Should whistleblower-protection provisions of the federal Energy Reorganization Act protect an employee of a small firm that has a staff augmentation contract with a regulated nuclear...
Navigating Nuclear Risks
New approaches to contracting in a post-turnkey world.
Poised for success or captive to uncertainty—that’s the fundamental question facing the nuclear industry.
With an unprecedented level of fuel supply insecurity facing the U.S. power industry, nuclear development is re-emerging as a cornerstone of America’s energy policy. However, uncertain carbon regulation, disrupted and tight credit markets, long-term natural gas price volatility and rapid alternative technology development, combined with nuclear’s prior history, create plausible scenarios in which nuclear investment might be prohibitively perilous without broad risk sharing and mitigation strategies.
Ground hasn’t been broken for a new nuclear power plant in the U.S. in more than 30 years, but today more than 20 companies have announced plans to build new nuclear plants, both regulated and unregulated—with nine progressing to the point of submitting combined construction and operating license (COL) applications to the Nuclear Regulatory Commission (NRC). The ultimate question is how many actually will be built? Detailed engineering is well less than 50 percent complete for most U.S. conforming designs, with some entrants less than 20 percent complete. Millions of engineering man-hours are required before cost estimates become reliable enough to allow original equipment manfucturer (OEM) and engineering, procurement and construction (EPC) contract-cost negotiations to fully define cost and performance risk parameters across all parties (see sidebar, “New Nukes Under Contract”) .
While simplified nuclear steam supply system (NSSS) designs and innovations in modular construction suggest the potential to build plants more economically, a confluence of largely uncontrollable forces are pushing preliminary factor cost estimates upward. These include commodity price escalation, engineering and craft labor shortages and manufacturing and shipping constraints. Combined with uncertainties about executing engineering and construction, overnight cost estimates (that exclude the costs of escalation and financing) for proposed plants are increasing and the range of estimates is wide—between $3,000 a kilowatt and $4,500/kW, depending on the dollar date. Cost variability, and consequently financing uncertainty, threatens the overall economic attractiveness of nuclear development.
Could the U.S. nuclear renaissance fade as quickly as it emerged? Successful development of new nuclear capacity requires a high degree of risk awareness, confidence in outcomes and mutual trust between owners and nuclear OEM/EPC contractors. Increased cost and schedule predictability will facilitate regulatory approvals, owner economic viability, and ultimately a U.S. nuclear renaissance. As a result, all parties must reach a consistent understanding of both supply economics and execution challenges—and most important, risk-management strategies.
Utilities and independent power producers (IPPs) face complex decisions on how to satisfy growing demand within a likely carbon regime. Past capacity build-outs had fewer choices and constraints, generally being dominated by one technology, such as coal in the 1970s, nuclear in the 1980s and natural gas in the 1990s. Despite less initial uncertainty, these choices led to serious financial consequences for shareholders and customers alike— e.g., substantial nuclear-cost escalation following the Three Mile Island accident in the 1970s, and the bankruptcy and asset value