Apr 20, 2018 — Barakah 1-4 (Partially Complete) upload/docs/application/pdf/2013-09/emwg_guidelines.pdf.
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All correspondence regarding this document should be directed to: Kirsty Gogan CleanTech Catalyst Ltd Quadrant House, Floor 6 4 Thomas More Square London, United Kingdom E1W 1YW +44 7952 545355 k [email protected] OR Eric Ingersoll Lucid, 625 Massachusetts Ave. Suite 108 Cambridge, Massachusetts, USA 02138 +1 617 – 359 – 7900 [email protected] Notice: All content of this document is copyright © 2018 Energy Technologies Institute LLP. The information in this docu ment is the property of Energy Technologies Institute LLP and may not be copied or communicated to a third party or used for any purpose other than that for which it is supplied without the express written consent of Energy Technologies Institute LLP.
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Contents Executive Summary .. .. .. . i Acknowledgements .. .. .. ii 1 Introduction .. .. .. 1 1.1 Motivation: cost reduction will be necessary if nuclear energy is to play a significant role in meeting the UK decarbonisation targets .. .. . 1 1.2 Opportunities Suppor ted by Strong Evidence .. .. .. 2 1.3 Rigorous approach underpins data collection and analysis .. 3 1.4 Case studies exemplify key mechanisms of the cost drivers .. . 4 1.5 Project Team and External Reviewers .. .. .. 4 2 Cost Driver Analysis and Methodology .. .. . 5 2.1 Benchmark Plant .. .. .. 5 2.1.1 Overnight vs. Total Cost .. .. .. 5 2.1.2 Major Cost Components in the PWR Benchmark .. 7 2.2 Methodology for Deciding on Cost Drivers and Data Collection .. . 7 2.4 Company Engagement .. .. .. . 12 3 ETI Cost Model .. .. .. 14 3.1 ETI Cost Model .. .. .. .. 14 3.2 Plant Genres .. .. .. .. 14 3.2.1 Advanced Reactor and SMR Costs vs. Historic Costs from Operational Plants .. 15 4 Findings .. .. .. .. 16 4.1 Design Complet ion as an important factor .. .. . 16 4.2 Conventional Plants .. .. .. 17 4.3 Broad range of costs and scores in completed nuclear plants .. .. 19 4.4 Differences between high cost and low cost projects .. 20 4.5 Common characteristics of high cost and low cost projects .. 21 4.6 Alternative Cost Scenarios: Capital cost reduction is as important as reducing the cost of cap ital .. .. .. . 21 4.7 SMRs and Advanced Reactors: Potential cost reduction from several factors when commercial deployment can occur .. .. . 22 5 Case Studies .. .. .. . 26 5.1 (Operational; Proposed) . 27 5.2 Barakah 1 – 4 (Partially Complete) .. .. .. 29 5.3 Vogtle 3&4 (Under Constructi on) .. .. . 30 5.4 Rolls – Royce SMR (Unbuilt; Design in Commercial Development) .. 31 5.5 Reactor; Commercial Design in Development) .. .. . 32 5.6 Generic Molten Salt Reactor (Unbuilt; Designs in Commercial Development) .. 33 5.7 Offshore Wind .. .. .. .. 34 6 Cost Reduction Opportunities .. .. 35 6.1 Cost Reduction Opportunities for the EU/US Genre .. 35 6.2 Relative importance of cost drivers in dataset .. 35
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6.3 Key Cost Reduction Strategies .. .. 36 7 Conclusions .. .. .. .. 39 8 Recommendati ons .. .. .. 42 Appendix 1 Reliability of Report Contents .. .. .. 43 Appendix 2 Project Team, Advisors, and Independent Reviewer .. .. 44 Appendix 3 References .. .. .. . 47
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i Executive Summary The UK Industrial Strategy and Clean Growth Strategy identified n uclear energy as having potential to play a significant role in the UK transition to a low carbon economy ; p rovided it is cost competitive and there is a market need. Recent n uclear projects in North America and Europe have been vulnerable to schedule delays and cost increases. 1 By contrast, plants built elsewhere during the same period demonstrate that nuclear energy can be highly cost competitive . The Project Team ide ntified and verified the most significant dr ivers of overall , delivered pla nt cost within different regions around the world, leading to a series of recommendations for principal actors in the sector that are transferable to the UK new build context. Instead of predicting specific commercial project costs, or C ontract for D iffere nce , or strik e price, this Project focused on potential trends impacting LCOE . Cost reduction inherently requires increasing schedule and budget certainty . In doing so, there is less project risk and higher confidence in successful project delivery, which benefit s all stakeholders, including the public and the project developer. Reducing risk lower s overall construction financing costs , both in terms of leading to a shorter construction period, but also a lowering in the risk premium. Engaging in the right kind of collective action and demonstrating risk reduction by all project stakeholders can therefore yield lower electricity costs for the consumer, allow for the vendor to realis e its desired risk – a djusted rate of return, and expand market potential. Evi dence gathered and analysed during this Project suggests that UK nuclear new build has very significant cost reduction potential. Sections 2 an d 3 describe how the documented experience with successful multi – unit builds and intentional new build programmes in other countries indicate