mzconsultinginc.com

Tackling market reform to enable nuclear projects – The UK moves forward!

March 5th, 2011

The UK is unique in its approach to the nuclear renaissance. Once the cradle of the nuclear industry, with some of the world’s oldest plants and research centres, the UK has mostly dismantled its nuclear industry in recent years. From privatizing British Energy to selling off Westinghouse and dismantling BNFL, it is fair to say that the industry has been through the ringer. Yet, all of this restructuring has been in a context of encouraging the next round of nuclear new build to replace the current rapidly aging nuclear fleet, and meet both carbon reduction and security of supply targets over the next 40 years.

The thrust of the industry restructuring has been to get government out of the way and encourage private sector leadership for the next round of nuclear new build. This is totally consistent with UK policies on electricity generation. The UK was one of the first countries in the world to privatize electricity supply and today has a vigorous and effective private sector electricity generation infrastructure.

The path to new build nuclear has not been a fast one. Numerous consultations since 2003 have slowly moved the issue forward. The last one set in motion the Generic Design Assessment process with the regulator and the government’s move to simplify and improve the planning process. But one thing has been a constant throughout. Government has stated that it will move out of the way, and that it will be up to the private sector to implement nuclear new build. Definitely a challenge, but the evidence to date is positive as the success of the site auctions shows.

But now, the most important piece of the puzzle has been launched. In November of last year, government initiated a consultation on electricity market reform. This consultation is due to close in early March. It is this topic that I want to discuss today.

First of all, there is a very important statement in the consultation – it makes it clear that the current market structure is based, and was developed, to suit gas fired generation. To quote “the high capital costs and low operating cost of low-carbon generation are not well suited to the UK market where gas is the marginal plant. This is because gas is generally the price setting plant and can pass through any changes in gas or carbon prices to the electricity price. Therefore electricity and gas prices (and hence revenues and costs) tend to move together. By contrast low-carbon generators are price takers and are more exposed to gas or carbon price volatility.” High capital cost, low operating cost nuclear plants are at a considerable disadvantage in this type of market.

The objectives of government are: security of supply, decarbonisation and affordability. Meeting these objectives the four broad principles of cost effectiveness, durability and flexibility, practicality and coherence will be used to judge the effectiveness of different market design options.

The four elements of change under consideration in this consultation are:

– Carbon price support where the price of carbon is maintained to provide more incentive to low carbon options

– Feed in tariffs to guarantee revenues to specific generation types to provide the certainty necessary to support the project financing

– Capacity payments to ensure that adequate capacity is built to ensure security of supply

– Emissions performance standards which simply prohibits plants from emitting more than a maximum amount of carbon.

It is generally the first two items that we will discuss here as these are the ones that help to support nuclear power plants. First and simple to understand is the concept of a minimum carbon price. This provides an institutionalized economic advantage to low carbon generating options such as nuclear power.

Levelised Cost of Generation Technologies (UK Consultation)

The bigger issue for nuclear is the potential use of Feed In Tariffs to provide market support to nuclear. While often used around the world for renewable projects, this is the first time a market is suggesting that feed in tariffs be used for large projects such as nuclear plants. Feed in tariffs are used to support renewables primarily because these plants are not sufficiently economic to compete in the market thus requiring subsidy in the form of tariffs that are usually significantly higher than the market price. This is not the case for nuclear. As shown in the figure above, nuclear plants are indeed competitive with the alternatives. It is their risk profile that is the issue. So the real question becomes – will a feed in tariff be sufficient to incentivize new build nuclear plants?

To answer this question, we must first discuss the nature of nuclear projects. They are different than renewable projects in that they not only have relatively high capital costs, but they also have very long project schedules – and this is the difference that matters. Why? Because taking 10 to 15 years from planning to in-service offers up a very different risk profile than a wind project that takes two years to build. This is why it is difficult to enter the market. The timetable is just too long and the price of electricity so many years in the future is too uncertain. So the question becomes – can a nuclear generator adequately predict the electricity price he needs to be profitable so far in advance? And then will a fixed tariff be the right solution?

Another way to look at it is to consider the risk I like to call “completion risk”. This is the overall risk of bringing in the plant on time and on budget. A nuclear project can only proceed when there is a willing party to take on this risk. So while price certainty helps, it does not do much good if the project is late and over budget. This means the owner can lose substantial money if the plant is late and/or over budget – or in the extreme to lose the entire investment in the case where the plant is never completed. This is the best way to gain understanding into this issue. Having certainty for the price of electricity does no good if electricity is never produced. This is why a power purchase agreement or a feed in tariff is not sufficient to raise financing on a non recourse project basis. Someone must take the completion risk.

In the US, this issue is clearly understood. This is why they have turned to a loan guarantee as the mechanism for project support. This works as it protects the owner from project failure limiting his risk to the equity in the project (usually around 20% in this case). This does not eliminate the completion risk but it mitigates it sufficiently to encourage new build projects to proceed. I am not commenting on whether or not an owner should be protected as this is a matter of policy; but what is clear is that no company will risk bankruptcy over a single project.

