The importance of know-how8 May 2019
Financing is causing real difficulties for new nuclear build, as the recent cancellation of Horizon’s UK programme has shown. Tony Roulstone examines evidence showing how construction ‘know-how’ can drive significant cost reductions.
THE TROUBLES OF TOSHIBA’S NUCLEAR projects in Georgia (USA), and Moorside (UK), and of Hitachi’s £12bn Horizon project at Wylfa (UK) are all clear and harsh reminders of the problems of nuclear development. Now even strong supporters of nuclear power are beginning to recognise that large nuclear power plants are:
- Too expensive to be competitive in the market;
- Taking too long to deliver for utilities and their customers;
- Too big to fund by anyone other than governments; and
- Too risky for most governments, investors and energy suppliers.
Prices for energy from new nuclear plants are well above the market price of energy because of their very high capital cost, and the long times required to develop and to build projects (15-20 years).
Fixing the price of energy for the life of the plant – as at the UK’s Hinkley Pont C – helps the developer with financial viability. The remaining key issue is funding. Large reactors require huge amounts of money. EDF’s Hinkley Point C station cost is currently £20bn. Such projects are too risky for debt funding. They need to be supported by equity funding. No utility or reactor vendor in the West has the capacity to fund such projects. Therefore, some level of government involvement is required. The problem of funding is what the debate was about both for Toshiba at Moorside and for Hitachi at Wylfa.
Larger and larger designs
Over the last forty years, nuclear reactor designs have become larger and larger in capacity driven by the economies of scale. Nuclear designers, faced with competition from other energy sources, opted to grow the size of reactors from around 600MWe in mid 1970s to 1750MWe today. These changes were made in the expectation that unit capital costs would fall. In reality, costs have continued to grow, as larger units have become more complex and each new design tested the state of the art in nuclear technology.
If the prospects for nuclear power are challenging, are there new ideas and alternative approaches? Recent work says that there are some strategies which would make a big difference but these would require a different mind-set for nuclear. It would require the reshaping of the nuclear industry: breaking old practices and norms, requiring new skills and different types of company; and while maintaining the safety as paramount, a focus on what delivers economic value to customers rather than technical elegance.
Nuclear construction know-how
Nuclear power’s complexity is similar to a large commercial airplane. Construction requires very high standards, working initially on open sites and later in very constrained spaces surrounded by reinforced concrete walls. Large teams of operatives and technicians work to connect and to assure hundreds of thousands of tonnes of reinforced concrete, thousands of miles of piping and millions of miles of electrical cables and their connections.
In the past there was little hard evidence of importance of ‘know-how’ – the craft of construction. This tacit knowledge is built up through the experience of project managers, team foremen and craftspeople. In overcoming the challenge of one project, they learn better practices and how to improve for the next project. This knowledge – ‘know-how’ – is embodied both in the individual team members and in their experience of working together. In the past, the industry focused their cost reduction efforts on new reactor designs and upgrading the technology – investing in ‘know-what’ rather than ‘know-how’.
Work by the UK Energy Technology Institute (ETI) on the Cost Drivers of Nuclear (2018) has shown that know-how is much more important than expected. Construction know-how depends on both the way projects are organised and whether they are repeated. Each of these has a major impact on construction cost.
The ETI report describes the strategies that reduce cost and it quantifies their effects. It shows how to reduce total capital costs (including interest) from current levels of $10,454/kWe to less than half this figure. This target level is close (in real terms) to the construction costs achieved by the large French programme of nuclear build in 1980s. It was these French costs that provided a basis of the UK’s nuclear new-build decision in 2008. But this was not the strategy that UK adopted. Also, the ETI report starts to explain why the capital costs of the current Western projects have got so far out of control.
The ETI study recognises that the overwhelming majority of costs are related to site construction, rather than the manufactured vessels, turbines and electronics that are the usual focus of attention. They considered the key cost drivers during construction. They studied 33 relatively recent large water-cooled reactor projects, all completed since 1990. They interviewed the construction staff for the identified cost drivers and linked these drivers to the underlying cost structure of a US benchmark.
