ENERGY INFRASTRUCTURE PROJECTS IN GENERAL and nuclear plant developments in particular are often characterised by being over budget and overdue. It’s an issue that threatens not just the bankability of nuclear power projects but also one of the key objectives of the nuclear build out programme – addressing climate change in a timely and economical way.
One of the central issues, Edward Stone, a partner In the Energy and Major capital projects practices at Bain and Company tells NEI, is the current model that is used to manage large energy infrastructure projects.
The so-called stage-gate framework is usually modelled around five central stages and initially emerged from chemicals industry developments of the 1940s, but really took flight in the 1960s as oil & gas majors rolled it out through a wave of CAPEX build. Realising that large infrastructure projects necessarily had to be broken up into more manageable chunks and in order to manage the developers return on capital, a five ‘gate’ framework emerged. Typically, gate one is simply project selection, a gigawatt-scale nuclear project in a certain location. The second gate follows with high-level design, a 1 GW EPR with a high level layout. Gate three is typically the final investment decision at which point all the design work should be complete, immediate and long lead item contracts are in place and ready to advance, the schedule is set out, the permitting and consents process is complete, the funding is in place and the project is ready to move into the construction phase. By gate three and the start of construction, perhaps 5 or 10% of the total project investment has been expended but that is the critical point at which a decision is made on committing, in the case of a large nuclear power plant project, perhaps $30bn. Gate four is the start of commissioning, while the fifth gate comes at the end of commissioning when the project is handed over to the owner and their operations team. It’s a model that has been relatively successful but can create projects that break budgets, and can sometimes over run by a decade or more.
for on-time and under budget development Source: EDF
Stone explains: “The stage process is absolutely necessary, but no longer sufficient to be assured of on time, on budget delivery, and hence returns maximisation. There are a number of factors driving this – the move from single projects to programmes of work; changing dynamics between owners and the supply chain; the advent of new energy technologies; the advent of Agile approaches and new technologies, to name just a few. Collectively, these are leading companies to redesign and supplement their stage gate process in three ways”.
Noting that the cost overruns and the delays that have happened historically will be dramatically exacerbated by the scale of the energy transition, Stone suggests that developers now need to consider the full portfolio of all their projects and go far beyond just those five gates to deliver projects on time and on budget. He identifies three central strategies that can support timely and within budget nuclear developments.
A collaborative approach For nuclear, the traditional EPC model for energy infrastructure development has never been entirely suitable. Governments need gigawatt-scale projects to be delivered on time in order to meet net zero commitments, they also want it delivered on budget if possible. However, many of the prime contractors and all of their associated subcontractors don’t have the balance sheet to be able to absorb all the project risk. Stone contends that radical change is needed. “That simple, just hand over the project to the prime contractor model, needs to shift. You can’t just hand off all the risk to the EPC to deliver it on time or budget,” he says.
Instead, companies with much more collaborative models in terms of the contracting are emerging. Stone explains: “Some big nuclear projects are looking at consortia, where the owners and suppliers are actually coming together in a kind of pain-share/gain-share type of model on the contract. You’re then getting the owners requesting more information from the suppliers in terms of schedule, budget, and project progress so that they can then intervene where things are going wrong because, ultimately, it is the owners who still bear the risk and need the project delivered on time and on budget. This model also has the advantage that it gets rid of ‘man marking’. In the old model, owners had project managers and owners engineers checking on their prime EPC; and the prime EPC then had their own project managers and engineers checking on all their sub-contractors. In a more collaborative model, with joined up data, processes and governance routines, a lot of that man marking goes away, saving costs, leading to slicker decision making and action taking as there are fewer interfaces to navigate, and ultimately to more satisfied project teams when done right”.
In addition, he foresees far greater collaboration within project teams too. Historically, engineering teams have had a primary interest in optimising engineering parameters, such as efficiency and sometimes costs, with less focus on the trade-offs implied for operability or contractability, for example. On the other side, operations teams want to maximise operability and the safety of operations, amount of multi-skilling required, complexity of spares management, but perhaps don’t care about the constructability of a plant and its economic competitiveness.
“You really need to connect the engineers with the procurement, with the operations, with the construction, with the schedulers, and get those teams working together as Integrated Project Teams (IPT) or Multi-Disciplinary Teams (MDT). Critically – many companies deploy these models in title – saying people from different functions are part of an MDT or IPT – but then fail to update the processes, governance, data flows, objectives and incentives, values and ways of working that enable that. That results in MDTs / IPTs being nothing but a name, with people still operating largely in functional siloes. Those that do it successfully, in some industries, can improve project cost by 20% and the schedule by a similar amount. It’s only by bringing people together and having those crossfunctional processes that you get the real value out,” says Stone.
He suggests going well beyond the traditional stage gate structure and considering the actual people who are working together to progress projects from beginning to end and putting cross-functional processes and agile ways of working in place, “because it’s the front line where the real value gets created.”
This approach should start from the very beginning during the initial design, which should also consider how to build a plant and make it happen on time and in increasingly compressed time frames, as well as work and be safe.
Building a programme approach to projects A second key point is the development of a project programme approach to nuclear development. “More and more companies are going to be deploying a programme. When you have multiple SMRs or gigawatt-scale reactors being built that creates huge opportunities to not just optimise individual projects, but actually standardise designs across that whole programme and can save on engineering costs. It means I can now give certainty to my supply chain, so they can keep the factories and their people going and actually invest in those people and their equipment to ever increase efficiency, quality and timeliness . You get huge productivity benefits as people do the same thing over and over again, rather than chopping and changing and relearning each time,” says Stone.
Thinking as a portfolio of projects rather than several individual projects means many of the factories that are creating equipment for one project are able to keep operating, creating the same equipment for future projects that can then put to one side ready for when installation begins on the next project. “That makes it much cheaper, much higher quality, much easier for the manufacturers to produce it, and with much lower risks and much higher confidence,” he says.
Changing the mindset to a production line approach certainly sits squarely in the SMR wheelhouse but there are standard practices in manufacturing environments that can inform and support sectors like gigawatt-scale reactor development too. Creating nuclear power stations as products, built in automated factories to be installed (much less constructed) as quickly and efficiently as possible, is the model needed.
Stone points Hinkley Point C and Sizewell C in the UK as the beginnings of that approach even though they are effectively 10 years apart in development. “The UK is quite a good example of an early-stage programme that covers things like advanced qualification of suppliers and Fit For Nuclear. They’re only doing that because they know they’ve got a programme of builds coming out and rather than qualifying suppliers one by one on a project-by-project-bybasis, we know we’re going to need a bunch of civils, people who are pouring concrete, who can do nuclear walls, etc. Let’s go and pre-qualify, pre-train those people so we’re ready for the programme,” says Stone.
This article first appeared in Nuclear Engineering International magazine.
