Arguably the biggest barrier to the nuclear renaissance is the capital investment costs of new plants. We know that currently operating reactors produce a huge quantity of power very cheaply and in an environmentally friendly way. They are making significant profits for their owners in every model of electricity market, to the extent that some governments are seizing upon these and enforcing windfall taxes. So ordering and then building a significant number of new plants would appear to be a ‘no brainer’. Yet sadly it isn’t.
Industry opponents never tire of pointing out that the capital investment costs per kW installed of new nuclear reactors have increased sharply over time, in contrast to what one might reasonably expect with a mature technology. The industry did itself harm a few years ago by quoting levels of around $2000 per kW. This figure has been found to have little foundation in reality, certainly not in the Western world. The reasons for escalating costs are many and complex, involving escalating raw material costs, the recent lack of experience of building new reactors and the additional first-of-a-kind costs that initial reactors of a new type will attract.
There is little sense in the industry bleating that a large element of cost escalation (arguably) has to do with the imposition of additional safety-related costs that have no sound justification. The absurdity of additional (possibly ineffective) protection against direct aircraft impacts is a case in point. The industry is working hard towards more common sense and harmonization in reactor licensing standards and procedures, but this isn’t going to happen overnight. The simple solution is that the industry must put its own house in order and find a way of building reactors more cheaply. With gas prices beginning to decouple from oil as additional discoveries of new reserves are made, the low investment costs and quick construction schedule of gas-fired generating units will likely be persuasive with potential investors unless the nuclear sector can narrow the build cost gap.
One can argue further that the general business model applied to new reactor projects may be inappropriate for today’s world. They are simply too big and expensive to be undertaken by many parties. The risks can certainly be allocated amongst those best able to take them on but they are simply too great in totality. A delay of only a year in a reactor project will likely cripple it financially. During that time, additional capital costs and accumulated interest build up, while prospective customers have to cover themselves with alternative and more expensive power supplies.
There may be special circumstances where the industry can get around the cost issue. Examples might include significant subsidies (through the loan guarantee programme in the United States and the other incentives such as production tax credits and delay insurance), or a coming power crunch caused (partly) by closing old NPPs (as in the United Kingdom), or a big power consumer investment model (as with the fifth Finnish reactor). Of course all could change if significant carbon taxes were to be introduced, but the Copenhagen climate conference demonstrates that this is very unlikely. The best that the industry can hope for are emissions trading regimes, which may well be ineffective owing to the exclusions and special deals that the fossil fuel interests will secure in our imperfect political systems.
Nuclear therefore has to do something about the ridiculous costs quoted for new NPPs. $20 billion for a couple of large reactors in the United States now seems to be becoming the “going rate”. The real reason underlying the excessive costs is the industry’s immaturity – not in a technical sense but in terms of strategic development. We are still trying to build too many
different reactor designs without achieving the necessary economies of scale, essentially replicating the experience of the United States in the 1970s and 1980s on a global scale. The supply chain has suffered from a dearth of new orders for 20 years and has therefore not internationalized as one may expect from a mature technology.
Had the industry’s supply sector not become mummified in its 1980s version, it’s reasonable to conclude that if we had 1000GWe of nuclear capacity by now, we would be down to 2-3 international vendors each producing a couple of simplified reactor designs, but with large plant modules and major components sourced from the lowest cost locations and delivered to reactor sites. This is the way that aircraft manufacturing developed. There are now only two international suppliers of large jets planes, Boeing and Airbus Industries/EADS. Obviously the key to this is that, at some point, there must be a significant volume of orders.
The solution to the cost issue may be coming, initially at least, from Korea. KEPCO has been actively marketing its OPR-1000 and APR-1400 units in the Middle East and in North African countries. In December 2009, the APR-1400 was selected as the basis of the United Arab Emirates nuclear power programme, with the first four reactors to be operating by 2020 under a $20.4 billion contact, and with another ten possibly to follow. The choice was reportedly made on the basis of cost and expected reliability of building schedule. An application for US Design Certification for the reactor design is likely about 2012. The APR-1400 was originally known as the Korean Next-Generation Reactor when work started on the project in 1992, with the basic design completed in 1999. It offers enhanced safety with seismic design and has a 60-year design life. The first APR-1400 units, Shin Kori 3&4, are under construction, and operation is expected in 2013 and 2014, with a 48-month construction period envisaged.