Many of the projects studied were from East Asia. Total capital costs including interest were low in the East - $3000/ kWe, compared with $10,454/kWe in the West. This higher figure is typical of projects in Europe and the USA where reactors are built singly, and where no new plants have been started for more than 25 years.
The effect of lower unit labour costs, particularly in China, is evident. Also, it is clear that more experienced teams delivered much higher productivity. Construction in East Asia has been regular and continuous. In many cases, the productivity of technical staff was double the Western equivalent. Furthermore, construction schedules in the East were almost half those of the West, even for the same design of reactor. The ETI report shows the importance of the progressive acquisition of construction knowledge and experience in delivering lower costs.
While the lower labour costs of China cannot be replicated in the West, the programme models of the East can be adopted: a series of standard designs, fully detailed in CAD tools that define the build approach as well as the design, the design completed before the start of construction, built using a consistent group of contractors and suppliers, with multiple units on a site. As well as lower costs these mean higher cost certainty and hence lower investor risk.
This approach depends on a regular and repeated programme of build of the same design by the same team. If the international labour cost differences are removed, the ETI’s model gives three cases which show the scale of savings that are available for Western conditions (see Table 1). The benchmark case is based on US reactors built in the 1980s. Their costs were captured in the work of US EEDB (1988). It assumes contractors that are experienced in nuclear construction, using an established design, but managed in a conventional manner - one project at a time. The difference in capital costs between the benchmark and the other cases is large.
In the US and Europe, know-how has been lost because of the decades of no new nuclear construction. In this start-up condition, costs are 54% above the benchmark. As well as relearning the construction lesson, adopting best practices can yield a 33% reduction below the benchmark. The cost of projects in the West could be up to 57% lower if the methods and approaches demonstrated on recent Eastern projects were adopted.
Energy costs would also be lower: $81/MWh (£57/MWh). Regular delivery of projects to budget could reduce the risk premium, and energy costs could be 58% less than today: $61/MWh (£44/MWh) at 7% return. At this cost level, nuclear would be competitive with all other forms of generation.
Nuclear power’s dependability would make it attractive as part of a low-carbon energy system.
The ETI report identifies the main cost drivers and proposes some key cost reduction strategies, affecting plant design, equipment and materials, construction, project governance, policy and regulation (see Table 2).
None of these strategies are technically radical but they depend on a consistent long-term programme of nuclear build. Also, required is a commercial structure that incentivises both the external supply chain and the myriad of site contractors to plan, design and deliver a series of nuclear power projects where cost is continuously reduced. Regular construction of a single design also reduces cost uncertainty which reduces investor risk, easing funding.
The focus on a single part of a project, or a single contract, must be broken. The emphasis must be on shortening the overall build schedule and improving the way the work is done, project by project.
The key to success is developing and reusing established ‘know how’. This is not new technology. It is not a high-risk strategy. It depends on proven techniques and experience. It depends on ‘know-how’.
Many old hands of the industry will say that this is not possible. They say: design change is inevitable; plans and schedules slip; so, each contractor has commercially to look after itself. In one sense this is correct. Nuclear projects managed separately under current commercial arrangements will not be able to deliver the new strategies.
However, other industries have made similar changes from fractured relationships to collaborative programmes and coordinated supply chains. The nuclear construction experience in Korea and Japan, of regularly building the same design with the same contractors, has shown this strategy is both possible and the savings are large.
The nuclear industry has little option but to learn, adapt and change – or to be marginalised and to die. Nuclear is at the crossroads. But there is a clear way forward. The prize is power costs that are 50% lower than today.
Now, the industry needs to make the right choices quickly, before it is too late. The open questions are largely commercial in nature: How will vendors and constructors work together across many projects, with different customers, over a period of many years?
More importantly, the $64 billion question has yet to be answered: how would such a multi reactor programme ever be funded in a Western market-orientated country?
Author information: Tony Roulstone, Consultant and lecturer in nuclear engineering at the University of Cambridge