by Will Davis
Reports of escalating costs for some nuclear plants under construction around the world, while the costs for other plants have not, have led to a call for an examination of the historic trends of nuclear plant construction project costs. This new interest has led to at least one significant new paper. This retrospective introduces the topic to those unfamiliar with it, and shows lessons learned that the industry now incorporates in building nuclear plants.
The beginning, and building a nuclear plant
The earliest nuclear plants in the United States were built with (normally) considerable U.S. Atomic Energy Commission (AEC) assistance, either in waived fuel costs or with the AEC paying for development and/or owning the reactor. There were also a number of so-called “turn-key” projects wherein the vendor of the nuclear steam supply system (NSSS) acted as primary contractor to the buyer (a utility) and provided the entire nuclear plant at a flat, agreed price. In the cases of the turn-key plants, any potential cost overruns were absorbed by the vendor and its contractors. The idea was to get plants built and operating for the purpose of demonstrating their merits (and of course, for the vendors, disclosing any areas in which future plants could be improved).
This process was not considered permanent, and when enough time had passed that utilities became confident and the estimates of the profitability of nuclear-generated electricity were coming in, they began ordering nuclear power plants on their own. (At that time, nuclear plant annual fuel costs were less than half that of coal, measured in cents per kilowatt-hour.) This required a utility to enter into complicated contractual arrangements with an NSSS vendor, an A-E (or architect-engineer) firm to design the plant, and someone to act as constructor. There was no fixed arrangement for these agreements. In some cases, the A-E was expected to oversee the constructor, while in other cases the utility did; in yet others, the utility did not hire a general construction contractor and entered into multiple contracts with various companies to build the plant. In a very different mode, there were utilities that traditionally designed and built their own power plants (TVA and Duke Power), and in the nuclear era they did just that, acting as their own A-E and constructor. Still others, such as Detroit Edison, had enough experience that they could act as their own A-E but hired an outside firm from time to time to provide a check of their process to assure the rate payers (customers) that the project was being well-managed. The variability of the execution of such arrangements on all of the nuclear plants ordered in the United States (whether completed or not) and the ramifications of such variations could (and perhaps should) fill a small book. It should also be noted that when projects were going poorly, these contractual arrangements were sometimes altered mid-project, leading to further delays as newly involved firms came up to speed on new responsibilities.
Construction of any facility that needs tens of thousands of tons of steel, concrete, and other materials built in highly complex and interrelated systems in a rather dense footprint is difficult, and runs the risk of cost overrun if delayed. The type of project, whether municipal stadium or interstate highway or power plant, is irrelevant. Nuclear plants were sometimes singled out as particularly susceptible to overruns due to the added quality assurance and complexity issues not seen in some other large infrastructure projects. When projects were not well managed, they fell behind and cost their owners more than planned or expected. As orders for nuclear plants began to swell in the mid- to late-1960s, it also became apparent that manufacturing of key, large components could not quite keep up with the order volume, and that skilled and capable craftsmen/tradespeople were not available all the time. These factors led to delays. Since the utilities were financing the debt they had taken on in order to obtain working capital to build the plants, the cost went up as the time before the plant would be complete and making money slipped further and further into the future. Delay was, in fact, a critical element in increasing nuclear plant costs, after the earliest plants were completed.
Early estimates of escalating cost
The AEC published WASH-1082, “Current Status & Future Technical & Economic Potential of Light Water Reactors”¹ in March 1968—years before the Calvert Cliffs decision that would force nuclear plant owners to develop complicated and expensive Environmental Impact Statements, and a decade before the Three Mile Island accident, which led to an incredible increase in regulatory requirements. Even in that early document, nuclear plant costs were seen to be increasing—but some of these increases were being felt in any kind of power plant, be it nuclear, coal, or oil. WASH-1082 tells us that between March 1967 and March 1968, nuclear plant costs had increased “on the order of 15-20 percent” based on the following factors:
• Escalation of labor and materials (approximately 6 percent)
• Increase in cost of money and projected lengthening of construction schedules
• Added cost of structures and systems associated with the evolutionary interpretation of safety requirements
• Increase in contingency allowances in anticipation of design changes resulting from safeguards interpretation leading to alteration of and/or addition to systems and structures significantly advanced in construction
This last factor—changes made while the plant is well along, or which affect structures or systems already installed—became a major sticking point. While “moving the goal posts” was a common complaint about regulatory-derived field changes, a study done by Theodore Barry in the early 1970s² showed that in the period before TMI only about 12 percent of change notices were derived from regulatory requirements. In many cases, difficulties with project management caused changes to have to occur, as plant construction was not well coordinated between subcontractors and trades. In many cases, the lack of skilled trades, which were in very high demand, led to inspection failures, and work already performed had to be redone. While there were some instances where late delivery of large components (reactor vessel, turbine generator, steam generators) delayed a project, this was statistically unusual (especially as import of such components increased and domestic capacity stepped up) and delays that drove up costs were more often related to other factors, as we will see.
