REUTERS | Mike Blake

Let us help keep the lights on

The government has published six draft national policy statements (NPSs) for consultation.  They are the latest step in a detailed consultation on energy and, in particular, nuclear energy aimed at taking policy to the year 2030.

Without the changes that the NPS’s envisage, it is difficult to see how the UK will meet its current commitments to reduce its CO2 emissions, not to mention any future commitments in the event of a global agreement being reached at Copenhagen next month (although sadly increasingly unlikely) and maintain energy supply and living standards over the medium term.

The new system will also need to cater for any rise in demand for energy that is both endemic and likely to be occasioned by an increase in transport and domestic heating requirements.

The new energy strategy envisages about 30% of generation capacity from renewable sources. It is expected that some 60Gw of net new capacity will be needed by 2025, with 25Gw from nuclear. 1Gw is 1,000Mw. A single modern nuclear power station will typically generate 1,000 Mw. This suggests that we will need up to 25 new ones in the next 15 years or so: many more than are currently being contemplated.

So what does this mean for construction?

The nuclear new build programme will provide much needed continuity of opportunity for the industry in the post 2012 market, coming after completion of the main construction activity for the Olympics and the start of Crossrail and Thames Tideway.

Construction on this scale, with the need for some considerable programme certainty (given the risk of the lights going out), will raise a number of interesting issues not dissimilar to the Olympics. The procurement route, supply chain management and regulatory risk are three of the many issues which we, as lawyers involved in the process, will need to grapple with in the coming months and years.

What procurement model should be used?

The traditional turnkey approach used in Finland for the construction of the Olkiluoto nuclear plant is reportedly causing problems for the consortium building it: the plant is over 50% above budget and well behind programme. The reactor being constructed at Flamanville in France is also behind schedule and over budget.

This raises the question of whether the traditional approach is the most appropriate:

  • Which contractors would be prepared to bear the level of risk that such a procurement route would normally pass to them, particularly in light of these recent experiences? Indeed should contractors be expected to bear this level of risk?
  • Would a combination of alliancing and partnering models, with a degree of collaboration and risk sharing that that would encourage, be more suitable? This issue that will inevitably have to be resolved sooner rather than later if the nuclear new build programme is to get off the ground.

What about supply chain management?

In any event, whatever overarching procurement model is adopted, there will be major issues in the second tier contracts (and below) about passing the risk sharing principles down the supply chain.  How this is dealt with will be an interesting challenge, given the depth of the supply chain that will be needed to deliver these power stations.

Managing the supply chain will also be fundamental to the control of construction risks. The traditional view of the contractor being responsible from a time, cost and defects perspective for all deficiencies within the supply chain may need to be reviewed on cost and public interest grounds. This is particularly so given what has happened on the two current nuclear projects, with defects which have, apparently, been raised by the regulators.

Role of the regulators

The role of the regulators should not be overlooked. Given the inherent sensitivities involved in anything nuclear, even after the nuclear site licences are granted and construction commences, there will, inevitably, be significant regulatory involvement in the construction and commissioning process. How this is managed and who takes the risk of the potential regulatory impact on the programme (and on increased costs) has to be addressed up front, but in parallel with maintaining a productive relationship with the regulators.

Our role?

Let us hope that, as lawyers, we can make a positive and constructive contribution to the procurement process; not allowing our involvement to cause this phase to become bogged down. We should try our best to do our own (albeit very little) bit to keep the lights on.

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