Does this mean that a feed in tariff should not be part of the solution? Not at all. It can be an important part of a package that helps to reduce the risk of a large nuclear project. In this case the UK is recommending a “contract for difference” model where the nuclear plant operates in the market and collects a difference if there is a shortfall from its agreed tariff and reimburses most of the overage if the market price exceeds the agreed tariff. Now indeed this is a complex model and gives the illusion of operating in the market when in fact, the opposite is true. What is actually being done is a continuous comparison to the market to illustrate how well the pre-agreed price compares with the market price.

In the case of project delay or overruns, the owner can lose substantial amounts of money, even if the market price of the day has risen significantly compared to what was anticipated as the electricity price will be limited to the pre-agreed tariff. I would suggest some flexibility to allow the operator to enjoy a larger portion of the upside in this case to recoup his losses.

The other big issue with all of this is that the market soon ceases to be real as more and more of the operating plants operate outside of it as the system is decarbonized. Do we really want a market and then have, say 80%, of the plant operate at pre-agreed prices ? In this case, how can the market price really reflect the system?

As you can see there are many issues when devising a way to modify the markets to meet these needs and there is lots of work to be done to get to the right answer. But what is important here is the clear understanding that current market design is suitable for gas but not necessarily for other sources of generation, primarily those with high capital costs and longer project schedules even though they’re economically competitive. It is great to see this important discussion on market redesign begin.

Posted in Climate Change, Economics, General, Nuclear New Build, Renewables, Risk | Comments Off

Thank you Dad – The world is a better place with you having touched it.

February 23rd, 2011

On February 22, 2011, my dad, the Big Bear – Bernie Caplan peacefully passed away.

It is with great sadness that I write today. I have lost the man who taught me how to be me; how to live with the utmost integrity, to love my family with all my heart and follow my dreams with passion.

Bernie "Big Bear" Caplan (1935 - 2011)

My dad was a humble man, who believed in hard work and doing everything he can to support his family. He was a proud father and even prouder grandfather. Sitting with him last week when he could no longer speak it was the sight of his granddaughters that brought a huge smile to his face. He taught us all to love your family and support them always allowing them to find their own way – and their own dreams for the future. His heart was as big as a heart could be. And what he wanted in return was for us to pay it forward; i.e. treat our families the way he treated us. He loved family most of all; and he treated everyone he met as family!

I talked to him frequently. He was a great source of advice on all topics, and his unwavering support gave me the self confidence to persevere. I never understood my friends who did not get along with their parents. Over the years, my dad allowed me to grow and have my own independent thoughts and opinions. Although we disagreed on many things, some of them of great substance, I don’t ever remember either of us being angry with the other. When necessary we would respect each other’s opinion and just agree to disagree.

His positive outlook was contagious. Even though he had many challenges in life, he never complained, worked hard and woke up smiling each and every day. He personifies the fact that happiness is a choice and he chose to be happy in life.

I know this blog is my place to write about my thoughts on the nuclear industry – but today I write not for the benefit of the reader, but for my benefit. I write because I can no longer pick up the phone to seek advice or just say hi to my most trusted advisor, to the man whose voice always brings a smile to my face and whose love and support is absolute. Dad, I love you and will miss you dearly. But one thing is for sure. You will never be forgotten.

Posted in General | 1 Comment »

Happy New Year 2011!

January 10th, 2011

Looking back at my blog from last January, I can probably start the same way – “Where did the time go?” 2010 has been a very busy year with a huge amount of activity in the nuclear sector around the world. I am certain that we can expect an even more active year in 2011.

This year the industry movement from west to east has continued. Last year the success of the Koreans in the export market was the newsmaker – in 2010 it was all about China. China continued to expand its nuclear program increasing its target for 2020 to about 80 GW from the previous 40 GW. The first of its updated CPR 1000s came into service at Ling Ao 2 and there are now 13 nuclear units in operation (2 more than this time last year) and 27 units under construction (9 more units than at this time last year). And there is no sign of this program slowing down! In fact, it is continuing to accelerate with a target of bringing 10 units a year into operation from 2020 to 2030.

Of more importance, China has now expressed its intentions to start exporting nuclear plants by 2013. Work is currently under way to upgrade the CPR 1000 design to meet Generation III requirements. After having visited Daya Bay it is easy to see how this can become a successful export product for China. There has also been important progress in the first Asian nuclear export. The UAE announced that there has been progress on their project as the Koreans have now prepared and submitted the license application to the regulator for the first APR 1400 units to be build outside of Korea.

There is no better measure of the growth and breadth of the Asian nuclear programs than looking at progress with nuclear plant costs. Reports are that the cost of new plants continues to decrease while costs are increasing in the west. This is a direct result of the continuing strong commitment to new units and the large amount of experience being gained with each project.