Lessons learned from the first nuclear era
Glenn Williams, who worked for two different A-E firms during the first nuclear build, exclusively provided ANS Nuclear Cafe with reflections on the causes of increased nuclear plant costs in the United States, and delay in building nuclear plants. We present his discussion in his own words (in italics):
On Cost Escalation: In all of the plants in which I worked, the cost issues were largely the same. The two biggest cost drivers were either schedule delays or rework.
Time is money. Delaying critical path activities cost owners additional interest, overhead expenses, and lost revenues. Delays also exposed the project to unforeseen escalation and maintenance costs.
Rework frequently caused triple damages. The first damage was the original labor, materials, and schedule costs that were planned and sequenced for the original work. That investment was lost when management decided rework was required. The second damage was unplanned labor, materials, and schedule costs associated with removal of defective work. The third damage was the labor, materials, and schedule costs required to replace the original work, which was out of sequence, involving difficult conditions and using inefficient procedures. Rework frequently involved critical path construction, which meant that rework delayed the plant’s commercial operation.
On Contracts: I had the rare opportunity to work on a two-unit nuclear construction project that relied on fixed-price contracts. It was a disaster. Contractors loved the fixed price environment; they waited for scope changes and hammered the owners when any change request was needed. In a typical month, there were hundreds of pending change requests, which seemed to compound. If approved, one change request created more change requests. In the end, owners were forced to pay contractors hundreds of millions of dollars to buy out their fixed price contracts and convert them to cost-plus contracts.
That experience taught us that cost-plus construction was the prudent approach. It was particularly appropriate for “first of a kind” construction.
Lessons Learned: The first lesson was about planning. There was a tendency for managers to confuse planning with scheduling. Consequently, managers would publish schedules without reference to a road map. Without a detailed road map, any path would guarantee that the owners would be confronted with schedule delays and cost overruns.
The second lesson was about integration. Engineering is accomplished in a logical sequence. Construction work requires a very different sequence. Startup requires yet a third sequence. If the integration between the three phases is not carefully managed, schedules blow up and the owners are faced with cost overruns.
It should be kept in mind that if engineering is not 100 percent complete, construction planning is impossible. Also, a small engineering change can create a tidal wave in construction and startup.
This leads to the third lesson: Everything is integrated. Project management is about scope, schedule, and cost. Change any one of these and the other two will change. As one of my old colleagues once said, “Good, fast, cheap—pick two. You can never have all three.”
The cost of nuclear plants—A new paper, a new look
Jessica Lovering of The Breakthrough Institute decided, as she tells ANS Nuclear Cafe, that the time was right to do a new study on the historic costs of nuclear plants. She found that the majority of anti-nuclear cost-based arguments were built entirely on the U.S. nuclear plant cost experience of the 1970s. “We heard hints that current costs were lower in Asia, but we wanted reliable cost data that we could analyze to understand the differences.” As a result, the study includes most nations with large nuclear builds. A great deal of digging was required to get some of the data, she said.
Lovering said that she found two major surprises when researching the global, historic costs of nuclear energy. First was that every country experienced lowering costs in the early years of nuclear plant construction. Second was that South Korea continues to experience reducing costs, even now. She attributes South Korea’s continued cost reduction in part to the focus on standardized (in fact, duplicate) nuclear plants being built at various locations. (This was realized and implemented in the United States, in the SNUPPS program and also in Duke Power’s “Project 81″ program.)
When asked what the major idea was that she wanted readers to take away from the new study, Lovering told us that she wanted everyone to realize that every country had a different cost experience. “There’s nothing intrinsic to nuclear technology that makes it rise in costs. It’s simply due to the industrial policies and market dynamics in each country at the time.” The paper is available free of charge (see below).
(1) “Current Status & Future Technical & Economic Potential of Light Water Reactors.” WASH-1082. US Atomic Energy Commission, March 1968.
(2) “Energy Northwest—A History of the Washington Public Power Supply System.” Gary K. Miller. Energy Northwest 2001.
Will Davis is Communications Director and board member for the N/S Savannah Association, Inc. He is a consultant to the Global America Business Institute, a contributing author for Fuel Cycle Week, and he writes his own popular blog Atomic Power Review. Davis is also a consultant and writer for the American Nuclear Society, and serves on the ANS Communications Committee and will serve on the Book Publishing Committee beginning in June. He is a former US Navy reactor operator, qualified on S8G and S5W plants