Building an International Supply Chain: Opportunities & Challenges

Summer Institute,

Christ Church College

Oxford,

UK

11.30 – 12.15

Wednesday

8 August

2012 Greg Kaser

Senior Project Manager

Outline of the Presentation

1. WNA Working Groups

2. The market for new nuclear power plants – scenarios

3. Three industry challenges:

• Economic

• Capability

• Quality

4. Role of the supply chain

5. Potential solutions

6. Take-away points

1. WNA Working Groups

WNA Supply Chain Working Group

• Working Group was set up in 2010.

• Tasks: – Maintain updated information on planned NPP construction;

– Determine the market potential for key components;

– Assemble a database of leading companies worldwide;

– Identify possible “pinch points” in supply;

– Develop ways to improve product qualification practices;

– Issue a periodic Market Report that consolidates supply chain information.

• Work Plan for 2012: – Market Report to be published in September.

– Database of key companies established.

– Project for supplier qualification facilitation prepared.

• Aims to provide the industry, energy suppliers, the investment community and policy-makers with:

– An up-to-date picture of planned and on-going NPP construction;

– An analysis of the worldwide market for components;

– An analysis of supplier capacity;

– A review of trends in the market;

– A look at how the industry is addressing the challenges in the market;

– Recommendations for harmonization and standards.

• Complements the WNA’s Nuclear Fuel Market Report

Nuclear Supply Chain Market Report

2. WNA Market Scenarios

GWe

Nuclear Generating Capacity to 2030

Significant growth expected in nuclear power but Low Case remains possible

• Nuclear power plants generate revenues worth around US$ 320 billion a year

– 85 % of turnover generated in OECD countries;

– Non-OECD turnover has grown from 11 to 12.5 % since 2005.

Size of the Market

Output & Turnover from Nuclear Power Plants, 2000-2009

2000 2005 2006 2007 2008 2009

OECD Output from NPPs (TWh) 2249 2346 2356 2273 2279 2243

Turnover (US$ billion) 164.2 220.3 237.4 246.2 277.6 271.8

Non-OECD

Output from NPPs (TWh) 346 422 436 447 458 454

Turnover (US$ billion) : 28.1 27.0 35.7 39.4 :

World Output from NPPs (TWh) 2595 2768 2792 2720 2737 2697

Turnover (US$ billion) : 248.4 264.4 281.9 317.0 :

Sources: IEA, 2011, Electricity Information 2011: Tables 1.2, 2.6, 2.14, 3.5, 3.7 and previous editions; US Energy

Information Administration, 2010, Electricity Prices for Households; WNA estimates.

Size of Market - Projected

• 3 % growth per annum – depends on price assumptions:

– Electricity prices rise in line with IEA assumption for steam coal (main fuel for base load);

– If prices rise faster then gross revenues could rise 4% pa to US$733 billion by 2030.

• Non-OECD share of turnover rises from 12.5% to 26% by 2030.

Output & Turnover from Nuclear Power Plants, 2008-2030

2008 2015 2020 2025 2030

OECD Output from NPPs (TWh) 2 279 2 267 2 384 2 521 2 638

Turnover (US$ billion) 277.6 311.9 379.8 403.4 441.1

Non-OECD

Output from NPPs (TWh) 458 733 1 147 1 683 2 029

Turnover (US$ billion) 39.4 53.5 86.5 125.4 153.0

World Output from NPPs (TWh) 2 737 3 000 3 531 4 204 4 667

Turnover (US$ billion) 317.0 365.4 466.3 528.9 594.1

Sources: WNA estimates.

Value of New Construction to 2030

• Investment in new NPPs to grow 4-5% pa between 2012 and 2030: – International procurement worth US$ 30 billion a year;

– Nuclear investment is a small proportion of the US$ 14-17 trillion needed for clean power (Goldman Sachs estimate) to stabilize CO2 emissions

– Can this level of investment be sustained without the participation of the international development banks (e.g. Asian Development Bank, EBRD, EIB)?

Total Value of Planned

New Build US$ 1.5 trillion

Minimum Value of International Procurement

US$ 530 billion

• 298 new NPPs planned • 94 in OECD countries • 106 in China • 40 in FSU • 33 in India

3. Industry Challenges

How can nuclear power stay competitive?

• Ensuring that the economics of nuclear power are competitive with other generating sources: – Economic challenges

• Developing reliable international supply chains: – Capability challenges

– Quality challenges

WNA Activity: • Supply Chain Working Group • CORDEL Working Group

Nuclear Economics (1)

Capital Cost Estimates for a new NPP, US$/kWe

Country Overnight cost1 Investment cost

2

Technology 1998 2009 1998 2009

Europe Belgium PWR (EPR) 5 383 7 117 Finland BWR 2 256 : 2 672 : France PWR 1 636 : 2 280 : PWR (EPR) : 3 860 : 5 219 Germany PWR : 4 102 : 5 022 Netherlands PWR : 5 105 : 6 383 Spain PWR 2 169 : 2 957 : Switzerland PWR : 4 043 : 5 612 Asia Japan BWR 2 521 : 3 146 : ABWR : 3 009 : 3 940 South Korea PWR 1 637 1 876 2 260 2 340 North America Canada PHWR (Candu) 1 697 : 2 384 : USA APWR 1 441 3 382 2 065 4 296 OECD Average 1 908 3 845 2 538 4 991

1. Overnight cost includes owner’s costs pre-construction and during construction and EPC cost. 2. Overnight cost plus imputed interest charges during construction at 10 percent a year. Source: IEA, 2001, Nuclear Power in the OECD, Paris: OECD: table 15, p. 131; IEA-NEA, 2010, Projected Costs of Generating Electricity, Paris: OECD: Table 3.7a, p. 59.