Although things are moving more slowing in the west there has been some important progress. In the US, Southern Company has been granted its loan guarantee for the Vogtle Plant. On the other hand, issues with guarantee fees have caused Constellation to give up on its merchant plant at Calvert Cliffs. EDF is now looking to move forward without them. There has also been little progress in increasing the amount of loan guarantees available to the industry as a whole n the US. We expect to see good progress this year for the projects in both Georgia and South Carolina. The US is also putting significant effort into small reactors. There are a number of designs under development as the industry searches for a way to make nuclear power both more affordable and more attractive to a broader range of utilities.

In the UK, the Generic Design Assessment process has been progressing well. Similar to the US, the issues going forward with new build projects are related to the sharing of risk. Late in the year there was a significant breakthrough as the UK government embarked upon a consultation to make changes to the UK electricity market to make it easier for both nuclear and renewable projects to proceed as part of the UK’s carbon reduction policy. This consultation has a number of approaches to encourage large capital projects, the most important being the possibility of having a feed in tariff that applies to nuclear power plants. The consultation will close in March and I will likely write about this in more detail sometime soon.

In Canada, the year started with a number of issues related to nuclear refurbishments, radioisotope production and the future of AECL. However, later in the year, the refurbishment projects turned the corner as the Wolsong Unit in Korea was the first to complete its fuel channel installation and is expected to be back in service later this year. This has benefited the Point Lepreau refurbishment project where the issues facing the project have now been resolved. There has also been good progress at Bruce as the Unit 1 & 2 Restart project is nearing completion this year.

Of great importance, the middle of the year saw the NRU reactor go back into operation resuming the much needed production of medical isotopes after an extended outage and major repairs.

But the big issue in Canada remains the privatization of AECL. Originally expected to be completed within 2010 it is now expected that an announcement is imminent. Frankly it cannot come too soon for the Canadian industry.

And finally, the role of nuclear in reducing carbon has been accepted internationally. The IEA, in its 2010 World Energy Outlook (WEO), see an important role for nuclear. And of more importance, mid year they published the “Nuclear Roadmap” showing the potential role that nuclear can really play in achieving global carbon reduction objectives. This scenario has nuclear increasing from its current 14% of global production to about 24% by 2050 and has a scenario going all the way to 38%.

Definitely it was another busy year for the nuclear industry. And it looks like things are only going to continue in 2011. More growth in Asia is a given. Breakthroughs in the US and UK are likely and big decisions are coming for the Canadian industry. And I have not even mentioned the numerous other countries that are now studying and moving forward with plans to consider new nuclear plants.

So Happy New Year to all and lets get ready for an exciting 2011.

Posted in China, Climate Change, Economics, General, Nuclear New Build, Risk | Comments Off

East vs. West – US nuclear plant costs increase while Chinese costs drop

December 12th, 2010

For some time we have seen the nuclear industry moving from west to east. The nuclear renaissance is somewhat stalled in the west, while new build nuclear in the east, led by China, continues to accelerate to extraordinary levels. There are numerous reasons for this shift from west to east. New information released late last month on the cost of new build nuclear provides some very interesting insights. First, the US Energy Information Administration (EIA) issued a report “Updated Capital Cost Estimates for Electricity Generation Plants“. This is a new study on the cost of generating options to be used as inputs for their upcoming Annual Energy Outlook (AEO) 2011. At about the same time, at the WNA China International Nuclear Symposium, the Chinese discussed the current costs of nuclear power in China.

What makes these almost simultaneous announcements interesting is the extent to which the costs in the two countries are diverging. The US cost estimate for new nuclear is being revised upwards by close to 40% from 2010 to a value of $5,339/kW by the EIA, while China is stating that it expects its costs for plants under construction to come in at less than $2,000/kW and that subsequent units should be in the range of $1,600/kW [Ref: Nucleonics Week, Dec 2, 2010]. And to facilitate the comparison, both estimates are for the AP1000 design. This would mean that an AP1000 in the US will cost about 3 times more than the same plant built in China. Of course it’s easy to look at the different labour rates in the two countries expecting this is the simple explanation. But there is more to it, so let’s examine these numbers in a bit more detail.

Starting with the US, the new EIA report is showing significantly increased costs for nuclear, from its previous assumption of $3,902 for the 2010 AEO to $5,339/kW for 2011, an increase of 37%. This is in contrast to coal which also increases but only by 25% followed by gas that actually shows a 3% decrease in cost. Renewables also fare better in that solar drops by 25% while onshore wind increases by about 21%. The only option to increase faster than nuclear is offshore wind at 49% while the increase in coal with CCS is about the same as nuclear. It is not clear what the EIA will assume for future units. In their 2010 AEO, they assumed that the cost of nuclear would drop with time and experience. In fact they assumed that by 2030 the cost of nuclear would drop by almost 30% in constant dollars.

