IEEJ：September 2020 © IEEJ2020

Unlocking Reductions in the Construction
Costs of Nuclear:
A Practical Guide for Stakeholders
IEEJ webinar – 14 September 2020

© 2020 Organisation for Economic Co-operation and Development

Motivation of the study: nuclear power at a critical juncture
Global nuclear capacity by scenario 2010-2040

 Need to ramp-up nuclear new build inIEA SDS scenario
Current fleet with 60-year operating life

order to meet 2050 decarbonisation
objectives

several OECD and non-OECD countries
 Today, nuclear new build projects areperceived as risky: importance ofdriving down both costs and risk
perception

600
Capacity (in GWe) FOAK projects near completion in700

500
400
300
20010001995

x2 of annual installed capacity needed to meet IEA
SDS scenario

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

Source: IEA

Primary focus on short term (<2030) investment cost reduction opportunities oflarge Gen-III light water reactors© 2020 Organisation for Economic Co-operation and Development

2

Content of the Report
Overview of the costs of nuclear powerCore drivers of nuclear construction costs: lessons from historical and recentprojects

Short- and longer- term opportunities to reduce nuclear construction costs

Policy frameworks to deliver competitive nuclear projects and policy
recommendations© 2020 Organisation for Economic Co-operation and Development3

Nuclear production costs breakdown
Typical capital costs represent 78% ofnuclear production costs (LCOE)
IDC
20%

Capitalcosts
78%

Financing
67%

Returnof capital
47%

OCC
11%
Note: With discount rate at 7%, Return of capital refers to interest during
operation, OCC: Overnight construction cost, IDC: Interest during construction
Source: NEA

Direct

EPC costs (USD/kWe)

Fuel9%O&M
13%

Indirect costs explain in large partthe trend in construction costs
Indirect

5 000
4 500
4 000
3 500
3 000
2 500
2 000
1 500
1 000
50002009

2010

2012

2014

2016

2018
Source: NEA

Recent construction cost increases are due largely to indirect costs and reflect thenon-recurring costs of deploying a new generation of reactors© 2020 Organisation for Economic Co-operation and Development

4 Gen-III initial costs estimates driven

by low level of design maturity andthe specific political context ofannounced budgets
 Recent trend in projected costs

reflects increased design maturityand lessons learned for post-FOAKprojects
 Gap between two sets of projections

has impacted overall perceived
investment risks has potential toimpact public acceptanceOvernight costs (2018 USD/kWe)Average trend in the projected costs of nuclear new build
in OECD countries
6 000
5 000
4 000
3 000
2 000
1 00002010

2015

Increase in cost estimates due toinitially low Gen-III FOAK design
maturity and adverse political2020

2025-30

Gradual cost reductions owing togreater design maturity andlessons learnt from FOAK projects

Notes: 2010, 2015 and 2020 OECD average overnight construction cost data based on 2005, 2010 and 2015 NEA/IEA projected cost reports, adjusted for USD inflation using
OECD statistics. NEA average estimate for 2025 based on preliminary data from the forthcoming NEA/IEA Projected Costs of Generating Electricity 2020 report.
© 2020 Organisation for Economic Co-operation and Development

5Overnight onstruction costs (USD/kWe)Eight priorities to unlock nuclear construction costs reduction
Lessons learnt

Designmaturity

FOAK reactor

Effective
Regulation
stability &project
management predictability
What new nuclear should costTechnologyLonger-term

Short-term

DeliveryMulti unit &series effects

Designoptimisation

Technology &process
innovation

post-FOAK
reactorRegulation

Revisiting Harmonisation:
regulatory
licensing,interactions
codes &standards

What new nuclear could cost

Policy© 2020 Organisation for Economic Co-operation and Development

NOAK reactor

SMRs and advanced reactors
6

Content
Overview of the costs of nuclear powerCore drivers of nuclear construction costs: lessons from historical and recent
projects

Short- and longer-term opportunities to reduce nuclear construction costs

Policy frameworks to deliver competitive nuclear projects and policy
recommendations© 2020 Organisation for Economic Co-operation and Development

