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The Challenges Faced by the U.S. Nuclear Industry

Issue 6 and Volume 86.

by Daniel P. Krueger and Ryan P. Sather, Accenture Utilities

U.S. secretary of energy Samuel W. Bodman stated Oct. 8 to the U.S. Department of Commerce, “Expanding nuclear power in this country goes to the very intersection of our energy security, our national security and our economic security.”

The positive sentiments were echoed by both 2008 presidential candidates and the American public. Both candidates publicly voiced their support of nuclear energy as a core component of America’s future, touting the benefits of securing our national energy supply with the generation of low-cost power that does not emit greenhouse gases, while adding jobs and innovation to the U.S. economy. Public opinion also shows signs of becoming more accepting of nuclear technology. A recent Harris Poll shows that the percentage of Americans in favor of building new nuclear power plants remains steady, and opposition to nuclear power plants has decreased 13 percent to levels not seen since 1979’s Three Mile Island incident.

The support might be the result of energy costs reflected in prices at the pump, rising monthly electric bills and the increasing cost of food. They’re all in the minds of many. Credit should also be given to the nuclear industry for this shift in mindset during the past 30 years because the industry has dramatically improved plant output in terms of a capacity factor that stands above 90 percent, while cutting overall production costs in half since the 1980s. Following the Three Mile Island incident, a single, catastrophic failure at a nuclear power plant would have sealed the industry’s fate.

Despite positive buzz about a potential nuclear renaissance, the industry must continue to address the challenges associated with the financial, technical and human resources aspects of constructing the next generation of nuclear power plants. Let’s examine each challenge:

Ensuring the correct financial incentives to spur investment

The Energy Policy Act of 2005 included several provisions that encouraged energy companies to invest in the next wave of nuclear power plant construction. The industry’s outstanding record in safety, reliability and performance provided a strong case to appropriate funding for future construction. These incentives were designed to protect first movers through the three primary phases of a nuclear power plant’s lifecycle:

Construction. Phase one is cost-overrun support of up to $2 billion for up to six new nuclear power plants.

Operation. Phase two is tax credits of up to $125 million per year, estimated at 1.8 cents/kWh during the first eight years of operation for the first 6,000 MW of capacity.

Liability. Phase three is extension of the Price Anderson liability protection through 2025 for Nuclear Regulatory Commission (NRC) licensees.

Congress went a step further in 2007 by passing legislation that provided loan guarantees of up to $18.5 billion to lenders for the construction of next-generation nuclear power plants. Although these guarantees were designed to handle the anticipated capital requirements needed to spur the initial 6,000 MW of the next nuclear power wave, the result was that more companies applied than were anticipated. The total loan volume requested is $122 billion for the 17 companies that have applied, said retired U.S. Navy Admiral Frank L. Bowman, president and CEO of the Nuclear Energy Institute, during a Nuclear Energy Summit speech in October.

Support for nuclear technology is also coming from the state level, led by the actions of the Florida Public Services Commission (PSC). Matthew M. Carter II is commission chairman.

“We are encouraging utility investment in nuclear electric generation today to ensure Florida’s residents have reliable power for tomorrow,” Carter said.

His remarks followed the regulatory approval of plans to allow the two largest state utilities, FPL and Progress Energy, to collect, as reported in the media, more than $600 million next year in costs for plants that will be online in the 2015-2018 timeframe. It bears watching to see if other states or regions follow similar approaches to address their consumers’ growing energy demands.

Using technology to address cost pressures associated with construction

When it comes to constructing nuclear power plants, history hasn’t been kind. During the most recent significant wave of nuclear power plant build, from 1966 to 1977, the industry experienced cost overruns of 207 percent on the 75 plants that were constructed, according to a 1986 U.S. Department of Energy report. Given the pressures in the capital markets today, investors will need assurances that the industry can avoid the construction delays and design issues that plagued the most recent wave of construction. They want to know what is different this time. For some new-build consortiums, the answer may be in the underlying designs and technologies supporting the development.

The next wave of plants to be built will feature improvements in safety features that protect against internal plant failures and external threats. Reactors to be built are designed better and more safely, and they are expected to perform beyond current operating standards for safety and reliability. For example, AREVA’s U.S. EPR plant design features an “N+2” safety concept, which features multiple separate and redundant safety systems. Going one step further, the sub-systems are housed in four separate buildings within the nuclear island to avoid simultaneous failure and protection against internal threats such as fire or flooding.

Prior to 9/11, the nuclear-power industry worried little about aerial terrorist attacks. Again, the U.S. EPR design features a 4-foot-3-inch, thick outer shell to protect the plant’s reactor, control room, spent-fuel building and two sub-system safeguard buildings against a direct hit by a large commercial airplane.

The most recent generation of nuclear plants experienced design issues that weren’t identified or addressed until the plants had operated for years. Another example of how technology will improve new plant construction is seen in leading IT platforms being developed for the design, licensing and operation phases of the new plants. UniStar Nuclear Energy, a strategic joint venture of Constellation Energy and EDF Group that has proposed the development and deployment of a standardized fleet of at least four advanced nuclear plants, has made significant investments in a digital-lifecycle, project-management system called Galaxy, which will transform how future nuclear power plants create, modify, share and store information during all phases of their more than 60-year lifecycle. Benefits will be realized in several ways, including improved cycle times for design changes, improved quality and reduced re-work, improved ability to complete regulatory verification, and advanced configuration management capabilities to design, deliver and operate standardized plants.