Nuclear Economics (2)

• Average ‘overnight cost’ for a LWR up from US$1,900 to US$3,845/kW between 1998 and 2009 (NEA).

– Cost in 1998 was probably understated and reflected construction experience in Asia where standardization and serial projects provided cost savings;

– Early estimates for Generation III reactors were optimistic.

• Nuclear power construction costs have been increased as a result of:

– Price inflation (e.g. commodity prices, especially steel, price volatility in commodity markets, tight supply chain, and labour costs);

– First-of-a-kind costs (Generation III reactors and one-off projects with poor economies of scale);

– Atrophied supply chains in Europe and North America;

– Regulator’s learning curve has also extended with moves away from prescriptive approaches to performance-based and risk-informed approaches;

– Construction delays generate higher financing charges;

– Risk sharing arrangements so contingency is included at each tier of contracting (‘pancaking’).

Potential solutions - Economics

• Cost control – vendor side: Significant savings are possible (next slide).

• Cost control – regulatory side: Greater collaboration between regulators – and with industry – would reduce their costs (smaller regulatory overhead) and industry’s compliance cost.

• Economies of scale: Building a standard series of plants provides opportunity for savings right across the value chain; but …

– May not be possible in a developed market where new plants are replacing retiring capacity;

– More likely in rapidly developing countries where large additional increments in capacity are needed for industry and urban living.

• Q: Can scale advantages that are available in developing countries benefit developed industrial countries?

• A: Yes, with an integrated international supply chain.

Controlling construction costs

• Vendor side – Standardization of plant design to simplify configuration, improve functionality and control

systems and optimize production processes.

– Undertake detail design and work planning prior to construction.

– Modular construction techniques to allow manufacturing and construction to proceed in parallel and provide a factory environment to better achieve the quality required.

– Lean construction/ manufacturing philosophy to rationalize tiers of contracting, integrate processes and eliminate disruption and non-conformities.

– Contracting to ensure partnership: risks are shared to improve communication and work planning between the client, main contractor (e.g. EPC contractor) and sub-contractors and suppliers; goal of on-time/ to-budget delivery is a shared one.

– Enhanced quality control to reduce the proportion of out-of-specification items; e.g. Six Sigma (6σ).

– Human performance improvement to reduce human error and introduce defences that render organizational systems less vulnerable to damaging events.

• Techniques are not new and are used in other industries, but the lack of new nuclear build in several countries mean that their benefits will only appear over the next few years.

4. Role of the Supply Chain

• A reliable, robust and international supply chain can:

– Reduce cost pressures; for instance, by:

• Reducing supplier bottlenecks;

• Expanding locally-sourced capacity;

• Focussing on comparative advantage.

– Encourage investment – a large global market will permit companies to upgrade capacity and capability.

– Encourage innovation – a more diverse range of players in the market will allow alternative solutions to be tested.

• But we are not yet there!

Supply requirements: What is needed

• Typical amount for a Generation III

Nuclear Power Plant:

– Forgings (~4000 tonnes)

• EPR: 4 x Steam Generator = 500t

– Pumps (~ 200)

– Valves (5000+)

– Piping (~210 km)

– Cabling (2000 km+)

• Non-NSSS equipment: 30-40% of cost

• Exceptional quality required from

‘nuclear-grade’ components (higher than normal ‘industrial grade’):

– Safety-related items – performance testing required

– Safety-significant items – reasonable assurance of performance required

• Construction: EPR at Olkiluoto

– Concrete: 250,000 m3; Structural Steel: 52,000t

Nuclear Supply Chain

Nuclear Steam Supply System

Reactor Pressure Vessel

Rod Cluster Control Assembly

Control Rods

Complex Alloy

Silver, Zinc, etc.

Nuclear Steam Supply System

Steam Generator

Tube Bundles

Heat Transfer Tubes

Thermally-treated Alloy 690

Iron Ore, Nickel, etc.

All tiers need to qualified to high standards

Fabricated Vessel

Heavy Forging

Stainless Steel

Iron Ore

Simplified Breakdown of a PWR’s Structures, Systems and Components

Nuclear Steam Supply System

NUCLEAR ISLAND CONVENTIONAL ISLAND

Turbine Generator System

Containment Structure

Nuclear Reactor

Fuel Assemblies

Instrumentation & Control System

Cooling System

(Secondary Loop)

Service Water System

(Tertiary Loop)

Steam Turbine

Generator

Concrete Basemat

Reinforced Concrete Drywell

Steel Containment

Vessel

Polar Crane

Reactor Pressure

Vessel

RPV Internals

Process Instrumentation

Control Instrumentation

Protection Instrumentation

Computer System

Reactor Coolant System (Primary Loop)

Rod Cluster Control

Assembly

Control Rod Drive

Mechanism

Guide Tubes

Support Column

Asbestos Rods

Alloy

Forgings

Stainless Steel

Coil Stack Assembly

S/S Housing

etc.

etc. etc.