the range of cost savings that could be achievable in the UK context. Key characteristics of low cost and high cost new build programmes (described in Section 4) are strongly supported by evidence from multiple sources and docu mented experience. Section 4 describes the key differences between high cost and low cost nuclear construction, identifying important and consistent themes in each , including the importance of design completion before construction starts . This evidence is further supported by a series of Case Studies in Section 5, underpinning a series of cost reduction opportunities transferable to the UK context in Section 6, conclusions in Section 7 and recommendations for next steps in Section 8. The report concludes th at a carefully designed programme that engages all of the key stakeholders with a shared vision and focus on the key characteristics of low cost, high quality construction can start the UK down the path to affordable nuclear power. The Project also identified the potential for a step – reduction in the cost of advanced reactor technologies and SMRs. Whilst such technologies are not yet licensed, nor construction 1 Recent analysis of published historic cost breakdowns of LWRs in the U.S. shows that the main cost driver is not the nuclear technology itself; rather, it is the cost of a large – scale construction project that is regulated by strict nuclear standards. (Dawson et al., 2017)
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ii Acknowledgements The Project Team wishes to express deep appreciation to the many people who helped this study reach successful completion. First and foremost, we thank the Project Manager at the Energy Technologies Institute (ETI), Mike Middleton, for his exceptional guidance and steady support throughout. We also thank three officials at the Dep artment for Business, Energy & Industrial Strategy (BEIS) who provided insights during our discussions: Craig Lucas (Director of Science and Innovation), Craig Lester (Deputy Director of Nuclear Strategy), and Prof. John Loughhead (Chief Scientific Adviser ). We are very grateful to the 50+ interviewees around the world who shared their experience and expertise in nuclear power plant design, construction, ownership, and operation. Finally, many thanks to our independent expert reviewer, Dr. Tim Stone; to exp ert advisors Dr. Ken Petrunik, Charles Peterson, Esq., Prof. Jacopo Buongiorno, and Dr. Ben Britton; and to Bill Carruthers and Richard Waite who were pivotal members of this collaboration.
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1 1 Introduction 1.1 Motivation: cost reduction will be necessary if nuclear energy is to play a significant role in meeting the UK decarbonisation targets country. Nuclear is a vital part of our energy mix, providing low carbon power now and into 2 Nuclear can play a significant role in the UK transition to a low – carbon economy provided it is cost competitive and there is a market need. The amount of new nuclear c apacity deployed by 2030, 2050, and beyond will depend on a number of factors but cost competitiveness will be critical . Clean Growth Strategy highlights the importance of cost reduction in the low carbon energy transition: The UK will need to nurture low carbon technologies, processes and systems that are as cheap as possible . We need to do this for several reasons. First, we need to protect our businesses and households from high energy costs. Second, if we can develop low cost, low ca rbon technologies in the UK, we can secure the most industrial and economic advantage from the global transition to a low carbon economy. Third, if we want to see other countries, particularly developing countries, follow our example, we need low carbon te chnologies to be cheaper and to offer more value than high carbon ones. 3 Recent n uclear new build projects, particularly in North America and Europe, have been vulnerable to schedule delays and cost increases. 4 By contrast, nuclear projects in other parts of the world are performing far better on cost and schedule. In the UK, the initial challenge for projects starting construction in the next 10 years will be to complete construction and commissioning within acc eptable norms of schedule and budget variation , while deliver ing meaningful cost reduction for follow – on plants to meet the expectations of investors, Government, and consumers. This first challenge requires strategies for mitigating first – of – a – kind (FO AK) – in – a – schedule risk, and the second requires strategies for programmatic reduction of construction duration and total capital costs as additional units are delivered. A brief examination of the costs of recently completed plants from around the world indicates that there is a wide range a factor of four. This suggests that even if the UK cannot re – create all the conditions in countries achieving the lowest cost in nuclear construction, there may still be significant potential to lower the cost of nuclear energy in the UK. 2 Industrial Strategy: Building a Britain Fit for the Future , November 2017. This white paper sets out a long – term plan to boost the productivity and earning power of people throughout the UK. 3 Clean Growth Strategy , October 2017 https://www.gov.uk/government/publications/clean – growth – strategy 4 Recent analysis of published historic cost breakdowns of LWRs in the U.S. shows that the main cost driver is not the nucle ar technology itself; rather, it is the cost of a large – scale construction project that is regulated by strict nuclear standards. (Dawson et al., 2017)
