Wednesday, December 1, 2010

Passing the starting line: nuclear construction risk -- Ernst & Young

This report from Ernst and Young finds that there is a growing momentum for investment in nuclear power, with 65 reactors1 under construction in 15 countries, a further 120 being actively pursued and many existing reactors being refurbished.

These major capital projects come with a multibillion-dollar price tag and a correspondingly high level of risk. To attract investment and earn a good rate of return, the nuclear industry needs to demonstrate that it can deliver these projects on time and on budget. Unfortunately, its track record in previous phases of investment has been weak. Should a significant number of these new projects fail, the entire industry could be penalized with higher financing costs and fewer investors.

The key is to focus on areas that matter the most, and to build in flexibility from the onset; for example:
• The regulatory environment: this represents one of the greatest risks to prospective nuclear new build, as changes can have a large impact on the viability of projects. We look at the importance of modeling the various contingencies that have to be built in from the start.
• Lack of planning: the classic mistake in the nuclear industry is to skimp on planning and rush into construction, but it’s in the early phases that project owners have the greatest chance to influence the project’s success.
• Operational experience: many utilities do not have the organizational expertise to deliver major capital programs due to the lack of recent experience with large-scale construction projects. Bringing in the right expertise to manage these projects is essential.

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