, iron, cement and concrete. Even so, U.S. industry trade group the Nuclear Energy Institute said that price escalation has turned back with the current recession, for now easing worries over escalating plant construction costs.

Construction on the Olkiluoto 3 project in Finland. Photo courtesy Areva.

Further evidence of a tame construction cost environment came from a report by IHS CERA in July, which found that construction costs for a variety of plants—ranging from wind to fossil to nuclear—rose for the first time since the first quarter of 2008. The report found that between the third quarter of 2009 and the first quarter of 2010, costs in North America rose 1 percent and in Europe 3 percent.

IHS CERA’s construction cost index found that steel costs have risen 2 percent for North America and 6 percent for Europe. Electrical prices, driven by the rise of copper prices, posted the largest increases: 15 percent in North America and 22 percent in Europe.

Overall, the price has stabilized and “we don’t expect to see it go down in the near future,” said Roger Kranenburg, IHS CERA Director.

Current Activity

The overall price tag escalation for the 1,700 MW Okiluoto 3 reactor—the Finnish reactor that uses Areva’s European Pressurized Reactor (EPR) design—was largely caused by a shortage of experienced skilled workers, a worldwide shortage of qualified equipment manufactures and inadequate completion of design and engineering work prior to the start of construction. Due to those delays the OK3 nuclear island is about three years behind the original completion schedule. Such a delay drives up the cost of the power plant.

Areva NP Inc. President and CEO Michael Rencheck said that the OK3 project lacked cohesiveness but said lessons have been learned for the next phase of construction. Rencheck said those lessons learned are important to improving the EPR and as the company moves forward the next plants will be easier and more affordable to construct.

“Excluding OK3, we have seen a very good development of pricing, but it still has to go lower,” said Rencheck.

In Europe, skilled labor, especially in the nuclear sector, will continue to be in short supply maintaining pressure on labor costs. An added complication is currency exchange rates, especially since globally sourced commodities are going up in price, said Deborah Mann, director at IHS CERA. She added that her firm does not expect to see the euro strengthening again until 2011 at least, meaning that imported equipment will remain relatively expensive.

Price escalations have not been isolated to European nuclear projects. The U.S. also has been subject to escalating prices, which have seemed to plateau.

The Tennessee Valley Authority is working to finish the partially completed Unit 2 at the Watts Bar plant. The $2.5 billion project will add 1,180 MW to TVA’s output when complete in 2012. Jack Bailey, vice president of nuclear generation development for TVA, said the project has not had to compete with other projects for skilled labor, which has led to a reasonable labor cost.

“We believe that the new project costs have moderated over the last year or so but we did see a large increase in the 2006 to 2008 timeframe,” said Bailey. “For a while there was a very energetic demand for nuclear component manufacture because everyone thought they were going to run out of supplies. Everyone started locking up orders.”

For TVA and companies building new nuclear in the U.S., importing large components from places such as Japan, France and Korea also means they also are susceptible to fluctuations in exchange rates, commodity prices and global supply and demand.

Conceptual drawing of B&W mPower nuclear reactor design. Drawing courtesy Babcock and Wilcox.

But at the V.C. Summer plant in South Carolina, owners Santee Cooper and the South Carolina Gas and Electric Co. (a subsidiary of SCANA Corp.) have reported declines in foreign commodity pricing that has reduced cost by $600 to $800 million, said Leslie Kass, senior director of business programs and policy at the Nuclear Energy Institute.

The $9.8 billion Summer project will include two 1,100 MW Westinghouse AP1000 pressurized water reactors and could come online in 2016, with the second unit in 2019 if the Nuclear Regulatory Commission issues a combined construction and operating license (COL) in 2011.

Another U.S. utility currently trying to expand its nuclear fleet is Southern Co. Southern’s Vogtle Unit 1 and 2 were completed in 1987 and 1989, respectively. Their construction had to contend with regulatory changes following the 1979 accident at Three Mile Island. As a result, the units ran into construction delays and cost far more than expected.

Today, state regulators are monitoring cost and construction as Southern moves forward with tentative plans to add Units 3 and 4, adding potentially another 2,200 MW of generating capacity. Southern already has received its early work site permit and is in the initial stages of pre-construction and construction activities, such as excavating. As a 45.7 percent project owner, Southern said the overnight cost and escalation for Units 3 and 4 is around $4.4 billion. The total cost with co-owners Oglethorpe Power, Municipal Electricity Authority of Georgia and the City of Dalton is expected to be around $10 billion, or roughly $4,500/kW. But Executive Vice President of Nuclear Development Buzz Miller said that looking only at the upfront capital is not the correct way to determine cost. Instead, operators should bring the lifetime cost of the plant into the equation.

Federal loan guarantees

Even so, to help with the project’s upfront price tag, Southern Co. has signed a conditional commitment for a loan guarantee from the U.S. Department of Energy. On February 16, President Obama announced the award of $8.3 billion in federal guarantees for the Plant Vogtle project. That loan is conditional until Southern Co. receives a COL from the NRC, expected in 2011. With the federal government guaranteeing loans for up to 70 percent of the project’s cost, Southern Co.’s customers will see savings of around $20 million in interest over the life of the project, said NEI’s Leslie Kass.

