For illustration of cost risks in nuclear new build (podcast: Capital costs impede new nuclear plant construction), look no further than the painful on-going experience at Olkiluoto. As everyone in European power knows, TVO's 1,600-MW Olkiluoto-3 EPR nuclear power plant in Finland is two years behind schedule and well over budget.

And the project is now entering a more complex phase of construction. As Finnish nuclear official Petteri Tiippana told Platts May 15, management and design problems affecting the quality of work over the last two years remain "points of concern, and may still have an effect on the focus of work, especially now that the installation phase is about to begin."

Tiippana, who is responsible for regulatory oversight of Olkiluoto-3 at Finland's nuclear inspectorate STUK, said new subcontractors would soon be arriving on site, "again posing the challenge to [lead contractor] Areva's team to adequately manage these teams so they follow the rules and principles of good working on a nuclear construction site."

Tiippana said work is about to start installing components, piping systems, pumps, valves, heat exchangers and electromechanical equipment at the world's first European Pressurized water Reactor, being built by Areva and Siemens. This would involve new subcontractors coming on site, and Areva, TVO and the regulator "all agree that it remains a challenge to learn the lessons [of past mistakes] for future activities," Tiippana said.

He was referring to problems detailed in STUK's 2007 annual nuclear safety report, which appeared on the inspectorate's website May 12. Defects in welding at Olkiluoto 3 last year forced repairs to a steel liner assembled during the summer.

STUK said the diameters of the cylinders welded together were slightly different; that welding conditions changed during work; and that welders had made mistakes.

The report said that audits of manufacturers and suppliers showed that some subcontractors had not taken nuclear safety requirements into account in their work.

The report also noted that time pressure in assembling components caused the manufacturer and supplier in a few cases to set a date for inspection so early that the pre-requirements for inspection were not met, and inspections had to be rescheduled. Further, the manufacture of diesel generators was begun before approval of design.

"It is a challenge in this type of project when the design is done at the same time as construction of structures and components," Tiippana said. "The design is iterative, you design the process systems and later you do the electrical and I&C design. One has to make sure these different technical systems match each other. Sometimes we see documentation, for example in the I&C area, in which the information does not correspond between I&C and process system design. It's difficult for us to review and process these documents if we don't know which ones are correct."

Platts asked Tiippana whether lessons were being learned for EPR installations outside of Finland. "I genuinely hope so. And I believe they are. We are trying to make everything as open as possible between regulators and utilities, that we share these experiences so that everybody does not have to face similar problems. These are generic issues now, and many vendors would have faced similar problems because of the time gap between the previous construction and new build now."

Costs pose a threat to all projects

It is vital that Europe learns from Olkiluoto 3 because delay adds cost, and costs are rising sharply enough themselves. Nobody knows or is saying how far O-3 will overshoot its original €3-3.2 billion budget, but Areva and Siemens have been making undisclosed provisions, and financial observers say they would not be surprised by a 50% overspend.
The longer lead time and higher engineering standards required for nuclear construction make it more vulnerable to the new volatility, hence the current appeal for gas-fired capacity.

Beyond the special challenges of a first of a kind nuclear project, large infrastructure projects are facing the global hike in raw material costs, a shortage in skilled engineering resource, and growing uncertainty on delivery dates because of bottlenecks in the supply of certain components.

Two European utility chiefs warned in April this year that a nuclear revival could be slowed or even halted if the current supply chain crunch ends up pricing nuclear out of the market.

Gerd Jaeger, a member of the executive board of RWE Power, said vendors must "de-bottleneck the bottlenecks" at the front end of the nuclear power plant supply chain. Because of a shortage of manufacturing capacity for large forgings, vendors are asking potential customers to commit far in advance of concrete reactor projects.

Meanwhile Sandor Liive, CEO of Eesti Energia, the Estonian state-owned utility, said his company is considering several options for nuclear power because "nuclear is an option that any energy company that wants to be competitive in the future has to consider."

Among the options are construction, with Latvia, Lithuania and (perhaps) Poland, of a new plant at Ignalina, participation in a new reactor in Finland, and construction of a domestic nuclear plant.

Liive said Eesti Energia was "thinking about nuclear" only because the cost of domestic power production from oil shale was rising above the projected cost of nuclear power from new plants, at around €45/MWh.

At that level, which implied a capital cost (see table: Platts' capital cost assessment -- snapshot, January 2008) of €2 million a megawatt, new nuclear was attractive, he said. "But if it were €3 million per MW and €65-70/MWh, there's no point" in investing in a new nuclear plant, "at least from Eesti Energia's viewpoint."

Of course these equipment cost hikes are affecting all projects -- CCGTs, coal, wind, not just nuclear. But the longer lead time and higher engineering standards required for nuclear construction make it more vulnerable to the new volatility, hence the current appeal for gas-fired capacity.

RWE's Jaeger told Platts Nucleonics Week that nuclear power plant vendors are asking utilities to put down "hundreds of millions of euros" to reserve large forgings needed for the nuclear steam supply systems of modern reactors. It was "prohibitive for an investor" to commit such sums "at a very early stage of a project," when they did not know if the project would proceed.

Jaeger said that even in countries where new nuclear plants were on the agenda, "it's rather difficult to convince all the decision-makers" who need to act before a plant can be ordered and construction started.

He cited the need for public debate, time needed for regulatory approvals, and "the political environment" as uncertainties in a nuclear plant project schedule. Jaeger said "innovative approaches" were needed to finance new nuclear projects, in which risk is shared equitably among all parties.