Drive Shaft

Neutron Reflector

Primary Coolant Pump

Pressurizer

Steam Generator

Vessel Tube Bundles

Moisture Separators

Main Steam

Line

Vessel

Electric Heaters Circulating

Water Pump

Main Condenser

High Pressure

Main Turbine

Low Pressure Turbine

Moisture Separator

& Reheater

Condensate Pump

Main Steam Isolation Valve

Throttle Valve

Casing Impeller

Motor

Main Feedwater

Pump

etc.

Drive Shaft

etc.

etc.

Casing

Stator Rotor

Exciter

Cooling Tubes

Windings Shaft

Casing Rotor

etc.

Blades

Stainless Steel

etc.

The Capability Challenges

• Strengthening Know-how (how to do it):

– Lack of orders has led to an erosion of capability to achieve exceptional performance in several developed industrial economies (e.g. USA, UK).

– Companies have lost staff to retirement or redundancy.

– Companies are supplying to the petro-chemical and defence industries but had too few nuclear-related orders to have made it worthwhile to invest in upgrading their civil nuclear capability.

– Localization calls for know-how transfers through Joint Ventures or other forms of company-to-company collaboration in emerging industrial economies (e.g. China).

• Strengthening Human Performance (doing it right):

– There are two sets of capability:

• Skills and knowledge (competencies owned by individuals); and

• Organizational culture (e.g. safety culture, learning culture, etc.).

– A business excellence model could help to integrate these to improve human performance and eliminate errors and dysfunctional behaviour.

The Quality Challenges (Doing it right first time and every time)

• Conformity to specification:

– Suppliers are not at the same level: some companies that manufactured nuclear grade components in the 1970s have lost competencies; some new entrants are still learning.

– Defects need to be picked by the QA system and rectified.

– Even qualified suppliers (e.g. holding ASME N Stamp) are not delivering fully.

– Different total quality management systems have been adopted.

– High cost of enhanced QA (e.g. for root cause analysis) is a deterrent.

• Developing a ‘nuclear culture’:

– Regulators are looking for companies that:

• Understand safety significance and the rationale for enhanced QA;

• Have a workforce and management who communicate effectively;

• Can learn from experience and events.

5. Potential solutions

• Standardization of safety requirements: e.g. Unified list of safety-related components that is accepted by most national regulators.

• Harmonization of Third Party Conformity Assessment: A global supply chain calls for ‘one-stop’ supplier certification and monitoring of nuclear grade component manufacturers for their QA program. Some vendor and client coordination would be required on an industry-wide basis.

• Harmonization of trade and export/import regulations: e.g. by the Nuclear Suppliers Group on the licensing process for dual-use technologies and equipment.

• Developing the supplier base: Competencies have to be strengthened and capacity needs to be built up. A good track record of performance will reduce the level of uncertainty around new construction projects.

Developing the Supplier Base

• A reliable, robust and integrated supply chain for new construction calls for:

– Investment in capacity to minimize bottlenecks (e.g. forges, forging presses and large fabrication shops).

– Certification of suppliers to international standards in quality control of manufacturing and construction processes for nuclear facilities.

– Harmonization of national technical regulations where appropriate (e.g. safety-related items, sensitive technologies, fissile materials, etc.).

– Nuclear skills ‘passports’ that permit suitably qualified and experienced professionals to work anywhere they are needed.

WNA Working Group activity

• Supply Chain Working Group: – Initiative to define a common vendor approach to supplier certification is under

discussion.

– Compendium of trade regulations operating in major markets to identify significant differences between the rules controlling exports, etc.

– Collecting case studies for exchanging experience on meeting high quality standards.

• Working Group on Cooperation in Reactor Design Evaluation and Licensing (CORDEL):

– Working on convergence in mechanical design codes and standards on techniques for assessing strength, shakedown and fatigue, definitions of stress & strain limits, etc.

– Contributing to the development of guidance and best practice on licensing and permitting.

– Investigation of divergence in the qualification of personnel (initially on NDT).

6. Take-away points

1. Reactor models: from FOAK to NOAK to improve the economics of

nuclear power = standardization = repeat orders = build a series

2. A reliable, robust and international supply chain can: – Reduce cost pressures; for instance, by:

• Reducing supplier bottlenecks;

• Expanding locally-sourced capacity;

• Focussing on comparative advantage.

– Encourage investment – a large global market will permit companies to upgrade capacity and capability.

– Encourage innovation – a more diverse range of players in the market will allow alternative solutions to be tested.

3. Do not underestimate the size of the quality challenge! – Total quality management calls for exceptional manufacturing and

human performance.

Thank you: Greg KASER WNA London kaser@world-nuclear.org www.world-nuclear.org

World Nuclear Association