7

Learning from FOAK projects: EPR lessons
Key drivers of Flamanville cost out-turn compared with Taishan

Overnight construction costs(EUR/kWe)

Budgeted cost
Design maturity
Project management (FOAK effect)

Comparison between EPRs Flamanville & Taishan
Flamanville 3

Taishan 1 & 2

Site

Single unit project& difficult site
conditions

Twin project, withperspective for 2
additional twin units

Designmaturity

No lessons learnt
from OL3

Lessons learnt fromFA3

Supply chain
capabilities

Challenges
following 16-ywithout new build

Ongoing large-scale
new build program

2 900Projectmanagement

No dedicatedproject team atconstruction start

Integrated project
team

Taishan ex-post, pro-forma adjusted

Political
leadership

Uncertainties
regarding politicalcommitment

Strong politicalleadership

8 000
7 000

1 577

6 000

607

5 000

1 923

4 000
3 000

1 771

2 000
1 000

1 697

0
Flamanville ex-post
Source: based on Folz (2019)

In addition to design maturity and project management, political leadership is a key factor tofoster mobilization and integration of the nuclear supply chain© 2020 Organisation for Economic Co-operation and Development

8Historical and recent projects have demonstrated learningwith serial construction
 Serial construction of nuclear reactors can yield a reduction in construction costs : Program effect: reduction of nonrecurring / indirect costs
 Productivity effect: learning by doing through mobilization of the supply chain Not universal but observed in: France (80s), Japan (90s), Korea (00s), Russia/China (today)
4,000
3,500

3,000-32%

3,000
2,500
2,000
1,500

Historical construction costs in France-22%

Overnight construction costs
2010USD/kWeOvernight construction costs
2010USD/kWeHistorical construction costs in Korea

2,500-23%
2,000-19%-6%

1,500

1,000
1,000
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
1970
Construction start
Source: based on Lovering et al.
(2016) and Cour des Comptes (2012)
Domestic vendor
Foreign vendor© 2020 Organisation for Economic Co-operation and Development

1975
CP01980
1985
Construction start
CP1-CP2
N4
P4-P4'

1990

1995

9

Multi-unit construction reduces the non-recurrent costs ofinfrastructure development per reactor
4 units/site (left axis)

2 units/site (left axis)

1 unit/site (left axis)

Barakah (right axis)

100
5 000

90

4 000

70Index NEA (2000) estimated that constructing
reactors in pairs reduces the cost of thesecond reactor by about 15%, and 5%
for the 2nd pair

8060

3 000

50402 00030

 Barakah 4-unit project in the United ArabEmirates demonstrates that such cost
reductions can be even more rapid for themost successful projects

20

1 000

Overnight construction costs (USD/kWe) Multi-unit projects further facilitate theallocation of resources between units,
reducing risks and impacts of delays

100
1st unit

2nd unit

4th unit

6th unit

0
8th unit

Source: based on NEA (2000) and Gogan (2019)© 2020 Organisation for Economic Co-operation and Development10

Nuclear safety regulation can enable cost reductions

Short-term (<2030)

Lessons learned

Core conditions for successful regulatory interactions
Regulatory stability Important to understand and anticipate any
safety or environmental changes to avoid
retroactive design activity or re-work inconstruction
 E.g. Impact of changes during construction
post-TMI on new build in the US during the70s/80s

Regulatory predictability
 Introducing new rules without the associatedclear technical requirements needed forengineering studies
 E.g. regulation for pressurized equipment inFrance on FLA3: 10-year for the translation of
the new rules into technical requirements

Innovative approaches to revisit regulatory interactions
 An increased awareness within regulators of the impact of their activities on cost, and willingness
to understand implication of regulatory decision on technology performance Identification of mutually beneficial situations suitable for co-operation (see Horizon case study)
 Clear and transparent communication to avoid misinterpretation
 Alignment on the objectives and outcomes of both regulators and licensees© 2020 Organisation for Economic Co-operation and Development

