New nuclear plants could become competitive in Europe and North America if developers prioritize labor deployment, project governance and other drivers which have slashed costs in Asia, a new report shows.

The U.K.'s Energy Technologies Institute (ETI) recently published its report into cost drivers and cost reduction opportunities for nuclear new build projects.

Launched in October, the Nuclear Cost Drivers Project is the first evidence-based study of global nuclear construction costs. The six-month study aimed to identify why recent nuclear projects in North America and Europe have been plagued by schedule delays and cost increases. The researchers studied 33 nuclear plant units and focused on plants that were either operational or due for completion in 2018.

Led by CleanTech Catalyst (CTC) and Lucid Strategy, the study was independently-reviewed by Tim Stone, Non-executive Chairman of Nuclear Risk Insurers.

The researchers analyzed eight different cost drivers and concluded that the supply chain, labor, project governance and project development were drivers of “high importance” while construction execution, political and regulatory context, equipment and materials, and vendor plant design, were of “medium importance.”

For all eight cost drivers, European and North American projects had the lowest average performance rating and these projects could significantly learn from faster and lower cost projects in Asia, the study said. The average levelized cost of energy (LCOE) for large Gen III/III+ reactors in Europe and North America was $10,387/kW or $132/MWh, it said.

By improving their performance rating against the eight key cost drivers, European and North American projects could reduce costs by over 35%, the report said.

Even without new technology, nuclear plants can become “a cost-competitive part of the solution to global warming if best in class planning and construction practices are followed,” Kirsty Gogan, Director of CTC, told Nuclear Energy Insider.

Capital costs for historical and ongoing nuclear projects in database

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Source: The ETI Nuclear Cost Drivers Project, Summary Report (April 2018).

The study comes as the UK looks to accelerate cost reductions and apply learnings from EDF’s ongoing Hinkley Point C project to other projects planned at Wylfa, Sizewell and other locations in the coming years.

Global learnings

ETI’s report compared plants on a like-for-like basis by assuming a capacity factor of 95% and applying a common interest rate of 7%, standardized fuel costs, a depreciation period of 60 years and the same interest rate during operations and construction phases.

Cost drivers were defined as:

• Increasing or decreasing the cost of the project.

• Representing one of the processes critical to plant completion or “realization.”

• Having factual and/or measurable indicators.

• Associated with at least one of the principal actors in plant completion or “realization.”

• Collectively explaining most of the cost variation among plants.

Recent construction challenges in Europe and North America are only partially attributed to local "context" factors, such as the impact of decades of industry activity on supply chain resources, the report said.

According to the report, developers in China, South Korea and Japan:

• Had more experience in delivering large, complex construction projects.

• Benefitted from significantly less expensive and more productive labour.

• Their regulators are paid by the government rather than the reactor vendor or project developer.

• While the regulator is sufficiently independent, it is aligned on project completion.

• China benefits from the ability of state-run enterprises to make large decisions quickly once the political direction has been set.

• All three countries benefit from cultures where litigious responses to problems are extremely rare for on-site issues.

While these contextual factors played a role, none of them would prevent an effective cost reduction program from being implemented in new build markets such as the UK, the report found.

Case studies

Six reactor case studies included in the report highlight the wide range of learnings and cost reductions possible for future projects.

1) Sizewell B and Nuclear Electric’s proposal to build Sizewell C: the factors that make a project expensive (e.g. first of a kind build FOAK, new supply chain, inexperience labour, etc.) can all be improved for subsequent units. The Sizewell case study clearly demonstrates how multiples can cut costs by reusing the design primary contractors and building multiple units simultaneously.

Cost reductions at Nuclear Electric's proposed Sizewell C plant

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Source: The ETI Nuclear Cost Drivers Project, Summary Report (April 2018).

2) UAE’s Barakah 1-4 (partially complete): multi-unit efficiencies included shared site infrastructure, one site mobilization effort, bulk purchasing, plus the same contracts and overheads.

3) U.S.’ Vogtle 3&4 (under construction): costs can quickly escalate when cost drivers are poorly managed or reflect contextual factors, such as the lack of a readied supply chain or expensive regulator billing rates.

4) Rolls-Royce SMR (design in commercial development): many of the risk and cost centres of conventional nuclear can be ‘designed out’ during the plant design phase.

5) Japan Atomic Energy Agency’s High Temperature Engineering Test Reactor: shows the potential viability of a low-cost advanced nuclear concept.

6) Generic Molten Salt Reactor (advanced designs in commercial development): the inherent benefits of using molten salt as the primary coolant (or combination of fuel and coolant) enables several transformative cost reduction opportunities, including lower materials requirements and modular build savings.

UK targets

In December, the UK Nuclear Industry Council (NIC) pledged to reduce nuclear new build costs by 30% by 2030, as part of a Nuclear Sector Deal within the UK government's new Industrial Strategy.

To meet this aim, industry and government must work together to maximize economies of scale and series, adopt advanced construction technologies to increase productivity, streamline development and regulation, and lower the cost of capital, the NIC said in a report.

ETI's report stresses that fleet deployment by itself does not necessarily guarantee cost reduction unless developers implement “a well-designed and intentional program that incorporates multiple cost reduction opportunities by all principal actors."

In total, the report identified 35 cost reduction opportunities. The drivers considered the most important in the UK were:

• Complete plant design prior to starting construction.

• Follow contracting best practices.

• Project owner should develop multiple units at a single site.

• Innovate new methods for developing alignment with labor around nuclear projects.

• Government support should be contingent on systematic application of best practices and cost reduction measures.

• Design a UK program to maximize and incentivize learning, potentially led by a newly-created entity.

• Government must play a role in supporting financing process.

• Transform regulatory interaction to focus on cost-effective safety.

Cost of financing is another key driver of plant costs. The UK nuclear industry has recommended the government evaluates a range of financing models to reduce the cost of capital, including sharing the early stage project risk between the government and the developer. For the Hinkley point C project, developer EDF and its Chinese partners are bearing all construction risks. As a result, the government-guaranteed contract for difference (CfD) power price for the project was 92.50 pounds per MWh (108.4 euros/MWh, $126.8/MWh), considered by many to be uncompetitive given falling renewable energy costs.

In its Nuclear Sector Deal report, the NIC said a 1% reduction in the cost of capital for a new nuclear project could lead to a 10% reduction in the CfD price.

The evaluation of new financing models should “take into account the changing risk profile across the life time of a project and look at opportunities for lower cost financing of early stage risks and subsequent refinancing, within the current legislative framework," the NIC said.

By Neil Ford