Nuclear Power: Estimating Construction Costs

Peter Breen
More than 45 countries are actively considering introducing nuclear power in their future energy mix.

Potential newcomers to the nuclear market include industrialised, emerging and developing nations. All face the challenge of evaluating commercial proposals from nuclear technology vendors, estimating the cost of construction and operating the new nuclear power plants.

First-generation nuclear energy aimed to alleviate urban smog caused by coal-fired power plants, progressing to economical base-load electricity, which reduced dependence on fossil fuels imports. Today's drivers for nuclear build have evolved and are now focused on meeting increasing energy demand, helping reduce climate change, providing supply security and providing insurance against future carbon-based fuel price exposure. Civil nuclear power now supplies almost 13.5 per cent of global electricity needs, from reactors in 31 countries.

Civil nuclear power now supplies almost 13.5 per cent of global electricity needs...

Although the main growth in the foreseeable future is likely to come from countries where the technology is already well established, embarking countries may become significant players. Urbanisation in less developed countries is reshaping their energy demand patterns, augmented by global population growth and a need to renew generating stock in the USA and EU.

Countries embarking on new nuclear power plants (NPPs) have much to consider. These are multi-billion mega projects of national importance, politically sensitive, with rigorous safety and security standards. Capital costs remain high, although global co-operative schemes and repeat production of new plants may drive construction costs down and further increase nuclear’s competitiveness.

...global co-operative schemes and repeat production of new plants may drive construction costs down and further increase nuclear’s competitiveness.

Employers face issues around public and government support, licensing, financing, grid connection, labour, skills shortages, environmental compliance, organising the fuel supply, agreeing decommissioning arrangements, and multiple-stakeholder sites. Cost accuracy is a high priority from the outset. The cost estimate is a critical component for the business case, establishing a baseline from which performance can be measured. Estimates are best prepared using an informed scope, a realistic programme and an astute procurement strategy, developed through a robust process that withstands scrutiny by stakeholders, funders and governments.

Key NPP Estimate Factors:

  • Estimate accuracy reflects available level of scope definition and design, becoming more accurate as the engineering process proceeds.

  • Stakeholders need a full understanding of accuracy level and the associated risks.

  • Benchmark data can support early estimates, but must be applied carefully following a normalisation process.

  • The long-term nature of a new NPP project necessitates a clear strategy for the assessment of escalation.

  • The estimate needs a mechanism for currency exchange fluctuations.

  • Variables include the site layout and facilities, and the off-site works needed (eg. marine off-loading and workers’ accommodation).

  • As project details emerge, quantification is needed – design man-hours, volume of concrete, metres of pipes, electrical loops etc.

Nuclear Vendor Technology Assessment and Selection

A detailed procurement strategy and process is vital, with multiple suppliers procured in a joint venture or an individual work package basis. Bids differ in terms of technology, commercial and execution matters, requiring a clear mechanism for evaluating the offers and associated risks. Risk assessment is important, as the high contract prices, and the long-term nature of NPPs, force the employer to retain risks that are transferred to the supply chain on a typical engineering project. Uncertainties or exclusions within offers become risks to be owned and managed by the employer.

The decision to select a vendor/delivery organisation needs to be evidence-based and take account of price, whole-life cost, political influences, technology experience, certainty of delivery, capability, overall capacity, in-country licensing, operating costs and impact on grid connection. The supply chain’s division of responsibilities need to be clearly understood, as does the responsibility for their co-ordination during design, construction and commissioning.

The capital cost is undoubtedly the biggest influence on the business case as operating costs are relatively low, so a swift and accurate estimate shapes certainty of outcome.

The capital cost is undoubtedly the biggest influence on the business case as operating costs are relatively low, so a swift and accurate estimate shapes certainty of outcome. Faithful+Gould has supported clients with estimating and ongoing cost management on many nuclear power projects, working with British Nuclear Fuels, British Nuclear Group, United Kingdom Atomic Energy Authority (UKAEA), British Energy, NNB GenCo, Horizon Nuclear Power, Centrica, Exelon and Ontario Power Generation.

We are also contributing to thought leadership around the most effective cost management and procurement methodologies in this sector. Our most recent contribution was at the June 2013 Technical Meeting on Technology Assessment for Embarking Countries in the Nuclear Sector, organised by the International Atomic Energy Agency (IAEA) at the United Nations conference centre in Vienna. The invitation to present at this event was extended via industry experts and IAEA affiliates though our relationship with major US nuclear fleet operator Exelon.