Managing risk in nuclear power construction and operation
Darcy Holderness, a director at consulting firm HKA, in a recent article examined construction risk management and operational risk considerations in nuclear power plants.
In the thought piece – “Business models and risk management for nuclear power plants: From construction to operation” – Holderness, a professional engineer with 20+ years of experience in the energy sector, also examines key project decisions and business model options, as well as how risks affect relationships between owners, operators, and the public.
Nuclear power plants are among the most complex undertakings in the energy sector – posing major technical, regulatory, financial, and operational hurdles. They also attract intense public scrutiny – in Germany’s case, for example, kneecapping the nuclear sector for decades and leading to issues in energy mix and geopolitically problematic reliance on Russian gas.
Nonetheless, there is growing interest in the reliable, low-carbon baseload energy that nuclear provides – with many jurisdictions considering or developing projects.
Capital costs on nuclear power plants can exceed tens of billions of dollars and construction timelines can breach a decade, so construction planning and risk management are essential to a project’s success, Holderness says. Once operational, however, nuclear plants are typically low-risk and reliable due to regulatory oversight, skilled operators, and operational management systems.
The business model determines how ownership, financing, and operations are structured and how risks are allocated across stakeholders. High capital investment and lifecycle considerations mean governments are typically involved in the business model – including through a publicly owned utility, regulated electricity market, loan guarantees, and disposal guarantees.
A popular model is traditional utility-ownership in a regulated electricity market. With significant risk of cost overruns and delays, there is also very often public involvement in financing. Capital will often be debt-financed and paid over 20 to 30 years.
If the utility is not publicly owned, a public-private partnership (PPP) can share risk between government and private investors – but introduces governance complexity.
A merchant model, where electricity is sold directly into markets without long-term contracts, typically isn’t used with nuclear plants because of high fixed costs and revenue uncertainty, Holderness says.
Construction risk management is critical because nuclear projects are capital-intensive, prone to delays, and technically complex, and face additional risks in public support and supply chain disruptions.
Holderness says the most important mitigations to construction risk are front-end planning and sound execution of commercial strategy. “This means substantial investment in engineering and early project design, risk identification and analysis, schedule and cost estimate development, supply chain readiness for both goods and labor, and commercial agreement development, all ahead of final investment decisions that mark the transition to a construction project,” the HKA expert says.
Front-end planning for a nuclear plant can cost billions of dollars, so public money is often used to finance it.
Agreements on commercial relationships between owners and engineers, contractors, and the main reactor provider are very important and need to be structured early so that all parties understand estimates, priorities, and contingencies for risks.
Once construction starts, the governance and dispute resolution systems within the commercial agreements are key to a project staying on track, Holderness notes.
When the plant goes operational, risk management moves on to ensuring safety, reliability, and financial stability. Compared to construction cost and schedule risk, operational risks are lower in probability because of strong regulatory frameworks, skilled operational teams, and management systems.
At the end of a plant’s operational life, waste will typically transfer to a government agency for permanent disposal, with decommissioning plans usually developed prior to construction.