This large increase in 2011 is a continuation of the recent trend. In June of 2009, MIT issued its update to its study, The Future of Nuclear Power and they reported nuclear costs doubling since their first study in 2003. Again, all other forms of generation also increased in cost, but nuclear increased the most. So what we have is the estimated cost of nuclear in the US is increasing even though no new nuclear plants have been built. So why is this happening?

One statement in the new EIA report gives us important clues. The report says one reason for the larger increases for nuclear and advanced coal is “the fact that there are relatively few construction firms with the ability to complete complex engineering projects such as a new nuclear plant or advanced coal power plant.“ In essence this is related to recent experience in Europe with first of a kind (FOAK) nuclear plants where both costs and schedules have been exceeded. This has been attributed to the long period of stagnation in the industry and the need to rebuild the supply chain. Issues with the FOAK projects have clearly demonstrated the risks associated with new build nuclear and there has yet to be enough new projects in the west to demonstrate that lessons are being learned and future costs will once again drop although this is what is expected. Concerns about being too optimistic in projecting new build nuclear costs are leading to a continuous increase as estimators focus on risk but have no new recent project data. Utilities are quite rightly concerned about projecting costs that are too low, but are we now erring in being too conservative?

Now let’s contrast this to what is happening in the east. China now has 12 units in operation and 25 units under construction. If you read my blog you will see that I visited Daya Bay in October and what I saw makes the east-west comparison very clear. What they have is a vigourous growing program implementing all the things we have all been talking about for years in the west. They have standardized designs and are building numerous units. This greatly reduces the risk and the costs. A growing local content also allows the lower labour costs in China to flow through to all aspects of the project, from project management, to engineering, equipment manufacture and finally the construction labour. But most of all, what they are building in China is confidence – confidence that they know what they are doing and that they can deliver – and with a huge number of young energetic people who are gaining invaluable experience on real projects over a long period of time. Is this sustainable? Only time will tell as they are now facing the other side of the issue; how to continue to increase the number of knowledgeable people in the industry to meet the needs of this enormous program. Of course, this is a much better problem to have than to have too little work and be trying to figure out how to replace an ever-aging work force. This can be compared to the nuclear industry in the west 40 years ago, except this new crop of young people have the last 40 years of industry experience to accelerate their learning. In stark contrast to the east, at a recent panel discussion, Duncan Hawthorne, CEO of Bruce Power noted he’d been impressed with some welding work at the Bruce and asked to speak to the tradesmen who had done it. “The senior man was 70 years of age, and his apprentice was 64,” Hawthorne said [Ref: Toronto Star, "Nuclear refit a huge task..., Dec 10, 2010].

Earlier this year, we at MZConsulting did a study on new nuclear costs. The results of a global survey on costs are summarized in the chart below.

Costs of Nuclear Plants by Region

This was based on information available earlier this year including a number of projects around the world. What is interesting from this newer information from the US and China is that these already differing costs are continuing to diverge. The costs in the USA are increasing to over $5,000/kW while the costs in China are decreasing to below $2,000/kW.

So what does this all mean? Going back to my original comment that there is more to it than simple differences in labour costs, we can now see that an important difference is CONFIDENCE! The booming Chinese program is seeing what we would expect – major improvements due to learning by doing and series production of standardized designs. In the US, we see the opposite as costs continue to rise in an environment where securing commitments for new projects is moving very slowly. It is interesting to note that watching the US political talk show “Meet the Press” this morning, New York Mayor Michael Bloomberg made a strong argument to support the fact that what is needed most to re-invigorate the US economy is confidence – so that the fires of US innovation can once again be stoked.

So what should we (the industry) be doing? Well, in fact, contrary to the statement in the EIA report, there are engineering firms in the US with the ability to do these projects and they are gaining experience in building in the most dynamic market in the world, China. The question then becomes, are we in the west ready to learn from the Asians? We need to do what they have been doing for years but in reverse. We need to take advantage of their experience – use their supply chain and make use of their experts to the maximum extent possible. If we do, the price of nuclear power in the west will start to drop and continue to improve. If we don’t, then we face the prospect of having to pay the price of relearning the lessons that have already been learned elsewhere.

Bottom line. Nuclear power continues to be an economic option for electricity generation. Now it is up to the industry in the west to ensure that lessons learned in Asia are applied quickly enough to ensure the competitiveness of planned projects and get the nuclear renaissance in the west back on track.

Note: There is a lot more to be said on this issue. I did not discuss the Koreans and their successes in the industry. They have started to export nuclear power based on the same principle that they export other products; excellent product at a very good price. We can also talk about how to better integrate and make use of Asian expertise. Clearly a study looking at the different costs in both jurisdictions and gaining a detailed understanding of these differences would be of tremendous value as would recommendations on how to work together to take the best of both worlds to our mutual benefit. But of course, this blog is intended to start a discussion, not replace the need for more detailed analysis and study.

