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New Plant Construction Cost and Schedule

M. J. AkinsBulatom 2009

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Nuclear New Plant Construction Contents

� General

� Cost structure

� Capital Costs

� Variation of Capital Costs

� Trends in Power Plant Construction

� Studies of Costs

� Completion Periods

� Risks

� Conclusions

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Nuclear New Plant Construction CostGeneral

� There is a limited amount of detailed information on the costs of building modern NPPs

� Most recent studies base their estimates of capital costs on:• Construction costs of Asian reactors built lately

• Overnight costs of ≥ $2000 per kW of capacity per EIA 2004 Annual Energy and MIT study

• General trade papers

� Vendors’ estimates:• Bases on estimates from a build up of costs

• Estimated designs: WE AP1000, GE ESBWR, AECL ACR-1000

• Original estimates were $1000 – 1500 per kW overnight capital costs for twin units on one site, including all costs from 1st to nth unit, i.e. all first-time costs for design, engineering and licensing

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Nuclear New Plant ConstructionCost structure

� Internalized costs:• Capital costs account for ~ 60 % of the

levelized cost of electricity (LCOE)

• Fuel costs account for ~ 20% and cover:

− Fresh fuel

− Spent fuel and RAW management:

• Operations and maintenance costs account for ~ 20%:

• Decommissioning costs - ≤ 1% of LCOE(incurred through financial contributions over the economic plant lifetime):

� External costs:• Future financial liabilities for handling HL

RAW, SF and severe accidents

• Health and environmental impacts of radioactive releases

� Capital cost structure:

• “Overnight” costs− EPC costs ~ 80%

♦ Direct costs ~70%

♦ Indirect costs ~30%

− Contingencies

− Owner’s costs ~ 20%

• Financing costs

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Nuclear New Plant ConstructionVariation to Capital Costs

� Variation factors:• Alternative reactor technologies

• Inclusion of the initial core load and reload in the EPC contract

• Price formation - on the basis of the NSSS only or the whole plant

• Site works e.g. cooling towers, other site infrastructure preparation

• Land & permitting

• Contingencies in firm fixed price package

• Construction interest costs

• Difference in the exchange rates assumed between offer and the year of spending

� Potential for reductions:• Higher-capacity reactors

• Replicating several reactors of one design on one site

• Standardization of reactors and construction in series

• Learning-by-Doing

• Simplification of designs

• Improved construction methods

• Predictable licensing process

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Nuclear New Plant ConstructionTrends in Power Plant Construction

� Costs and identified the main contributing factors and their likely future development:

• For EPRs, ~10-15% of project costs are construction costs (NI+TI)

� Main contributor to construction costs :• labour costs (>50%); • raw materials (cement, steel, rebar) only ~20% (in developed countries)

� Cost trends:• increases in underlying costs, e.g. for labour and materials, • ~6-8% cost overall increases per year (i.e. ~20% for a 3-years project)

� Material consumption trends:• current EPRs need ~219 m3/MWe concrete as compared to ~114 m3/MWe for 1990s’

plants

� Costs could most effectively be reduced by altering:• costs of labour• quantity of rebar • construction duration

� Achieving the above cost reduction would require improvements in training, design and regulatory framework

� Data based on experience from French N4 NPPs, Olkiluoto-3, Flamanville-3, Chinese / South African EPRs and a South African coal fired power plant project

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Nuclear New Plant ConstructionSteel Price Development

Ore price increase and high steel scrap price drive up steel prices

Copper Price Development

Steel Price Development

Stocks are low tense supply situation (strikes in Latin America) still high and volatile prices

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Nuclear New Plant ConstructionFuel Cost

� Low cost of uranium compared to conventional fuels

� 50% of nuclear fuel cost is due to enrichment and fabrication

� Potential for fuel cost reduction through:

• Boosting enrichment levels

• Increased burnup (8% increase in burnup results in 5 % cost reduction)

Cost for 1 kg Uo2 reactor fuel (Jan 2007):

360,000 kWh electrical per kg at 45,000 MWd/t burn-up, hence fuel cost: 0.50 c/kWh

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Nuclear New Plant ConstructionOECD Study’2005

� Focus on 13 NPP able come on

line in 2010-15

� Overnight construction costs

range:

• Czech Republic - US$ 1000/kW

• Japan - $2500 kW

• $1500 – average

� Capital costs represent:

• 50% of power cost with 5 % discount rate

• 70% of power cost with 10 % discount rate

Electricity generating cost projections for year 2010

US 2003 cents/kWh, 40 year lifetime, 85% load factor

Source: OECD/IEA NEA 2005

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Electricity Price Formation

� Electricity price should cover:

• Overnight costs

• Accrued interest charges

• Annual fuel costs (including allowance for management and disposal of the SF)

• Expenditures on operation and maintenance

• Periodic charge for the decommissioning

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Nuclear New Plant ConstructionCost Studies for Planned NPPs

� U of C Report’2004• 4.3 - 5.0 c/kWh - levelized power costs for an initial ABWR or AP1000:

• $1200 - $1500/kW - overnight capital costs

� Connecticut Integrated Resource Plan (January 2008)• overnight capital cost for new nuclear - $4,038/kWe (2008 dollars)

• $83.40/MWh levelized cost of electricity from new nuclear capacity in the base case

• $64 MWh - $76 MWh for a merchant plant

• $74 MWh - $88 MWh for a regulated plant

� Progress Energy Study (March 2008) on construction of 2 new

Westinghouse AP1000 units on a greenfield site in Florida:

• $14 billion - total cost

• $9.4 billion - cost for construction

• $5144 / $3376/kW per kilowatt - cost for the first /second unit, if built within 18 months of each other (average $4260/kW)

