Learning from failure

In 2011 the tragic events at Fukushima called the nuclear industry to a sudden halt. In the months after the accident, several nuclear programmes/proposed new build projects – for example, in Switzerland, Thailand, the Netherlands, Japan and, to some extent, the US – were put on hold or stopped entirely. Now, seven years later, it is evident that the global nuclear industry has recovered from this shock and is back up to speed, albeit at a slower pace. At the beginning of 2018 about 450 reactors were in operation, and more than 55 new reactors are currently under construction. Several countries around the world plan to embark on nuclear power programmes as newcomers. In total, more than 600 nuclear reactors, mostly in the Middle East and Asia, are planned to come on line within the next 25 years globally; these include large nuclear power plants as well as small modular reactors. This shows a clear path forward for the nuclear industry and justifies having a critical look at the deployment success factors.

The large number of proposed reactors reveals a remarkable fact: it is expected that the number of operating nuclear power plants will increase by 2030 relative to the existing fleet, despite contradicting indications from some media. However, this positive scenario does not show the number of nuclear programmes which “failed” to continue with their project development or construction activities and have either stopped entirely or been put on hold indefinitely.

One of our recent studies identified more than ten nuclear programmes totalling 45 planned reactors that had ceased existence, some of them before Fukushima. Another 25 nuclear programmes, totalling about 70 reactors, had been put on hold. It is uncertain whether/when these programmes will continue. On the other hand, countries such as Turkey and the Kingdom of Saudi Arabia are pushing to advance their programmes rapidly, and the number of reactors installed in China will match that in France within less than ten years, with China becoming the world’s second-largest nuclear power producer after the US by 2025.

Economics and public opinion

There are two main reasons why nuclear new- build programmes may fail. The most obvious reason is, to a large extent, exogenous to the owner, and originates from a country’s nuclear policy and state or public opinion of nuclear power as an energy source. In Switzerland, for example, despite an expected electricity demand–supply gap within the coming decades and a low carbon energy policy, the Swiss Bundesrat decided to abandon nuclear power as an option in the wake of Fukushima due to a wave of public opposition. As a consequence, three Swiss energy companies put a stop to their nuclear new-build plans only a few months after Fukushima.

Similarly, in Lithuania, the Social Democrats forced a non-binding public referendum on whether Lithuania should build a nuclear reactor. The referendum was held in conjunction with the national election. About 63% of those voting in the referendum said they did not want additional nuclear power.

These examples show that unless there is an exceptionally strong link between a country’s ambition to establish a self- sustaining nuclear industry – which would mean jobs for the people – and the nuclear programme, earning public trust and confidence is crucial for success. This is a major reason why nuclear programmes in countries such as China, India, Russia and Turkey progress well.

The other reason for failure originates in economic realities. Investment costs for several nuclear power plant new builds has averaged around €3900/kW. In contrast, the investment cost for a modern combined cycle power plant, such as Irsching 5 in Germany (860 MWe), is less than €500/kW.

As long term prices for gas are expected to continue to be comparably cheap, the nuclear option is also less attractive from a fuel cost perspective and hardly reaches the required return on investment. If only one-dimensional indicators such as net present value (NPV) and levelised cost of energy (LCOE) are considered, the nuclear option is a difficult one. Only if other indicators, such as value chain localisation and economic impact, human capital development and security of supply, are integrated into the “calculation” will nuclear become a real option.

The issue of economic viability is not new to the nuclear industry. Even before the tragedy of Fukushima, nuclear energy sceptics argued that the nuclear industry’s prospects were dimmed by the delays and escalating costs that have long undermined the economic viability, and hence competitiveness, of nuclear energy. Since Fukushima, this view has received even stronger justification, especially in liberalised energy markets where increasingly volatile electricity prices put proposed reactor projects at risk. 

The first wave of commercial nuclear reactors in the US, for example, which were introduced during the late 1960s and 1970s, faced, on average, three years’ delay and a remarkable 300% cost overrun relative to the original estimated investment cost. However, at that time, in many industrialised countries, including the US, nuclear energy was viewed as a state industry vehicle driving economic advancement, and overall cost was less of an issue as energy market prices were regulated.

Nowadays, however, several nuclear programmes are facing significant challenges to meet their envisaged returns on investment due to schedule delays and exceeding of cost projections. This also makes it hard to argue for other benefits, such as the overall economic impact of such a programme, as well as localisation.

Hence, a major driver for preventing failure of a nuclear new-build programme is to maximise the plant’s economic viability by limiting cost escalations and schedule delays. This is all too well known to owners of nuclear new-build programmes; however, remarkablyfewprojects,notablyChinese and South Korean ones, seem to be able to execute their ventures on time and within budget. Also, the hidden costs of these successful nuclear players are rarely made public and are unknown, which means their performance record can be challenged to a certain extent.

Managing project risks

At the root of failure often lies inaccurate understanding of project risks, while incorrect prioritisation of critical activities and lack of capabilities within project organisations and suppliers have led to significant delays and budget overruns.

Several projects have turned out not to be ready for the challenge and projects in Finland (Olkiluoto 3), the USA (South Texas 3 & 4), France (Flamanville 3) and Russia (Kursk 5) have demonstrated the scale of the risks dramatically.

Historically, several factors have led to cost overruns, including:

• Start of construction before design completion and inability of the owner/ utility to communicate its requirements in a comprehensible manner.
• Lack of ability to incorporate regulatory requirements into the plant’s design, as well as lack of reliability of the licensing process itself.
• Insufficient schedule integration (starting by having the end in mind) and communication between first-tier suppliers, sub-suppliers and the owner.
• Lack of strategic and operational planning by the owner (governance, milestones and so on).
• Insufficient new-build project management capabilities, including controlling the progression of the project (time, costs, quality) across all key suppliers.
• Poor interface definition and management between involved parties (including the regulator).
• Non-transparency of major project risks and hesitant implementation of counter-measures for identified risks and constraints.
• Lack of understanding of needed capabilities over time and, hence, of timely provision of suitably qualified and experienced staff. 

A tangible example is the following: during project development some owners, especially in countries with weak grids, tend to underestimate the effort and time needed to provide sufficient grid infrastructure for a plant. Instead, they focus their efforts entirely on the technology choice for the plant, not considering the impact the plant will have on the electricity system of the country.

These challenges of not understanding the interdependencies of a nuclear venture are amplified by unspoken reluctance among project members to deal with the high degree of uncertainty involved in a nuclear new-build, which sometimes impedes progression further.

All these issues show that, while the technical complexity of nuclear new build is widely recognised, the ultimate root-cause of failure for a nuclear new-build is the inherent management challenge. This is often underestimated and calls for an approach to the management of new-build ventures that goes far beyond methodical programme management. Deep understanding of the nuclear programme itself (including all technical and non-technical elements, as well as their interdependencies) is needed. Remarkably, at a theoretical level many owners are aware of the factors that determine cost overruns to a large extent. However, they fail to build the needed capacity within their own organisations to address these challenges.