Posted in China, Economics, General, Nuclear New Build, Risk | Comments Off

I love my Kobo eReader – Part 1

November 22nd, 2010

This year I have traveled more than usual. Seems as if I have been in the air more than on the ground! And all long flights too. Traveled to Europe, Asia and South America. One of the best things to do on long flights is read - so this year I have read a lot!

I have been captivated by the concept of eReaders for some time now. I have been following their development and continuing to weigh the idea of reading electronically rather than a physical book. Now if you travel long distances, you know that carrying books to read for the whole trip can be quite heavy – so about two months ago I finally conceded and bought myself a Kobo eReader. I chose the Kobo because it was low cost and simple. And I find that Kobo has an excellent bookstore with a large selection of eBooks. I have friends with the Kindle and they love it as well. My issue with Amazon was more philosophical. They arguably build the best device, offer the best service and prices – yet they still feel the need to use a unique file type to ensure that you buy all your books at Amazon. Seems like unnecessary overkill so I chose the public “epub” format instead. Kobo’s strategy of being device independent is a good one and I support it.

Since buying my Kobo, I have read more than when I was reading from paper. I love the light weight of the device and the e-ink is easy on the eyes. I bought a small reading light to use with it when necessary and I am convinced that this is better than a back lit screen.

So why am I writing about this now? I want to provide feedback to Kobo on their device and their eBook service. As can be seen from the title, I am writing this in two parts. For this part, I want to focus my thoughts on the existing device and software accepting that there are limitations to this simple ereader. For part 2, I want to provide Kobo with constructive feedback on how to make the service better for the future.

So to start, let me say that I LOVE MY KOBO! I enjoy the reading experience and will likely never go back to paper books as my main form of reading. (Note: I also like the aspect that buying eBooks is much kinder to the environment). But there are issues and I see from the forums that some of these issues are systematic and not being adequately addressed.

First of all, the Kobo software is just plain simply inadequate. Every time I sync my reader I lose some of my book marks. Many times the syncing fails and when it is sorted out, all books look as though they are new. The time to sync is ridiculously long as each book is updated every time you sync. It takes a long time and I only have 14 books on it at the moment. Can’t imagine what it must be like if I were to have say, 100 or more books. It is also almost impossible to close a book after reading. The only way to get a book off the “I’m reading” list is to finish it – meaning you have to go the last page and page forward. The problem is that each time you sync, there is a better than average chance that the book will be re-opened to a previous spot or added as new. This is very frustrating. So I choose to not sync often – but when I buy a book, I have no choice and more often than not, there is a problem.

A simple solution would be to add a “Close Book” command in the menu. Solved! There is really no reason in this day and age for such substandard software. I see a lot of frustration on the Kobo forum with many customers throwing their hands up in defeat.

When you go on line and buy a book, you press “buy book now”. You then must complete a transaction for each and every book that you want. There is no shopping cart so for example, last week I bought 3 books and had to make 3 transactions. Again, it is easy to add shopping cart functionality. Not sure why it is not there.

So in summary the Kobo is a great device. Light weight – good reading – poor software. In Part 2, I would like to offer suggestions on how to improve the software in the future to make it more useful for the reader. It is clear to me that eReading is still in its infancy and the capabilities will continue to dramatically improve. I can imagine that eReading provides flexibility and options not imagined with a paper book. For this, I would like your input. So please add a comment to this blog with your ideas on what you would like to see in future software upgrades to the Kobo.

And finally a small poll. Please let me know with a simple click if you are satisfied with your Kobo or if the current syncing issues are driving you to buy a different device. Multiple answers are acceptable. I hope this will help the good people at Kobo listen and continue to improve their products.

Posted in Books, Ereader, General, Kobo | Comments Off

China and Nuclear – my visit to Daya Bay Nuclear Power Plant

October 16th, 2010

As stated in my previous post, I was in Hong Kong recently. This gave me an opportunity to visit the Daya Bay Nuclear Power Plant. This is not my first time visiting a nuclear power plant in China. I have visited Qinshan many times, and in fact have been involved in work for the Qinhsan CANDU units (after all I am Canadian). However this visit to Daya Bay gave me a new perspective on the Chinese nuclear program.

Most people are aware that nuclear power in China is booming. With 12 units in operation (about 10 GW), there are now 25 units under construction. The original target of reaching 40 GW by 2020 has long been abandoned with the more recent 60GW target now also being a thing of the past. Looks like China may achieve as much as 75 to 80 GW by 2020 and a whopping 140 GW by 2030. With more than 160 cities having more than 5 million in population it is easy to see the need.

Even though it is easy to be in awe of this program, we also need to understand that even with this growth, nuclear will only increase from its current 2% share of electricity generation to about 5% during this timeframe. Coal continues to be king with about one new coal plant being commissioned every week! China is adding about 100 GW of generation, primarily coal, to the grid every year! (Nearly Canada’s total installed supply, every year!!)