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Nuclear New Plant ConstructionUS Estimates

� Some newer costs

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Nuclear New Plant ConstructionCost Studies for Planned NPPs cont/d

� Tennessee Valley Authority Feasibility study on building 2 ABWRs at Bellefonte in Alabama

• $1611 per kilowatt for twin 1371 MWe ABWRs

• $1535 /kW for twin uprated to 1465 MWe each and built in 40 months

� Florida Power & Light Study for 2 new AP1000 reactors at Turkey Point site (February’2008):

• $2444 to $3582 /kW overnight capital cost

• $3108 to $4540 per kilowatt total cost including:

• $5780 to $8071 /kW total cost with the addition of finance charges

� Study on building two 1,117-MW AP1000s reactors at the Summer plant in South Carolina (May’2008):

• $9.8 billion - total price :

� Georgia Power study on building twin 1100 MWe AP1000 reactors in mid 2008 : • $4363 or $6360 per kilowatt including all owners costs

� Mid 2008 vendors’ figures for overnight costs (excluding owner's costs):• GE-Hitachi ESBWR ≤ $3000/kW

• GE-Hitachi ABWR ≥ $3000/kW

• Westinghouse AP1000 ~ $3000/kW

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Nuclear New Plant Construction Recent Overnight Capital Cost Figures

� EdF Flamanville EPR• EUR 3.3 billion/$4.8 billion,

• EUR 2000/kW or $2900/kW

� Bruce Power Alberta• 2x1100 MWe ACR, $6.2 billion

• $2800/kW

� GNPC Hongyanhe• 4x1080 CPR-1000 $6.6 billion

• $1530/kW

� AEO Novovronezh 6&7 • 2136 MWe net for $5 billion

• $2340/kW

� KHNP Shin Kori 3&4 • 1350 MWe APR-1400 for $5 billion

• $1850/kW

� FPL Turkey Point• 2 x 1100 MWe AP1000 $2444 to

$3582/kW

� NEK Belene• 2x1000 MWe AES-92 EUR 3.9 billion

(no first core),

• EUR 1950 or $3050/kW

� UK composite projection $2400/kW

� NRG South Texas• 2 x 1350 MWe ABWR $8 billion

• $2900/kW

� SCEG Summer • 2 x 1100 MWe AP1000 $2200/kW

(based on the assumption that overall costs to the utility are twice the overnight capital cost of the actual plants)

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Nuclear New Plant Construction Completion Periods

� Very long construction periods in late 80s and early 90s

� Shorter construction times in Asia:• a little more than 4 years for the Gen 3 1300 MWe reactors in Japan built in 1996 and

1997

� Typical projection for the plants today - 48 to 54 months (first concrete to first connection to the grid)

• Belene NPP

• Mochovce NPP

• Olkiluoto NPP

• Flamanville NPP

• Chernavoda NPP

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Nuclear New Plant Construction Threats for Supply Chain Development

� Staff related issues:• Understaffing of regulators, which may result in :

− Delays in site selection and design assessment process

− Follow-on effects in subsequent planning and licensing processes

• Shortage of skilled workers and managers

• High labor costs in EU

� Supply chain “pinch points”:• Insufficient capacity for ultra-large forgings for the manufacture of NSSS, turbine

generator rotors

• Nuclear accreditation of manufacturers and suppliers

• Unacceptably high number of suppliers for nuclear projects reflecting the need to restart the nuclear supply chain

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Nuclear New Plant Construction Major Risks for Project Completion

Source: Macquarie Research Equities-Report

� Increasing fuel and raw material costs, resulting in unattractive economics of building new plants

� Prolonged period of lack of credit, which may result in cancellation of large projects

• Alternatives to project financing:

� Backlog – subject to cancellation or adjustments• However, backlog cancellation very unlikely for a number of reasons:

− Client is on the hook for long lead time items− Severe economic repercussions to clients by cancelling a project− Historically very few projects have been cancelled once construction starts

� Power plant additions are driven more by supply/demand dynamics:

• capacity additions follow longer cycle trends• insulated from short-term economic disturbances• isolated cases of projects cancelled mid construction• planned capacity are insulated as well• capacity additions continue after recessions are following long-term trends

� Empirical data show that utilities are still moving toward with projects vis-à-vis market conditions

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Nuclear New Plant Construction Major Risks for Project Completion

Source: Macquarie Research Equities-Report

� Fixed-price contracts add to cost overruns and execution risks• Fixed-price contracts directly expose company to cost overruns related to materials,

labor or general project delays)

• Price escalation clauses used as a hedge against inflationary trends

� Percentage of completion accounting gives company discretion in accounting for revenues and profits

• The company could potentially reverse previously recorded profits or record an overall project loss in the event of escalation

• News of project delays or changes can negatively affect share price performance upon disclosure

� Companies face heavy competition in attracting and retaining skilled labor

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Nuclear New Plant Construction Conclusions

� Cost estimates changing

� Note: Nuclear plant costs have recently risen so rapidly that vendors are not willing to publicly commit to cost estimates:

• ~ $2000/Kw overnight costs in 2006 in the US market• > $4000/Kw and in 2008 in the US market• > $6000/Kw in 2008 in emerging markets

� Vendors pricing uncertainty

� Current contract models may not apply

� Current construction projects have problems

� Note: Olkiluoto-3 is reported to be 50% over budget and two years behind schedule, increasing perceptions that nuclear costs will continue to increase rapidly

� Price of materials is a big volatile unknown, which may decrease

� Labor could become more available due to limited number of new projects

� Lack of debt/credit to finance new project may decrease demand of new constructions