2008 11 05 Nuclear Fleet Strategies Final Notes Version

Nuclear Fleet Strategies

Edward Kee 5 Nov 2008

Sponsored by Nuclear Engineering International Crowne Plaza – London Docklands Western Gateway Royal Victoria Dock London E16 1AL Conference manager: Linda Dunkley, Progressive Media Markets Ltd +44(0) 208 269 7812 [email protected] [Photo: Doel nuclear power plant in Belgium]

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These slides do not provide a complete record of the presentation and discussion. The views expressed in this presentation are mine; these views may not be the same as those held by CRA’s clients or by others at CRA.

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Nuclear Fleet Strategies

I am subject to several Non-Disclosure Agreements (NDAs) with clients. The material in these slides is in full compliance with those NDAs. The oral discussion of these slides must also comply with those NDAs, so that I may not be able to answer all your questions.

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Introduction • Nuclear fleet strategy was (is) successful in France • But, world has changed since French fleet was built • Is the nuclear fleet concept relevant (or even possible) today? • Yes - a 21st Century virtual nuclear fleet approach is evolving

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Nuclear Fleet Strategies

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Agenda • Eskom’s nuclear fleet aspirations • Nuclear fleet concept – Review of the French nuclear fleet – Fleet benefits

• Feasibility of the French nuclear fleet approach today • Virtual fleets

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Nuclear Fleet Strategies

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Eskom’s nuclear fleet aspirations • Large capacity build – 40,000 MW of new capacity planned by 2025 – 20,000 MW in new nuclear fleet

• Nuclear fleet strategy – 10 EPR units or 15 AP1000 units, plus PBMR units in later years

• Eskom faces several issues – Large CapEx investment, even with single nuclear plant – Nuclear fleet purchase requires large financial commitment – Rating agency action in August reduced funding ability

• Examined costs, benefits, and approaches to nuclear fleets

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Nuclear Fleet Strategies

In 2008, I provided advice and consulting assistance to Eskom on their nuclear procurement and investment process. The public strategy of Eskom is to build a new nuclear fleet, starting with the Nuclear 1 power station. The size of the Eskom nuclear fleet suggested that lessons might be available from the French nuclear fleet experience. We provided a review of the nuclear fleet approach in France and other countries; an analysis of the nuclear fleet benefits; and a review of the linkage between nuclear fleet benefits and nuclear fleet procurement.

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Nuclear fleet concept No fleet Single nuclear unit/plant owner Some multicompany efforts to gain fleet benefits through cooperation US nuclear management companies a more formal approach to multi-company efforts Some ability to share learning through industry groups

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Multiple units Smaller fleet operators Nuclear fleets, composed of multiple reactor types (BWR and PWR and other), reactor designs, constructors, and vintages A mix of units built by owner and acquired Benefits from single overhead, purchasing, engineering, and management

Multiple identical units Single owner Common simulators, special tools, training Co-ordination of upgrades, maintenance, Fungible operators, maintenance teams, outage teams Operational improvement through learning across fleet

Sequential build

Bulk purchase

Multiple procurements

Single procurement and vendor

Potentially coordinated construction

Coordinated construction, mobilization benefits

Learning curve benefits may not be captured by owner Financial flexibility, vendor competition, more options for buyer

Learning curve benefits captured Large order means upstream infrastructure Large financial commitment, less flexibility

Nuclear Fleet Strategies

This picture provides a simplified version of the framework for examining different approaches to nuclear fleets. A key insight is that there are significant nuclear fleet benefits that do not directly depend on the procurement approach.

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Nuclear Fleet Concept

French nuclear fleet build-out (MWe) 8,000 7,000 6,000

80,000 1958 - Framatome founded; obtains Westinghouse PWR license

5,000

70,000 1976 - Ten 900 MWe units and twenty 1,300 MWe units ordered

60,000 Four 1,500 MWe N4 units

1974 - OPEC oil crisis; Sixteen 900 MWe units ordered

4,000

40,000

3,000 2,000

50,000

30,000 1968 - Seven 900 MWe units ordered

20,000

1,000

10,000 0

19 5 19 8 60 19 6 19 2 64 19 6 19 6 68 19 7 19 0 72 19 7 19 4 76 19 7 19 8 80 19 8 19 2 8 19 4 86 19 8 19 8 9 19 0 92 19 9 19 4 9 19 6 98 20 0 20 0 02

0

Annual

Cumulative

Source: CRA analysis

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Nuclear Fleet Strategies

This is the capacity (in MWe) of new LWR nuclear plants that were placed into commercial operation in France from 1958 to 2002. It is focused on conventional LWR technology (for France, this is PWRs), so that the early gas-cooled reactor prototypes, the fast breeder reactors, and retirements are not included.