Ling Ao 2

Daya Bay was China’s first nuclear plant and is a joint venture between the China Guangdong Nuclear Power Company (CGNPC) and China Light and Power (CLP) who import much of the power to Hong Kong. The site actually has three two unit stations, Daya Bay, Ling Ao 1 and Ling Ao 2. Daya Bay has been in service for 15 years while the first unit of Ling Ao 2 was declared in commercial operation earlier this year with the last unit going into service next year.

All 6 units are based on the Areva 900 MW design. Localization has continued to increase and is getting close to 85% for future units. This design is now the backbone of the Chinese program and is known as the CPR-1000. There are currently 20 of them under construction!

While the nuclear side of the plant remains the same, the design has not stood still. The newest units have a higher output due to an improved Turbine Generator and secondary systems as well as having an up to date digital control system. Clearly the Chinese are doing what we all know, or should, is the right approach to a successful program – large scale standardization and series production. The result is a robust design that can evolve with time with projects having relatively low risk and even lower cost.

I am not suggesting that any one design is better than any other, but rather the fact that the standardization program is paying off in significant benefits. The training program at Daya Bay (1000 new recruits per year) which supports the entire CPR-1000 program is testimony to the merits of such a standardization program. I am sure China will achieve the same with their domestic AP-1000 program (based on Westinghouse technology).

Reading this past week that South Africa is now changing its views on proceeding with its own revitalized program by considering plants supplied form either Korea or China to reduce cost is telling. The industry is changing. Most of the world’s new build is in Asia and the benefits of a large standardized program there should benefit the industry around the world. Yes, just maybe a design supplied from Korea (as was the case in the UAE) or from China will be more cost effective due to their vibrant domestic programs. However, the Western suppliers will not stand still either in the face of this competition and will find ways to work with Asia and compete more effectively around the world. This has been recently acknowledged by EDF in a seminar in China where they noted that “industrial progress happens where the plants are being built” as they seek to increase their participation in China.

The winners are the customers as, after a decade of rising nuclear costs, the time has come to reap the benefits of standardized global fleets. Everybody wins!!

Posted in China, Economics, General, Nuclear New Build | Comments Off

Delivering Happiness – about shoes and nuclear power plants!

October 11th, 2010

As I write this I am on my way home from speaking at an event in Hong Kong put on by a think tank called Civic Exchange. I want to thank Civic Exchange for asking me to participate and congratulate them on their format. The topic for this, their 14^th energy forum, was “Expanding Hong Kong’s Nuclear Power Base“. Hong Kong has recently issued a paper on climate change and is having a consultation to seek input on its recommendations. One of these recommendations is to increase the amount of nuclear generation coming from the mainland from the current 23% to 50% of electricity supply by 2020 as part of a plan to reduce Hong Kong’s carbon intensity.

The format of the event was excellent. More than presentations (I was asked to provide an international perspective on nuclear power), it was a conversation. After opening remarks by 5 speakers – on Hong Kong’s plan, on China’s nuclear plans, an international perspective, a view from Greenpeace and finally thoughts from the utility – the floor was opened to more than an hour and a half of questions and discussion. The room was full and the discussion was very lively. I believe that we all left that room with a little bit more understanding of the issues and I expect that many attendees were able to continue to develop their own point of view. Overall a success!

This brings me to the book that I read recently called “Delivering Happiness” by Tony Hsieh, founder and CEO of Zappos.com. Now zappos.com is essentially an online retailer that started selling shoes over the internet. After 10 years in business growing to over $1 billion in revenues, the company was sold to Amazon for more than $1 billion dollars.

So what does selling shoes online have to do with nuclear power? A pretty good question. But it’s not about shoes – it’s about providing a customer experience that WOW’s the customer (I like that term – the objective is absolutely clear!). Or as zappos.com evolved their vision – their business is about “delivering happiness”. They also created a unique work environment where employees are valued and feel a part of something. I could go on but I would rather suggest you read the book.

What struck me at this event in Hong Kong is that after years of trying to defend our industry, we seem to have accepted the current position; the position that yes, we may not want nuclear power, but it is what we’ve got and if we want to fight climate change, then it needs to be part of the mix. We have accepted the “we are the green option of last resort” argument. It is what finally allowed politicians to stand up and support nuclear power after years of avoiding the issue. But is that enough? I don’t think so. In fact, being the option of last resort just plain sucks.

What we really have with nuclear power is something special, an electricity source that is essentially carbon free, offers a high level of security of supply and uses a fuel that is both abundant and has no real other use or value. It is also an economic option offering both competitive electricity costs and of even more importance in this volatile world of fossil fuel pricing, it offers long term price stability.

Are their issues? Yes. And it is positive events like this one in Hong Kong that enables us to have the conversation that we need to have with our stakeholders. And yes we need to improve our delivery capability so that projects are routinely on time and on budget. We are far from perfect. In fact, I welcomed the talk by Greenpeace as I think we need to be constantly challenged to improve. We work in an industry with the world’s most rigorous safety standards with regulators always pushing us to improve safety. This is our safety culture and we should be proud. We have a good case and we should be out there building the relationships with our customers so that they understand what we all understand, that nuclear power is not the option of last resort but rather is one of the best options available to meet our global needs as an essential part of a low carbon electricity infrastructure. Nuclear plants are wonderful places to work providing high quality stable jobs and the nuclear industry can be a vibrant exciting place to have a fulfilling career. The communities where we have plants have clean air and good jobs.

