Guest blog: New strategies for nuclear power plant construction could cut delays, overruns

In the run-up to the 18th ICC New York Conference on International Arbitration on 21-22 September 2023, Paul Ficca, Brett Kumm and Jack Westphal from FTI Consulting delve into the challenges and innovations shaping the nuclear power plant construction sector in the United States and worldwide. As the authors explore the industry shift from megaprojects to small modular reactors, they illuminate the strategies driving cost-efficiency and risk management. In this evolving landscape, the nuclear industry prepares for a global renaissance, while navigating the complexities of construction and regulation.

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 in the southeastern United States (US). With the originally projected seven years extended to now 14 and counting, the build’s final price tag will exceed US$30 billion. This is more than double the initial estimate in 2009.

The Vogtle announcement highlights the challenges confronting the nuclear power plant (NPP) industry in the United States. While about 19% of US electricity is currently generated by NPPs, the average facility is more than 40 years old, and there are currently 21 US nuclear power reactors undergoing decommissioning. Today, except for a few large, troubled projects, NPP construction in the US and in Western Europe has ceased, with the focus shifting to decommissioning and dismantling. On the other hand, Eastern Europe, the Middle East, and East Asia have found a way forward, with several new NPP projects progressing.

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. As the world continues to recognise the externalities of fossil fuels, technical experts have begun to leverage industry innovations 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 expenses are the amount of capital needed and the duration of the commitment. Delays drive up costs since investors require remuneration for lengthened financing periods and postpone the break-even date.
  • Changing regulations: The need to alter plans midstream due to regulatory change hinders completion. The complexity of large projects can lead to disagreements and litigation that cause further delays.
  • Bespoke builds: Extensive customisation and almost no centralised manufacturing keeps costs high. While nuclear faces extensive R&D and rigorous testing requirements to license new products, it is difficult to test nuclear systems except at scale.

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.

There are two primary approaches of best practices:

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% less than a FOAK in general.

The US Department of Energy (DOE) agrees that repeat deployments are expected to drive substantial savings through the economy of multiples. In fact, the DOE estimates that reductions of between 30% and 40% are reasonable based on recent projects, which have taken roughly twice as long as expected and have had a high failure rate for components. 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 levelised cost of energy (LCOE) would decrease by approximately 25%, from US$87 per MWh to US$66 per MWh. Spread over 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 levelised cost.

Modularity

Modularity is a form of construction that centralises the manufacture of components, allowing for mass production and standardisation. This efficient approach lowers construction costs and speeds the process, while standardisation leads to a more uniform approach to reactor assembly, additionally reducing labour costs. NPP builders can use modular fabrication for engineering systems of all sizes and scales, much as automobile manufacturers do with multiple car models.

The MIT study found that modularisation could be a viable cost-reduction strategy in advanced reactor designs. Especially for countries with high labour rates and low productivity, modular construction in factories offers pathways to reduce labour requirements.

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.

© 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.

Similarly, the content of this article does not reflect the official views of the International Chamber of Commerce.