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Navigating Nuclear Risks

New approaches to contracting in a post-turnkey world.

Fortnightly Magazine - July 2008

arise from rate-basing of large capital investments.

Finally, owners and regulators can cooperate more directly on project progress reviews so that commissions are fully informed regarding project progress and issues on a continuous basis. Under this approach, owners can shape the scope of regular progress reporting and synchronize regulatory reviews with major project milestones. Regulatory processes that reflect parameters of this type provide an effective basis for mitigating financial risks and lowering the construction costs of the facility.

Cross-Owner Collaboration: This era of new nuclear build is characterized by the formation of consortia with several owners lining up against select NSSS offerings. While this structural model offers the chance for owners groups to coordinate development, particularly in the early days of activity, another mechanism may be available to owners to achieve even more beneficial outcomes. Collaboration across multiple owners and projects can occur not only at a technological level, but also with respect to commercial operations planning.

For example, the planned in-service dates of many of the AP-1000 owners in the Southeast are close in sequence between 2016 and 2018. At the same time, the impacts from anticipated shortages in engineers, craft labor and construction management all will peak during a tight window of the construction cycle of these plants. If possible from a need-for-power perspective, collaboration among the owners to collectively plan for these shortages and perhaps develop a more consortia-based plan for resource sharing could be an attractive solution. Such a solution also could carry over into similar, but discrete, aspects of procurement and construction, such as expediting or specialized oversight activities, that could be more closely coordinated or performed. Where common risks are borne by multiple owners, syndicating these uncertainties might be a fruitful means of diluting the total impact to all parties.

Improving the Odds

Economically, nuclear development in the United States appears compelling under any moderate carbon regime, but owners need to capitalize on this advantage and focus on how to effectively manage and equitably allocate design, global supply chain and execution risk.

In many respects, an unprecedented global expansion in energy and infrastructure demand, the global warming debate and the legacy of the last cycle serve as reminders that externalities can have unexpected implications, notwithstanding the best efforts of the industry to advance its preparation.

Three key factors will be important to managing the uncertainty surrounding successful nuclear development.

First, thoughtful owners will develop a project-management structure that manages the areas of risk most under their influence. Clarity of risk ownership by the OEM and EPC contractor will be complemented by owner expertise to assess performance and provide credible accountability mechanisms. This is no small task and will require an aggressive program of management and technical talent development.

Most owners today have not yet fully considered these requirements and are assuming that lean teams, often drawn from already limited internal resources, will manage the project. The early definition of capability requirements, management processes and talent-management plans, including retention, hiring, training and education sponsorship, is as important as technical design in the ultimate successful development of