After completing a project for a new client earlier this year, we received a compliment that still resonates with me. Yes, we were told that they were happy with our report – and that’s great as we strive to provide a high quality service providing unique insights into the nuclear industry. But of more importance, we were told that they enjoyed the experience of working with us – and that is what I will always remember – as that is what we all need to work towards in our jobs as we play our role in this industry. So what does this have to do with selling shoes? I want to achieve the same customer experience as zappos.com - a unique customer experience building strong lasting relationships with high quality services that meet their needs, all with an exceptional overall experience. In other words, I want them to always be “WOWed”.

We all need to strive to deliver this level of service to our communities to ensure that nuclear power achieves its potential as a key contributor to solving the issue of climate change while providing low cost reliable electricity.

I don’t want nuclear power to be the option of last resort. Let’s all do our part to ensure that we are wanted for our positive attributes, not just tolerated as the least bad solution. And that means always working hard to improve.

A bit rambling, but that’s what I thought about when I read this book – we all need to work together to “deliver happiness”.

Posted in Books, Climate Change, General, Nuclear New Build, Renewables | Comments Off

Yes – we are environmentalists!

September 14th, 2010

Inspiring! That is the best word I can think of to describe Stewart Brand’s book “Whole Earth Discipline.” My faith in people has been restored.

To be frank I have heard Stewart Brand speak twice when I went out and bought his most recent book. His conversion to an ardent supporter of nuclear power was interesting and indeed exciting. And while he is an excellent speaker, his book is even better.

As an experienced and life long environmentalist, he has the credentials to support his case; and what a case it is. He argues that being open minded to science and technology is the route to solving environmental issues. And of most importance, he is willing to listen and learn with time and to modify his beliefs based on this learning. He even openly criticizes some of the environmental movement as they are stuck in their beliefs and are not willing to take advantage of good information to support their ultimate cause.

He then goes on to blast three key areas of long term environmental criticism as just plain wrong. Or as he says quite eloquently “Cities are green. Nuclear energy is green. Genetic engineering is green.” His book has a chapter on each and the case is quite compelling. He then uses part of his book to establish how not to repeat the mistakes we made on these three. Can you imagine??

With the greens (and he proudly says that it is cool to own a colour) seeming to win on their most recent and perhaps most difficult issue, climate change, Brand is critical.

“The long-evolved green agenda is suddenly outdated – too negative, too tradition-bound, too specialized, too politically one-sided for the scale of the climate problem. Far from taking a dominant role, environmentalists risk being marginalized more than ever, with many of their deep goals and well-honed strategies irrelevant to the new tasks. Accustomed to saving natural systems from civilization, Greens how have the unfamiliar task of saving civilization from a natural system – climate dynamics.”

There is too much of value in this book to repeat here. For our interest, those of us in the nuclear industry it is so nice to actually see someone hear what we have been saying for years. I accept that we have not necessarily been good at delivering the messages, but yes, a thoughtful and experienced environmentalist has listened and heard our arguments. Of importance are the comments on nuclear safety. Quoting from Bill McKibben, “Nuclear power is a potential safety threat, if something goes wrong. Coal-fired power is guaranteed destruction, filling the atmosphere with planet-heating carbon when it operates as it is supposed to.”

And of more importance, he recognizes that nuclear power is actually the safest of all of our forms of energy, with radiation killing no one in the United States, when all the alternatives have; and yet it is the one form of energy we fear the most.

It is easy to go and on but the best recommendation is to read the book. It has given me faith in the environmental movement when we need it most, and has shown that new thinking is possible. The planet has hope after all.

So what are you waiting for? If you want to be inspired, go and read this book now!

Posted in Books, Climate Change, General, Nuclear New Build, Renewables | Comments Off

The Black Swan – Planning for the unexpected – Normal life in the nuclear industry!

August 11th, 2010

Recently read “The Black Swan” by Professor Nassim Nicholas Taleb. Anyone at all interested in the use of probabilities to assess and manage risk must put this on their reading list. Taking aim at the normal curve high priests, Taleb attacks by showing that most of what shapes our lives are the result of highly improbable (or at least thought so until ……) events. We seem to believe things are not probable without focusing on the consequences and we have difficulty distinguishing between those events that clearly suit a normal curve (or “Mediocristan”), such as the heights of a group of people where the limits are real (no 10 foot tall people around) and those that don’t (i.e. “Extremistan”). This example being that within a large group it is certainly feasible that one individual’s income can overwhelm the mean (i.e. you cannot predict my income by looking at a mean – there are those who earn more in a day than most others in a lifetime).