Setting of the AP1000 Unit 1 containment vessel second ring at Westinghouse site in Sanmen, China. Photo courtesy Westinghouse.

The DOE budget proposal for fiscal year 2011 includes a request for $36 billion loan guarantee authority for new nuclear power plants. This is an increase from the existing $18.5 billion loan guarantee authority, which could help start the construction of about 10 reactors.

Four to eight plants could come online in the U.S. alone by the 2016 to 2020 timeframe and “depending on how those projects go, and we expect them to go very well, then we think things (new nuclear build) will take off,” said Kass.

Plant Vogtle plans to use Westinghouse AP1000 reactors for Units 3 and 4. And while Southern Co. is still waiting on proper licensing, Buzz Miller has already visited China to see how Westinghouse is installing the AP1000 there. Initial indications are that “once the engineering is done and things are prepared, the construction sequence moves pretty rapidly,” he said. More efficient work schedules will lower the cost of construction in China.The same can be expected in the United States. “We are seeing as the construction schedules are more fully developed and as folks are actually doing site work, the estimates are tightening,” said Kass.

Westinghouse has four AP1000 reactors under construction in China, and is in discussions for additional units. Two of the reactors currently under construction are at Sanmen and two are at Haiyang; each site having the capacity for at least four more units. Westinghouse and The Shaw Group, a minority stakeholder in Westinghouse, are providing the engineering, procurement, commissioning and information- and project-management services. The first of the four 1,100 MW AP1000 reactors is set to be completed in 2013. The remaining three are due to come online in the 2014 to 2015 timeframe.

And ever since China has been building nuclear plants, the country has a skilled workforce and has continually built and maintained its infrastructure, which helps control cost and maintain overall construction schedules, according to Deva Chari, Westinghouse senior vice president of Nuclear Power Plants.

But Westinghouse is not only looking to build new nuclear in China. The United Kingdom, Brazil, India and the Czech Republic are countries Westinghouse is currently pursuing. The U.K. is actively looking to build new plants as their existing plants begin to come offline over the next 10 to 15 years. While these are developed and established countries in the nuclear realm, Chari said working internationally with developing countries is substantially cheaper due to lower labor and land costs.

“Price is very dependant on local conditions,” he said.

Modular Options

Modular design may be one option for companies to consider in the not-too-distant future. The idea is to have one manufacturing facility, either on- or off-site, continuously work to produce the same design. Just like an assembly line workers can produce the components in a controlled environment with the existing workforce that has advanced their skills and processes to build the components to the safety standards that nuclear power plants must meet.

In July, Babcock and Wilcox and Bechtel announced an alliance to design, license and deploy one of the world’s first commercially viable Generation III++ small modular nuclear power plants. The alliance, known as Generation mPower, will focus on the B&W mPower small modular reactor (SMR). Over the next two years, the alliance will continue to work on completing the application process to submit the 125 MW reactor for approval by the NRC.

A possibility for combating the high price of new nuclear power plant construction could be the SMR. The concept behind the SMR is to get a few hundred megawatts online and then begin installing more, while generating revenue and investing less capital.

“A lot of companies don’t have $11 billion to build large reactors, so small reactors can get going cheaper, at about $1 billion,” said Bailey.

And while TVA is currently building mostly large reactors, they have agreed to be part of the consortium to move forward with Babcock and Wilcox and Bechtel’s new small modular reactor design.

Speaking from the B&W and Bechtel consortium announcement in July, Ashok Bhatnagar, senior vice president of Nuclear Generation Development and Construction for TVA said, “we see the option of having a small modular reactor fit in very nicely within our strategic plan going forward.”

Depending on company needs and location, the SMR could give utilities and public power providers the option to go solo and own their own reactor. But NEI is seeing those companies currently partnering with experienced operators; the result of strict nuclear requirements. Of the 104 nuclear plants in the U.S., there are 85 owners and 25 operators.

But the SMR can offer an alternative in the portfolio for the nuclear sector that is ready to grow. Companies also can cut costs on large nuclear reactor construction with modular design.

Of course, the upfront capital to develop and engineer the facility is going to be needed. But after that, “Once you have it in place it can potentially add the benefits by being able to manufacture the modules in a more controlled environment with an existing, skilled workforce,” said Bailey.

And to give customers certainty regarding the final cost, companies are opening manufacturing facilities to complete standardized design production.

Last year, Areva and Northrop Grumman agreed to a $360 million investment to build a manufacturing facility in Newport News, Va. to produce EPR heavy components, such as reactor vessels, steam generators and pressurizers in a standard, modular fashion.

And Shaw Modular Solutions, a unit of the Shaw Group, recently opened a 410,000 square-foot facility to fabricate, assemble and inspect large-scale nuclear power plant components, including the AP1000 units in China and in the U.S. at Plant Vogtle and V.C. Summer.

“Modular design,” said NEI’s Kass, “can absolutely lower costs.”

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