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Cost optimization with regulator involvement:
lessons from the Horizon project In 2016, Hitachi-GE and ONR cooperated on a review of the ABWR to identify costs reduction
opportunities. Several factors identified, notably to adapt GDA generic assumptions to local site
conditions and plant layout.
 The design optimization phase pursued realized expected overnight capital cost reductions inexcess of 20% for a twin unit deployment vs. two single units. Key factors for success included:

 Regulators engagement at executive level The process benefitted from the capability andexperience in both the project team and regulators
 Benefits realised from challenging initial design
assumptions associated with the co-location ofunits on the same site
 Further significant cost reductions expected from acommitment at the outset to four units at the same site vs.
twin unit with potential for a second twin unit at the same location.
© 2020 Organisation for Economic Co-operation and Development

Horizon project post design optimization

12

Content
Overview of the costs of nuclear powerCore drivers of nuclear construction costs: lessons from historical and recent
projects

Short- and longer-term opportunities to reduce nuclear construction costs

Policy frameworks to deliver competitive nuclear projects and policy
recommendations© 2020 Organisation for Economic Co-operation and Development

13Enabling processes

Product design

Construction processes

Design to cost
Systems engineering

Simplification

Modular construction

Standardisation

Advanced concrete & rebarsolutions

Digital transformation (e.g. PLM)
Knowledge management
Quality management & control

Risk-informed inspection

Improved seismic design

Early advanced manufacturing

Harmonisation

SMR features

Factory-based fabrication

Qualification

Gen-IV features

Continuous improvement

Advanced materials

Revised regulatory processes

Longer-term(>2030)Reclassification of safety
components© 2020 Organisation for Economic Co-operation and Development

Mature advanced
manufacturing

Complementarity between technologies

Short-term(<2030)Long-term continuous improvement can be achieved through theinterplay between processes and product design

14

SMR construction cost will take advantage of specific cost reduction
drivers and from progress made with large reactors
SMR economic drivers that help compensate for
diseconomies of scale

SMR market applications
Extendingnuclear market

Construction costs(USD/kWe)

off-grid / remotelocations, adaptation
replacement ofageing coal power
to site constraints:
plants, non-electric
seismic and coolingapplications (e.g.
source, access todistrict heating)nuclear for newcomers
Supporting
renewable
integration

Standardisation

Light-water SMR
economic drivers

Modularisation& factory build
Designsimplification

Fostering
decarbonization

Harmonisation

SMR

Large reactor

Size

flexibility: loadfollowing and fleet
effect, integrated
energy systems

Large reactors and SMRs target different markets and applications. Industrial capabilities achieved withnear-term (early-2020s) investments in large reactors will support SMR development. To counterbalance thelack of economies of scale, SMR rely more on serial construction with specific cost reduction strategies
proven in other industries© 2020 Organisation for Economic Co-operation and Development

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Content
Overview of the costs of nuclear powerCore drivers of nuclear construction costs: lessons from historical and recent
projects

Short- and longer-term opportunities to reduce nuclear construction costs

Policy frameworks to deliver competitive nuclear projects and policy
recommendations© 2020 Organisation for Economic Co-operation and Development

16

The role of government: the need for long term planning Nuclear new build requires long term planning:commitment and specific regulation
 Clear rationale for further government

Commitment

intervention on financing: Social and environmental externalities: climate,clean air, fuel diversity, …
 Electricity market failures: lack of long term pricesignals to mitigate market risks
 Macroeconomic context: weakening monetary
policy and growth in private equity funds, but with
continued high expectation in terms of risk
premium. Opportunity for new-nuclear to contributeto post-COVID-19 recovery.
© 2020 Organisation for Economic Co-operation and Development

Regulation

Financial support17

Affordable financing is key for the economic
performance of nuclear (1/2)
 Cost of capital reflects risk allocation

LCOE of a new nuclear power plant project
according to the cost of capitaland mitigation decisions160