Written in 2007 it is even more relevant today as I watch TV utterly amazed at the lack of preparation for the consequences of the recent oil well rupture in the gulf. Was the event likely? Maybe not (or maybe it was actually inevitable). But it was definitely possible and the consequences should have been planned for. Taleb also forecasts the economic crisis and the housing crisis due to our unwillingness to consider extremes. His biggest lesson is that we actually don’t learn lessons from our experiences, rather we use increased data to try our best to demonstrate that we are correct in our assumptions and that extreme events are so unlikely that they will never happen.

I did find his tongue in cheek sarcasm a bit much at times. I felt like he was looking down his nose at both the readers and even more so, those that follow the rule of normal – which I truly do believe he shows to be wrong. However his tone does distract from the his strong points at times.

I think that in the nuclear industry, we have been following his mantra for years. We cannot imagine not preparing for the worst although we strive to design to avoid these scenarios. We implement probabilistic risk assessments that follow event trees down to very low levels of probability and we then plan to mitigate those events which the rest of the world would find incredible. In the nuclear industry we have learned from our experience that we can leave no stone unturned in protecting the public. We design to mitigate consequences from events that would never be considered in other industries and then we make plans in case the unimaginable happens with emergency preparedness unparalleled by others.

Again, looking at the recent event in the gulf, most of us in the nuclear industry cannot understand how a single valve failure can lead to such extreme consequences and that there was no plan to address it should it happen.

So what have I learned from this book? After years of developing and structuring complex nuclear new build projects, I see a bigger need to not only plan to reduce risk, but also to accept that there will be issues during the project and thus allow for time in the schedule to both identify and address these unexpected issues as they arise. After all, we live in Extremistan………

A fun read – highly recommended.

Posted in Books, General, Nuclear New Build, Risk | Comments Off

Rework – Can the nuclear industry really learn from a small software company?

July 14th, 2010

Of course the answer is YES! “Rework” is an easy to read book from the people at 37signals, a small business (ok not so small anymore) that creates project management software. Their products are designed to enable us to more easily work together. So when they write a book to challenge established business norms and suggest their own brand of small business acumen with such theories as “Ignore the real world”, “Planning is guessing” and “Good enough is fine”; should we listen to this stuff?

As you can probably tell, I really did enjoy this book. It is fun read and even though you won’t likely agree with all their wisdom, there are many things that just plain make sense. I read this book about a month ago now and I find myself quoting from it in conversations quite often. The question is – does this small business wisdom really apply to large businesses? And my response is – in many cases – why not? Time to question the status quo and see if we can simplify how we do things.

The two themes that I find myself quoting most are:

1. “Emulate Chefs”. The authors go on to say that we all know our favourite chefs because they share everything they know. They show us how to make their favourite recipes on TV and publish them in cook books, yet they don’t fear that we will take these lessons, open a competing restaurant next door and put them out of business! The message is – be open with your customers. “As a business owner, you should share everything you know too.“

Now of course in the nuclear industry we seem to be continuously pre-occupied with IP. Yet in this digital age and with the magnitude of growth of the industry in the east, protecting the IP is likely an exercise in futility. The only true way to stay ahead is to innovate more than anyone else so customers keep coming back – and of course provide top notch service so customers like working with you. As it says in the book “Businesses are usually paranoid and secretive. They think they have proprietary this and competitive advantage that. Maybe a rare few do, but most don’t.” I can assure you of one thing, if your customers “have no choice” but to come to you, first chance they get to run, they will.

2. “Learning from mistakes is overrated”. Maybe it’s the engineer in us all, but we love to explain what went wrong and then claim we learned from these experiences. Now of course, we do learn, but as stated in the book, it is much better to demonstrate success. As stated in the book, “What do you really learn from mistakes? You might learn what not to do again. But how valuable is that? You still don’t know what you should do next.“ It goes on “Failure is not a prerequisite for success. A Harvard Business School study found already successful entrepreneurs are far more likely to succeed again. But entrepreneurs whose companies failed the first time had almost the same follow on success rate as people starting companies for the first time…..”

The biggest example in our industry of late is the ongoing issues with First of a Kind (FOAK) projects. As we all know these projects are difficult and recent performance has been less than stellar. However, while we are learning from these experiences, we have not really learned until we get to the next project and actually demonstrate success. As I have heard earlier in my career – good project managers explain what went wrong – great project managers get it right!

In fact in my own seminars I give to at the WNU one week course “Key Issues in the Nuclear Industry Today” on “Structuring Projects for Success”, I always note that we seem to spend an inordinate amount of time focusing on who takes risks when things go wrong, yet not nearly enough time on planning how the project should proceed to succeed. After all, what we really want are successful projects and that means working together towards that end, not setting up a good model for blame when things ultimately fall apart!!

So back to the book. Full of gems like these two. A really good read and fun too. I highly recommend it. Read it and let me know what you think.

Posted in Books, General, Nuclear New Build | 1 Comment »