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Nuclear Fleet Concept

French nuclear fleet strategy • OPEC oil crisis was primary motivation for French government – EdF nuclear fleet strategy was the French national nuclear strategy – Resources of French government were committed to nuclear – French government influenced other sectors of the economy – French government controlled the electricity industry • France made a national investment in nuclear value chain - supported by bulk reactor purchases – Uranium mining, milling and processing – Uranium enrichment; starting with diffusion and moving to centrifuge – Fuel design and fabrication – Forging facilities for reactor pressure vessels and other forged components – Various components, systems and engineering for nuclear plants – Spent fuel reprocessing and MOX fuel fabrication • The French nuclear supply chain is now largely consolidated into Areva

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Nuclear Fleet Strategies

The French nuclear fleet was the result of a coordinated national government effort as France sought to end its dependence on imported energy after the OPEC oil shocks in the 1970s. EdF, the government-owned electric utility, made large single-design fleet purchases from government-owned nuclear vendors and constructors. A non-national utility, a commercial company, or even a smaller country might not be able to do this. This approach was so successful that the French national nuclear team also exported nuclear plants (e.g., Eskom in South Africa, Daya Bay in China, and Belgium). These export units expanded the French nuclear fleet, even though the actual units were owned by others and located outside France. The nuclear industry of France today is the result of earlier national investment in the nuclear industry, both in the nuclear power plant fleet and in the commercial and physical infrastructure and supply chain needed to build the nuclear fleet. Today, the French nuclear industry (through Areva) is seeking to gain additional fleet benefits by offering their own standard PWR design (the EPR, supported by the French nuclear industry supply chain) to other countries.

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Nuclear Fleet Concept

Nuclear fleet benefits Organization & Management A single organization with a unified approach and economies of scale to accomplish: • Training • Purchasing • Management • Engineering • Regulatory affairs

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Multiple Identical Units

Learning Curve Effects

• Training

Learning from:

• Simulator

• People involved in construction and operation of multiple units

• Operators and management • Refueling outage skills & equipment • New procedures & equipment modifications • Shared spare parts, special tools, and strategic spares

• Modification of the design or the construction approach and schedule • Documenting and sharing lessons learned • Vendors build in learning for later bids

Volume Orders Volume orders may allow upstream component suppliers to invest in longer production lines due to bulk procurement Volume orders may bring discounts from NPP vendors that reflect expected learning curve benefits and upstream component savings

Mobilize Teams Sequencing of construction is key Teams move from one project to the next without interruption (also may allow simultaneous work on multiple units) Teams could work on similar tasks for many units, allowing significant commitment to hiring & training

Industry & Employment French nuclear industrial development is model Investment in new production facilities Over time, such local suppliers should be able to use their experience (and their own learning curve benefits) to become competitive suppliers in the export market

Nuclear Fleet Strategies

This chart shows some of the benefits of a nuclear fleet. Many of these nuclear fleet benefits are available without the full French national fleet approach. One example are the US nuclear fleet operators. These companies have built or acquired nuclear fleets with units of differing designs and vintages, yet have achieved many nuclear fleet benefits by adopting Organization and Management approaches.

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Is the French approach feasible today? • Role of Government – French fleet based on Government sponsorship, investment, and control – Only China and Russia have a nuclear fleet strategy today – Smaller fleets in Japan and Korea have strong government involvement

• Few utilities could commit to nuclear bulk purchase today – High cost and high perceived risk – Few new nuclear plans involve bulk purchases

• Bulk reactor procurement has risks – Little buyer bargaining power after initial decisions – May be little competition for on-going costs (e.g., outage services)

• Hard to predict the winning world standard reactor design

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Nuclear Fleet Strategies

France built a successful fleet based on its own internal purchases. Today, only Russia and China are adopting the French nuclear fleet approach. Both countries have strong government control of the entire economy, similar to France in the 1970s and 1980s. Russia is more active in the export market, with China more focused on the internal fleet build and localization of imported reactor designs. Today, few countries with market economies could undertake the French nuclear fleet approach and it would be even more difficult for private utilities to take this approach. The French were also “lucky” in their choice of PWR technology. France had completed several smaller PWR plants and decided to scale up this design for its fleet. The PWR design has proven to be a good one, even if it is not the best reactor design in theory. In the world of real reactors, experience and learning mean a lot. While there may be some new reactor designs that promise to be better than the PWR design, these new designs remain theoretical and do not have the many decades of experience across hundreds of actual units that has refined the world PWR nuclear fleet.