UniStar’s construction strategy for its proposed fleet is to create a reference plant that will serve as a template for all future plant construction projects. Therefore, it is critical to maintain standards and capture the “as-built” differences between plants. In the construction process, Galaxy will rigorously manage changes that occur to the design of the plant. For example, if a vendor’s part doesn’t meet the design specification captured in Galaxy, an engineer can initiate an impact assessment to determine if a design modification (physical, operational and regulatory) is warranted. At the same time, Galaxy will begin to prepare the necessary documents for any approvals within the UniStar organization. These documents will also serve as the basis for any regulatory compliance approvals and audits.

Carrying the example forward into plant operation, Galaxy will maintain accurate history of changes made to the original reference plant design. These records will trace back to the OEM. In the future, if an operational issue arises with a particular piece of equipment, Galaxy will help the operator determine where the equipment originated and how widely it is used in the nuclear fleet. These features will help with preventive maintenance and should improve the overall performance and safety levels of UniStar’s plant operations.

Managing the projected skilled labor shortage in the industry

While much has been said about the nuclear industry’s challenges in terms of financing the next wave of construction, less attention has been paid to the monumental task of building out the human infrastructure required for the industry. In this regard, the challenges are just as daunting. Nearly half the workforce is older than 50, and some have estimated that nearly 40 percent of the current jobs in the sector will turn over within the next five years. In a 2006 speech, Nuclear Regulatory Commission (NRC) chairman Dale Klein noted that since the 1970s, the number of U.S. universities offering four-year degrees in nuclear engineering has fallen from 38 to 24. This presents a scenario where a large percentage of the 40-plus years of institutional and operational knowledge is departing and there is no one to whom they can hand the baton. To address these challenges, the nuclear power industry must embrace new technologies, foreign expertise and new business models to expand the future knowledge base.

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To start, new technologies will help balance the anticipated demand for nuclear engineers during the construction phase by more efficiently allocating their time and expertise to specific activities across multiple sites. By employing tools such as UniStar’s Galaxy, companies will be able to reduce the number of engineers on-site, as craft-workers and engineers will be better able to access and use plant data. The prerequisite for this capability is that the data are captured at the earliest stages of licensing and design and that technology has been correctly designed and configured.

The second method of improving the knowledge base is to partner with foreign experts throughout construction and operational processes. While the U.S. nuclear industry has been dormant for 30 years, countries such as France and Japan have advanced nuclear technology to new performance and safety levels. Alliances among companies such as UniStar (with AREVA and Alstom of France) for the U.S. EPR and General Electric and Hitachi for their Economic Simplified Boiling Water Reactor (ESBWR) aim to make their reactor designs more attractive by focusing 6,000 nuclear professionals on the task.

While the challenges described are fundamental to today’s nuclear industry in the United States, it is impossible to ignore the broader threats posed by the global credit crisis. The meltdown on Wall Street has brought the topic of providing loan guarantees to a single industry into question, and it is important to point out a few differences between Wall Street and the nuclear power industry’s need for financial capital.

First, the nuclear power industry is highly regulated at federal, state and local levels, beginning with the NRC. Oversight starts with NRC approval of reactor designs and financial considerations and continues through the active monitoring of plant construction, operations and maintenance activities. The NRC has stated that it will continue to grow its organization to handle regulatory demands associated with industry growth.

Second, the majority of the output from nuclear power plants is sold through energy markets that have transparent pricing signals based on the physical flows of energy. In today’s markets, the energy price is typically set by gas-fired power plants that operate at three to five times the cost of a nuclear power plant. The good news for consumers is that as each nuclear power plant enters the market, it lowers the overall cost profile for the entire market by replacing the power that had been supplied by a more expensive option.

Finally, a less obvious effect of the credit crisis may be seen in falling prices for commodities such as steel or concrete. When one considers that a new nuclear power plant requires about 400,000 cubic yards of concrete, 66,000 tons of steel, 130,000 electrical components, 44 miles of piping and 300 miles of electric wiring to build, subtle changes in commodity prices can have an enormous impact on the overall price of a new nuclear plant. Lack of available credit and falling oil prices are causing energy companies to re-evaluate projects, such as the Canadian Oil Sands, that have demands on similar raw materials and craft labor skills. Industry officials hope this will begin to bring inflated construction cost estimates of the past two years closer to historic levels of $2,000 to $3,000 per kW.

As former Federal Reserve chairman Alan Greenspan once said, “The time may have come to consider whether we can overcome the impediments to tapping [nuclear power’s] potential more fully.” With 17 applications for combined operating licenses and an over-subscription for federal funding, the time to act is now. Every U.S. presidential candidate since the Nixon administration has promised to secure the nation’s energy supply. The president of the United States must take appropriate actions to allow the nuclear power industry to fulfill its potential of becoming America’s primary source of low-cost, low-emissions energy.

Authors

Daniel P. Krueger is a senior executive with Accenture’s Utilities industry group and the managing director of its power generation and energy markets practice in Chicago. E-mail him at [email protected]

Ryan R. Sather is a senior manager with the strategy practice of Accenture’s Utilities industry group in Chicago. He has been with the company since 1998. E-mail him at [email protected]