UK contractors eye £40bn nuclear construction programme

Nuclear power stations are increasingly seen as the answer to the UK's looming energy shortfall, and contractors are already looking at the construction opportunities available. Carol Millett reports.

The UK's £40bn new build nuclear programme cuts through the gloom of the credit crunch like a beacon of hope.

Launched last year, the programme promises around seven new nuclear plants, some with twin reactors, ranging in value from £3.4bn, built over a 15 to 20-year period from 2013.

French energy giant EDF is leading a pack of international utility firms that are all keen to get a slice of the UK's £40bn programme. EDF's £12bn deal to buy British Energy means it could be procuring contractors to build its first UK nuclear power station by 2011.

The deal is part of EDF's strategy to build and operate at least four new nuclear power stations in the UK. These will be sited on or alongside existing British Energy sites. The first two are expected to be at Hinckley Point in Somerset and Sizewell in Suffolk.

As part of its deal with British Energy, EDF is duty bound to sell a number of British Energy sites to other utility companies looking for a slice of the action. Interested parties include E.ON RWE Iberdrola Vattenfall and Suez. These utilities are also looking at sites due to be sold off by the Nuclear Decomissioning Authority at Wylfa in Anglesey, North Wales, Oldbury in Gloucestershire and Bradwell in Essex.

10 plants planned

Although the new build nuclear programme is only at planning stage, UK contractors are already circling. With up to 10 nuclear power stations up for grabs, each offering construction packages of around £600m, this is too good to miss.

The courting ritual has already begun, with potential first tier players such as Balfour Beatty and Laing O'Rourke flirting with the utility companies and reactor vendors such as Areva and Westinghouse, as they weigh up potential consortium partners. Meanwhile, smaller contractors such as Costain, Morgan Est and Robert McAlpine are busily eyeing potential joint venture construction partners.

One key player contractors are circling is Amec, which has an impressive track record in the sector. The company has declared its interest in acting as the architect/engineer in a consortium with a utility, overseeing the supply chain for a new build.

No firm commitments have been made yet. But Paul Campbell, Costain's nuclear director, predicts some joint venture announcements by spring next year. "Everyone is talking, but there is not enough information on the delivery model yet to commit. No one wants to spoil their chances by hooking up with the wrong partner," he says.

UK contractors will need to be fighting fit in the face of strong competition from continental contractors, particularly the French, with Bouygues and Vinci both in excellent positions to win work from EDF. Bouygues is already the main contractor on EDF's £2bn Flamanville nuclear plant scheme in Normandy, France. Meanwhile, Vinci has strengthened its position in the nuclear market with its recent £74m acquisition of Taylor Woodrow.

However, Bouygues' experience could also be its Achilles heel. France's nuclear inspectorate recently criticised its "poor preparation" on the concrete housing for Areva's European Pressurised water Reactor (EPR) at Flamenville. It is also facing problems as main contractor on Areva's turnkey project to deliver the Olkiluoto 3 nuclear plant in Finland. The project is running two years late and £1.5bn over budget.

UK contractors are not fazed by overseas competition. The view is there is enough work to go around. Colin Ellam, Morgan Est's business development director, comments: "There is no need to fear the French dominating the UK market. This is a large programme with more than enough to go round, particularly as some schemes are likely to be built at the same time."

UK contractors won't lose out

EDF insists UK contractors will not lose out. It points to Flamanville as an example of how it supports local firms and labour, employing 2,000 workers and around 150 local construction firms at the site.

Reactor vendor Westinghouse, which is planning £15bn of construction work in the UK delivering its new nuclear stations, has also pledged to use local suppliers in the UK under its "Buy Where We Build" policy.

Westinghouse is also predicting opportunities for its British supply chain in other European countries that plan to build no more than one reactor. "We are looking to build up a supply chain in the UK, which we could use for these one-off projects in Europe," says Adrian Bull, UK stakeholder relations manager at Westinghouse.

The stakes are high and contractors are developing skills that will make them more competitive. Paul Campbell explains: "We are positioning ourselves by developing skills through our nuclear decommissioning work that are very specific to nuclear new build and which will put us ahead of the game."

Ellam says Morgan Est's experience of working on T5 and on the new nuclear submarine berthing facilities at Faslane give it an edge. "What will stand out is major infrastructure expertise, particularly in a highly regulated environment like Faslane," he comments.

How these packages of construction work be delivered is anyone's guess. EDF may well replicate the delivery method it is using at Flamanville, where Bouygues has been contracted to deliver all the construction works as EDF's main contractor overseen by EDF's inhouse team of architects and engineers.

Areva's tortured experience in Finland will probably prompt EDF to rule out a similar turnkey project with Areva in the UK.

Not surprisingly, EDF and other utilities are looking at successful major construction contracts in the UK as possible blueprints. BAA's Terminal Five Agreement has attracted interest from all the utilities, as has the Channel Tunnel Rail Link contract. Both were highly complex schemes delivered on time and to budget. T5 involved a high degree of modularised off site construction, which will play a large part in the new nuclear packages, particularly the Westinghouse AP1000. Contractors that worked on either of these projects could find themselves with a distinct advantage when the bidding begins.

Timing is vital

Whatever method is chosen, it will need to guarantee schemes are delivered on time. With a looming energy gap, predicted to peak by 2017, these new plants will arrive not a moment too soon. To that end the UK government is keen to push the programme along. It recently established the Office for Nuclear Development (OND), which aims to ensure the earliest possible delivery of new nuclear power stations. That includes ensuring a skilled supply chain. Dr Tim Stone, OND team member and new nuclear adviser to Energy Secretary Ed Miliband, urges contractors to use the OND to help them better prepare.

Stone also emphasises the importance of a skilled supply chain. "These schemes are not complex. But they need skilled people who know how to pour concrete to meet seismic resistance levels or how to weld to nuclear safety standards. If not, these schemes will face huge delays which we can't afford."

But does the credit crisis pose a threat to the UK's new nuclear programme? After all, there is no public subsidy.

The Nuclear Industry Association's chief executive Keith Parker points to a recent study by Deloitte, which concludes that the utilities have the strong balance sheets needed to deliver these schemes with or without the banks' help.

Parker points to the likes of EDF, which has revenue income of more than £50bn a year. He comments: "These are large corporations with strong balance sheets that can go direct to the bond market. The fact that EDF has paid £12bn for British Energy shows its commitment to the UK new nuclear programme."

Jobs created by construction of a twin-reactor nuclear power station

• The Nuclear Industry Association has estimated that around 1,400 jobs will be created at each site during the construction period for a new twin-unit nuclear power station, plus around 250 project management and technical support jobs.
• With a phasing between the construction of reactor units of 18 months, construction work could be ongoing at two to three sites at any one time, leading to an overall construction workforce peak of 2,800 jobs and an average of around 2,350.
• An assumed programme of 10 reactors located at five sites constructed over 15 to 20 years should generate 64,000 man-years of work a further 22,000 man-years of work would be generated in the community through indirect jobs in the support sector.

Capacity issues - could construction cope with the nuclear workload?

• The Nuclear Industry Association estimates the requirement for civil engineering resources to build a new nuclear power station would represent only a small proportion, around 2% to 3%, of the national capability.
• Similarly, mechanical and electrical resource requirements are only 4% to 5% of the national capacity. Competition for resources from other major projects should not be a problem. For example, any new nuclear build would occur predominantly after construction for the 2012 Olympics.