“Had the industry's supply sector not become mummified in its 1980s version, it is reasonable to conclude that if we had 1000GWe of nuclear capacity by now, we would be down to 2-3 international vendors each producing a couple of simplified reactor
The economic advantage that the Koreans undoubtedly possessed in the competition for the United Arab Emirates order is rooted in their experience of building a steady stream of reactors domestically and developing their own standard design. This is what is subsequently very likely to happen in China, as they are set to follow the Koreans (but perhaps 5-8 years behind). They will develop their own reactor type that can be produced at prices at a fraction of those currently being quoted currently in Western markets.
Although the mainstay of the current Chinese programme is the CPR-1000, a local derivation of the French units of the 1980s (which they can build with high local content) it is clear that they will develop their standard unit for the future based on more advanced technology. The first four Westinghouse AP-1000 reactors are being built at Sanmen and Haiyang. At least eight more at four sites are firmly planned after these, involving substantial technology transfer, and about 30 more are proposed to follow. The State Nuclear Power Technology Corporation (SNPTC) is the vehicle for the technology transfer which will lead to future reactors and it seems that this will be based on their further development of the AP-1000.
A bigger 1400MWe version termed the CAP-1400 is already under development and an initial site for it announced (Shidaowan, Shandong province), while a 1700MWe unit is set to follow later. The idea is the achievement of all possible economies of scale through building large reactors in great volume.
Exports are likely to be on the horizon, but only after the Chinese have caught up the Koreans. In other words, to reach the stage of the Korean 1400MWe units, they would be under construction domestically and with an established, relatively cheap component supply chain in place. The key is that the standard Chinese reactor will likely be much cheaper (maybe by a factor of 50%) than the Korean example. This is because with its passive safety systems, the AP-1000 is much simpler than the 1980s model on which the Korean reactor is based. The Chinese supply chain will also be able to produce much more cheaply, owing essentially to the extra volume readily achieved there and much lower labour costs.
So we should see the Korean order as a pointer of things to come and certainly a necessary and important one. For a limited time period, the Koreans should be able to obtain more orders in new nuclear markets, in the Middle East and in Asia (for example in Indonesia, Vietnam and Thailand) on grounds of cost. Eventually, however, they will likely lose out on these same grounds to the Chinese. The standard Chinese reactor will also be targeted at the more developed nuclear markets in Europe and North America, where the sound heritage of the Westinghouse AP-1000 should help to satisfy the regulators. This will then begin to solve the project cost problem. Indeed the Koreans themselves may try to licence their reactor in these very same markets, but can already hear the Chinese coming after them.
All of this is obviously a significant threat to the other current vendors. They may have to follow Westinghouse and licence out their key technology, learning to survive on a mixture of royalties, key component manufacture (for example instrumentation and control systems) and design consultancy services. It is conceivable that most of today’s players could eventually go the way of the old names of commercial aircraft manufacturing, which survived for a time through the continuation of nationalistic ordering patterns and a degree of alternative protectionism, but then eventually disappeared.
How the supply chain will develop is more contentious. It could become completely globalized but, on the other hand, there are important forces in every country that will push for high local content, even though this may not make much overall economic sense. There are also important differences between aircraft manufacturing and the supply of nuclear reactors, the most obvious being that the site is hugely important. Here the international shipbuilding sector is also an appropriate model to study. In contrast to the past, where ships got built from scratch in the yards, large modules are now brought from factories around the world and bolted together. This must be the future of supplying reactors around the world.
One possible addition to this scenario is the possibility of much smaller reactors establishing themselves in a market niche. They also offer a break from the current reactor supply business model, as the capital investment requirements will be so much smaller and additional units can be added to a site on a modular basis. Despite the current revival in interest in these reactors, the regulatory environment may be the biggest hurdle to overcome. There are undoubtedly substantial fixed costs in getting a reactor design certified by the authorities or a particular reactor project approved, irrespective of size. This therefore favours a large unit, so regulatory reform is a necessary precondition for success. But these reactors still offer an interesting alternative.
Large numbers of big, standardized reactors from a limited number of vendors are, however, how a revitalized nuclear sector should develop. It is not necessarily the case that the best reactor types in a technical sense will predominate. Market penetration is the key. The ones that achieve significant volume in a low-cost supply environment will win and the Korean success in the Middle East is a clear sign of this. A rational, highly competitive international supply chain should eventually develop, but with some lingering nationalistic tendencies, capable of building huge numbers of reactors at an affordable cost.
Steve Kidd is head of strategy & research at the World Nuclear Association, where he has worked since 1995 (when it was the Uranium Institute). Any views expressed are not necessarily those of the World Nuclear Association and/or its members.
Increasing the number of surveillance devices at the plant will not work in the event of absenteeism