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Global reactor design race 4

AP1000 VVER

2

EPR

2

10

6 2

3

4

4

ABWR

2

12

3

2

&

6

ESBWR APR1400

2

USAPWR

2

2

0

5

In operation COL filed (US)

10

Under construction Design selected

15

20

Under contract

Source: CRA analysis; Updated 15 October 2008 11

Nuclear Fleet Strategies

This chart shows global Generation III reactor plant development. There are several insights from this chart: 1. There are only a few new reactor plants in construction today, despite the “nuclear renaissance” 2. The relatively large number of competing designs seems to contradict the new industry “standard designs” approach – how many reactor designs is too many? 3. A lot of the new units on this chart are in the US, where no utility has financially committed to invest until an NRC license is issued (expected in about 2012); it is possible that some of these new US nuclear units will not be built.

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Very different ranking without US units 2

VVER

6

ABWR

4

AP1000

4 2

2

APR1400

2

2

In operation

NB: Given the recent separate competitive offerings by GE/Hitachi and Toshiba/NRG, the existing units might be divided into two groups

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EPR

0

10

5

10

Under construction

15

EPC contract

20

Design selected

Source: CRA analysis

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Nuclear Fleet Strategies

Outside the US, there are 6 Generation III units built and operating and 17 under construction. The two designs that are leading, the Russian VVER and the ABWR could be broken down into several categories by design detail and by vendor. The Russians offer several versions of the advanced VVER, the AES-91, AES-92 and AES-2006. The AWBR was built by several companies in Japan and there are two different versions offered in the market today (the GE-Hitachi version and the Toshiba version). Also, the 3 ABWR units under construction include the 2 Lungmen units in Taiwan that were started in 1997. Bottom line: Reactor buyers should think very carefully about the design and vendor that they select. The global fleet benefits might be significant if a popular design is selected, but there are no clear winners yet.

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Virtual global nuclear fleets • Multiple identical nuclear units, but different owners • Nuclear fleet benefits through: – Global vendor arrangements – Formal, member-only, users groups who share learning and investment in studies and special equipment – Vendors bring learning in early units to bids for later units – Public information about issues and problems

• Owners of units gain benefits by sharing: – – – –

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Construction and design issues for new units Safety, procedures, and equipment issues for operating units Special tools, strategic spares, other items Purchasing of services or other items

Nuclear Fleet Strategies

The move to a global standard design approach is an attempt to capture some of the nuclear fleet benefits that were created in the French nuclear fleet build (e.g., large orders, long production lines for component manufacturing, etc). Unlike the French nuclear fleet approach, the market today consists of multiple buyers in multiple countries. Owners and vendors seek to gain some of the benefits that a single large fleet purchase would bring – these benefits will come from a combination of the design selected, the timing and location of a new plant, and the negotiated contracts associated with the purchase. The virtual global nuclear fleet approach will not be easy. Different electrical frequency standards mean that each design will have a 50 Hz and a 60 Hz variant (this means different turbines, generators, pumps, electronics, and even reactor safety systems). Some countries use metric measurement and some do not. A standard design must either have a metric and a non-metric variant or a single design with converted measurements (i.e., if metric was the original design standard, the non-metric measurements will be in fractions).

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Virtual global nuclear fleets - issues • How will early adopters/buyers of new designs get benefits from learning that will accrue to later buyers? • Which designs/vendors will win & stay in the game? • How many world units are needed to get fleet benefits? • Will formal owner/user groups (e.g., APOG in US) raise competition issues? • Fleet benefits and competition in conflict – Fewer designs/vendors – larger world fleets and more fleet benefits – More design/vendor competition – more competitive prices – Vendor business models may or may not support virtual fleets

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Nuclear Fleet Strategies

The global virtual nuclear fleet concept is not well developed yet. Reactor buyers may not fully realize their own options with respect to a larger fleet where decisions by other buyers are important. Vendor actions are being driven, in part, by attempts to gain nuclear fleet benefits for themselves. Clearer thinking about the virtual global nuclear fleet concept can lead to a stronger industry and more gains for all participants. Each buyer of a new nuclear power plant must select a reactor design; this reactor design selection means that the buyer is a part of a virtual global nuclear fleet. The buyer must look beyond its own requirements and examine the benefits and costs associated with membership in the global nuclear fleet (big or small) that is associated with each reactor design.

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Edward Kee Vice President CRA International 1201 F Street, NW Washington, DC 20004 (202) 662-3953 [email protected]

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Nuclear Fleet Strategies

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