Security of supply and climate change considerations have created a turning point in the fortunes of the nuclear industry. However, its expansion faces substantial constraints, most notably limited construction capacity. All the major cost components of newbuild are rising: fuel costs, raw materials, EPC contracts and interest rates. And behind all this is the question of the uranium resource.
Growth in energy demand and the perceived need to reduce carbon dioxide and other greenhouse gas emissions have together given a new lease of life to the nuclear industry. Russia, China and India have all announced large-scale programs for nuclear newbuild, driven by the desire to improve or maintain diversity, security of energy supply and, in China and India's case in particular, to help meet the massive growth in energy demand their dynamic economies are experiencing.
Nuclear stalwarts Japan and South Korea retain targets of producing 40% of their electricity from nuclear, while there are also strong signals that in some other OECD countries, where no nuclear plant has been built for decades, governments are willing to support a new generation of plant. Some countries are even considering nuclear for the first time. Only a few have taken the opposite route; Belgium, Sweden and Germany, for the moment at least, have rejected the possibility of newbuild, favoring instead the total phase out of nuclear generation.
There is little doubt that a turning point has been made in the fortunes of the nuclear industry, even though the protracted problem of waste management persists with no better solution than to stick it in the ground. However, the industry's expansion faces constraints, the most serious of which is its limited newbuild capacity. The engineering, procurement and construction industry is overheating and vendors will all seek greater profit margins from other sectors, which will rebound on nuclear costs. There is also a lack of experienced staff, particularly in countries where no new plant has been built recently. The demographic gap in nuclear engineers will be hard to overcome in countries that have seen training and academic programs atrophy.
The challenge faced by the supply side is enlarged by the issue of decommissioning. According to Hadi Hallouche from Shell, in a paper delivered to the IAEE International Conference in Potsdam, Germany, in June, the combined call on the industry for decommissioning, plant replacement and newbuild suggests that capacity restraints will limit the expansion of the nuclear industry to a peak in 2030. Hallouche points out that there will be a huge difference in the investment cost and construction capacity required for nuclear to maintain its absolute level of power generation capacity, as opposed to retaining its percentage share of world generation capacity, which is currently around 16%. The 2030 peak is based on an average plant life of 65 years. If average plant life is reduced to 55 years, then the peak moves commensurately backwards to 2020, according to Hallouche.
As a result, the expansion of the nuclear industry depends critically on the ability to grow its construction capacity. This is likely to depend on the level of technology transfer to expand vendor capacity in countries like China and India, which now have the capacity to build their own reactors and may develop designs for export. South Korea is thought to be in the process of developing an export capacity for nuclear newbuild. However, the supply side constraints are severe. For example, there are only two companies, one in Japan and one in France, that currently can produce forged reactor vessels.
Nevertheless, companies with the capacity to export are recognizing the potential profitability implied by the supply chain bottleneck. Japan's Mitsubishi Heavy Industries said in June that it was keen to enter the US market and is preparing to introduce a larger version of its Advanced Pressurized Water Reactor. The first APWRs are in the licensing stage in Japan. Kiyoshi Yamauchi, general manager of MHI's Nuclear Energy Systems Engineering Center, said the US APWR concept is for a 1,700 MW reactor. The company has already completed major testing, including those for reactor flow, the separator, reactor coolant pump, and low-pressure turbine.
Meanwhile, the cost of raw materials has also risen significantly, particularly for materials like copper and steel and this is having a big impact on the cost of newbuilds. According to Areva's Didier Beutier, EDF has had to revise upwards its estimate for the new reactor at Flamanville in France by 10% from the original estimate made three years ago, as a result of rising raw materials costs.
A recent study by IBM Business Consulting Services noted that the global supply chain for nuclear newbuild was likely to be constrained by "the capacity of design owners to support multiple concurrent build programs." The report says that over the last decade an average of five new reactors were commissioned annually worldwide. Based on IAEA forecasts of demand growth, the supply chain will have to expand to cope with more than 50 new power stations under construction simultaneously, more than doubling current capacity.
Ignoring competition from other sectors for general EPC services, the report identified two key supply-chain constraints specific to the nuclear industry:
• The limited number of design owners offering modern reactor designs and the potential that demand will outstrip the capacity of design owners to meet it.
• The capacity for large low-alloy ring forgings required to support fabrication of the reactor pressure vessel, and to a lesser extent the primary circuit pressure vessels, are in global short supply.
Created: August 15, 2006
Return to top
Next Page: Nuclear expansion puts pressure on uranium supply
Printer-friendly format