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2 Figure 1 . Total Capital Costs for Historical and Ongoing Nuclear Projects in Database 1.2 Reduction Opportunities Supported by Strong Evidence The purpose of the Energy Technologies Institute (ETI) Nuclear Cost Drivers Project was to Identify what drives cost within nuclear projects completed globally in the last twenty – five years , as well as for contemporary, and advanced reacto r designs. The goal was to then identify and quantify potential to deliver meaningful reductions in capital cost and levelised cost of energy (LCOE) in the UK. 5 Because significant cost reduction opportunities require coordinated and sustained action of mu ltiple parties, a key outcome was a framework designed to enable shared understanding and coordination between all stakeholders. While the principal charge of this study is to reveal the major cost drivers for nuclear projects, i n practice, reducing cost a lso requires reducing project risk by increasing certainty on schedule and budget. Less risk and higher overall confidence in budget and schedule and therefore cost of energy benefit all stakeholders, including the public and the project developer. Cost reduction should therefore not be considered a zero – sum game that comes purely at the expense of vendor or EPC profit margins. Reducing project risk whether related to project development, construction or supply chain – benefits all parties, creating a win – In general, there is an assumption that higher risk projects present an opportunity for higher returns. For nuclear projects, risk – adjusted returns do not conform with this assumption beyond certain risk levels. There is a point where project risk is simply too high regardless of return. This level of risk is reached when it becomes difficult to raise capital from traditional project investors. Therefore, reducing overall risk will be critically important to the long – term health of th e sector . 5 Note that LCOE is not the same as the CfD price or strike price. There are a number of factors that ac count for this, such as financing structure, taxes and other operating charges, site specific development and preconstruction expenses, and differences in depreciation periods, to name a few that are significant.
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3 It is important to note that the use of the te r transferring risk from one party to another, for example from the developer to the government, which might occur through a mechanism such as a loan guarantee and would result in commercial lenders charging a lower risk premium on a loan to the project. Here the term is employed to mean actual reduction of risk in the project fundamentals from improvements in the supply chain, construction practices, labour productivity, or increased certainty in demand for fut ure units, or direct support from government in the areas of permitting , labour relations , or the regulator. Improving these risk fundamentals will lower financing costs which the Industrial S trate gy ) identifies as an important potential contributor to cost reduction . Engaging in the right kind of collective action and demonstrating risk reduction by all project stakeholders can yield lower electricity costs for the consumer, allow for the vendor t o realis e its desired risk – adjusted rate of return, and can expand the market potential for new build projects. 1.3 Rigorous a pproach underpins data collection and analysis To provide a rigorous evidence base for these cost reduction opportunities, the team d eveloped a comprehensive cost database of thirty – five completed or close – to – completed projects , as well as proposed small modular reactors (SMRs) and advanced nuclear designs . The cost data for each unit included in the database was supplemented with a de tailed interview about the construction process for that unit and a scoring of the factors that determined the ultimate cost of the unit. Data was anonymised to protect commercial sensitivity where necessary and the provenance for data entries were made cl ear , recognising differing level s of detail between projects. The database used a standardised code of accounts (based on the G eneration – IV Cost Accounting Framework 6 ) to enable meaningful – to – comparisons among examples . A n associated cost m odel with supporting dashboard metrics enables interact ion with the database . Data from the database between cost and the cost drivers. While the model enables sensit ivity analysis of interest rates, financial approaches to reducing the cost of capital during construction and operation were out of scope, as was any examination of cost – reduction for decommissioning. Further detail on the methodology is detailed i n Secti on 2 b elow. 6 Economic Modeling Working Group of the – 4.org/gif/ upload/docs/application/pdf/2013 – 09/emwg_guidelines.pdf.
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