 Many of the cost reduction

opportunities identified in this study
will support risk mitigation during thepost-FOAK phase Strong rationale for direct/indirectgovernment involvement to lower thecost of capital and therefore the cost forthe final consumers. This implies sometransfer of risk

Levelised cost (USD/MWh)1401201008060
402000%1%2%3%4% 5% 6% 7% 8% 9% 10% 11% 12%
Weighted average cost of capital

Fuel cycle costs
Operation & maintenance costs
Overnight construction costs
Cost of capital
Note: Overnight cost of 4500 USD/kWe, a load factor 85%, 60-year lifetime and7-year construction time

© 2020 Organisation for Economic Co-operation and Development

18

Affordable financing is key for the economic
performance of nuclear (2/2)

Nota: x: risk owner, x: other key
stakeholders for risk mitigation

Organisational
Policyframework

xxxx

Integration of new technologies
Nuclear quality assurance standards

xxx

Project management

xxx

x

x

Supply chain capabilitiesx

Financiersx

Safety auth.

xSociety

Project
teamx

SupplychainVendor

Technology

Plant
owner

DesignGovernment

Other
stakeholders

Industryxx

Political supportxxx

Licensing frameworkxxx

Financingxxxx

Effective risk allocation and mitigation requires concerted efforts among industry,government and society© 2020 Organisation for Economic Co-operation and Development19Governments can support financing through a range of financial
mechanisms depending on country and projects conditions
Indirect financial support
Direct Financial
supportEquity, debt,ECAs, loan
guarantee

Powerpurchasing
Regulated assets
agreements
Contract-forRate-of-return
difference (UK),(US), Regulated
Mankala model
Asset Base (UK)
(Finland)

Equity stake can beSpecific conditions
PPAs focus ontransitional as
can be specified formarket risks but often
additional sources of
the allocation of
do not address
financing should
certain risks (e.g.
explicitly constructionbecome available
cost sharing and cap
risks, which impact
once the plant iswith hybrid RAB
risk premium
operationalmodel)

While government support is essential tostart or restart a nuclear program, it shouldbe transitional as improvement in industrial
maturity will drive both risk and costs down

Industrial
maturity

Trust

Competitiveness© 2020 Organisation for Economic Co-operation and Development

Cost ofcapital

20

Conclusions and policy recommendations
The nuclear sector is transitioning from FOAK and could rapidly deliver more competitive Gen-III reactors• Capitalize on lessons learned from recent Gen-III reactors: Building on these designs, governments have a window of opportunity for cost
reductions in the early 2020s. :• Prioritize maturity of design and regulatory stability: Policies play a significant role to ensure that new build projects start with the rightconditions.
• Consider committing to a standardised nuclear programme: For countries considering multiple new-build projects, commitment to astandardised nuclear programme is the most promising route to realise cost reductions.

Construction cost reduction opportunities are available at several levels• Enable and sustain supply chain development and industrial performance: Industrial and energy strategies for new nuclear plants need
to be carefully articulated.
• Foster innovation, talent development and collaboration at all levels: Governments can support cost reductions with SMR and advanced
reactors by ensuring timely licensing and construction of demonstrators.

The governance framework is essential to support competitive new nuclear construction• Support robust and predictable market and financing frameworks: (Transitional) targeted financial support is currently essential inWestern OECD countries to deliver cost-competitive new nuclear.
• Encourage concerted stakeholder efforts: Governments should foster a social contract with industry and society.
• Tailor government involvement to programme needs: Countries restarting a nuclear programme or considering only a single-plant project
are likely to require further government support.

© 2020 Organisation for Economic Co-operation and Development

21

Report launch and follow-up• High-level launch webinar on July 2nd– Panel moderated by NEA DG– Over 600 registered participants– Recording available online– Several press articles• Next steps– Financing of new nuclear and the interplay with electricity market regulation– Advanced technology for nuclear costs reduction (digital transformation,modular construction, improved seismic PSA)
– SMR
© 2020 Organisation for Economic Co-operation and Development

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Download: oe.cd/nea-redcost-2020
Contact: email© 2020 Organisation for Economic Co-operation and Development