Procurement trends and challenges: nuclear contracts to face greater scrutiny

As more nuclear power plants are being planned and proposed, at the behest of governments looking to ensure that there is competitively priced carbon free energy available, the contractual process of building a nuclear plant is certain to face more scrutiny

The experience gained in of completing nuclear projects over time should help each successive round of new builds.

By Peter Taberner

Every nation who sanctions more nuclear plants, will have to put into place their own set of rules and regulations to govern how the complexities of building a nuclear plant is managed, and decide what the needs of the customers are.

Take the UK, for example, which is looking to expand its nuclear fleet with 11 new reactors in the pipeline, which is estimated to provide 15,600 Mwe of increased energy capacity. Approval has now been granted from the European Union for the Hinkley C nuclear plant, due to be built in Somerset, in the south west of the country.

The plant will be operated by an EDF led consortium, which has invited Chinese investment, and EDF’s subsidiary company NNB GenCo intends to build the plant.

Procurement trends and challenges

According to a presentation for the IAEA by Peter Breen, nuclear director of Faithful and Gould, entitled UK New Build NPP in the UK: Procurement Trends, Challenges, EDF intends to self-perform the role of architect engineer & construction manager, with support from their partners.

Procurement contracts are a work in progress with nuclear systems, turbine, civil and marine works, marine works, earthworks, and with mechanical, electrical erection and site enabling contracts.

Areva also has a 10% stake in the project, and has agreed to supply two EPR units Nuclear Steam Supply Systems (NSSS), safety Instrumentation, and Control Systems alongside fuel supply for the plant.

“One of the challenges is that in some countries there is a lack of long term visibility over their energy policies, as governments can change every 4 to 5 years, and sometimes with them their countries’ energy policies, depending on the orientation of the political party heading the state,” an Areva spokesperson says on the nuclear contract process.

“It is therefore difficult for utilities and investors under such conditions to make long term asset development plans especially regarding new nuclear builds, as we talk about plants that will produce decarbonised electricity for at least 60 years.”

“In that respect, we can take the UK as an example of [a] country, which in order to precisely overcome this hurdle, implemented a long term energy policy along with the reform of the electricity market retaining cross-party alignment, so utilities and investors can develop investment and new build plans, in a stabilised and secure political, legal and financial environment.”

The spokesperson continues: “Since the start of the energy policy evolution, UK Government changed from the Labours to a Conservative/ Liberal Democrat Coalition, and yet the policy orientations remain the same.”

Across the Atlantic in the United States, they are at a more advanced stage in the constructions and contracts process, as there are three new plants which are currently being built.

The National Regulatory Commission (NRC) is reviewing eight more sites, with the potential for 12 more nuclear units to be completed.

Stan Blanton is chair of the Balch & Bingham Nuclear Energy Practice, which has been involved in the construction of the Vogtle unit 3&4 plants in Georgia. He explains his view of the contractual process.

“Construction of a nuclear power plant contract is obviously very complex. There are multiple parties involved, some of whom are not parties to the construction contract.

“They include the NRC, and in some cases the Department of Energy and state regulators, add to that the amount of time it takes to license and build the plant, and the sheer size of the investment.

“Trying to anticipate all of the issues that can arise during the life of the project is very challenging, especially given that there has not been this type of project in the United States in 30 years, and that all of the new builds will be new designs using a relatively untested licensing process.

“It’s very important to clearly define the allocation of risk, the scope of each party’s responsibilities under the contract, exactly what it is that is being sold, and the necessity of compliance with the licensing basis and regulatory requirements.”

He adds: “ A lot can change in the general economic climate and in one or more of the party’s businesses during the course of the project. You have to try to account for that.”

The Areva spokesperson says that usually an international aspect of a nuclear plant, due to the imports of several components.

“It’s another issue of how to allocate risk, if you consider areas such as transportation of components and compliance with NRC requirements by foreign suppliers.”

The experience gained in of completing nuclear projects over time should help each successive round of new builds. Better understanding of contractual issues will be part of the learning curve, and will go hand in hand with the benefits of experience gained in the design and construction process.

The industry will be aiming to achieve that old age concept, practice makes perfect.

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