Nine companies, consortia, or joint ventures are planning approximately 12 new nuclear power plants in the United States. How do the business challenges they face differ from the challenges faced...
Navigating Nuclear Risks
New approaches to contracting in a post-turnkey world.
are less understood. Setting aside market risks related to the price of natural gas and costs of CO 2 as externalities that can not be managed directly, risks related to the construction of a nuclear plant largely can be captured in four broad categories: regulatory, financial, technology and, project (see Figure 3) .
Each of these broad areas encompasses multiple, interrelated risk components that can affect outcomes at the industry and project levels and can shape planning by owners or external stakeholders. In addition to these four principal risk dimensions, it is also useful to consider two additional sources—the market elements described above, and political risk. These incremental risk sources reflect the potential for significant externalities to affect new nuclear construction that are harder to anticipate and mitigate. Clearly, owners are challenged to recognize, diagnose and prescribe a response to identified risks, whether they can be affected directly or not.
Identifying the sources and implications of relevant risks is fundamental to shaping an effective risk-management model for significant capital commitments. In today’s nuclear marketplace, successful risk management is highly dependent on achieving a reasonable apportionment of risk among the various participants—particularly between the owner and the EPC firm. This is especially important considering the need to demonstrate the economic viability of first-of-a-kind-engineering (FOAKE) technology. Failure to share risks equitably, particularly excessively shifting risks to owners—and ultimately to ratepayers—is the fastest path to stalling the nuclear revival.
Aligning risk responsibility has been difficult to achieve as the EPC sector vastly has changed in composition, and competing infrastructure demands have strengthened supplier leverage. Both of these factors are stressing owner and EPC relationships. The underlying inventory of suppliers to the nuclear sector—including architect-engineers, general constructors, fabricators and specialty contractors—dramatically has decreased, reflecting the extended interruption to the flow of new nuclear projects in the United States. Moreover, the lack of large baseload construction projects within the utilities sector beginning in the 1990s further depleted the capabilities of many firms, as backlogs shrank to only nominal levels.
Consequently, many of these suppliers have left the nuclear sector, either through abandonment, bankruptcy or consolidation. This reality both reduces the absolute number of options to owners, and then further limits these choices through lack of availability of the remaining sector mainstays. To compound this general lack of supplier options, the structure of the nuclear-services industry also fundamentally has changed. Today’s supplier market is characterized by formal consortia that have formed around a specific technology offering. Thus, limited supply has become further narrowed through direct alignment of architect-engineers and constructors with upstream (NSSS) vendors.
The supplier sector also recognizes that a high degree of uncertainty exists in the development of new nuclear projects and recalls that the first wave of construction resulted in protracted negotiation and litigation over cost and schedule responsibility. Coupling this historical memory with the risks associated with FOAKE technology, the application of non-traditional procurement and construction processes and a seismic shift in underlying global commodity and equipment markets, is causing OEMs and EPC contractors to be reluctant to assume execution risk. And they have