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Economies of multiples Do they really exist? Dr Giorgio Locatelli BEng MSc PhD CEng Senior Lecturer in Economics & Management Programme Leader of Mechanical Engineering School of Engineering - University of Lincoln [email protected]

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Page 1: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Economies of multiplesDo they really exist?

Dr Giorgio Locatelli BEng MSc PhD CEng

Senior Lecturer in Economics & ManagementProgramme Leader of Mechanical Engineering

School of Engineering - University of Lincoln

[email protected]

Page 2: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Agenda

• The dilemma: “What are we talking about”?

• The concept of “economies of multiples”

– Learning and co-siting: History & Key ideas

– The power plant industry

• Economies of multiples in the nuclear industry

– USA

– France

– Japan

– South Korea

• Take home messages

2UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 3: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

The nuclear market – investor dilemma

3

NuScale

45 MWe

PRISM

311 MWe

AP600

610 MWe

EPR

1117 MWe

APWR

1700 MWe

150 MWe

1600 MWe

1350 MWe

VK-300 AP1000 ABWR

Small < 300 MWe 300 MWe<Medium<700 MWe Large>700 MWe

Economy of scale!Increasing the size the specific cost decreases…

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 4: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Really?

4

Ostrich egg

1500 – 1800 g/egg15 – 25 €/egg10 – 15 €/Kg

• Uncommon suppliers• Few suppliers

Chicken egg

60-70 g/egg1 - 2 €/ [6 eggs pack ]

2 ,5 – 5 €/Kg

• Standard product• Standard suppliers

• Experienced suppliers• Many suppliers

One Ostrich egg feeds 15 – 20 people…it is not a common family dinner…

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 5: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Trade off

5UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 6: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Trade off

6

Economy of scale Economy of multiples

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

2 key Phenomenon in “Economies of multiples”

Learning by doing + site sharing economies

Page 7: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Industrial LearningGeneral concept

• More times a task has been performed, the less time is required on each subsequent iteration.

• Probably first quantified in 1936 at Wright-Patterson Air Force Base in USA

• Every time total aircraft production doubled, the required labour time decreased by 10 to 15 percent.

• Research by BCG in the 1970s observed experience curve effects for various industries that ranged from 10 to 25 percent

7UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 8: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Industrial LearningGeneral concept

The Learning Curve model posits that for each doubling of the total quantity of items produced, costs decrease by a fixed proportion

8UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Technology Period Year 1 ProductionCumulative Production

Progress Ratio

Ford Model T Auto 1909-1923 15,741 8,028,000 87%

Integrated Circuits 1962-1968 4 million units 828 million units 67%

CFC Substitutes 1988-1999 100,000 tons 3,871,000 tons 93%

Scrubbers 1987-1995 65.8 GW 84.3 GW 89%

Photovoltaic 1971-2000 0.1 1451.4 72%

Magnetic Ballasts 1977-1993 29.4 million 629.3 million 97%

Electronic Ballasts 1986-2001 431,000 350 million units 88%

Refrigerators 1980-1998 5.1 million 126.3 million 88%

Freezers 1980-1998 1.8 million 26.1 million 78%

Clothes Washers 1980-1998 4.4 million 104.7 million 87%

Electronic Clothes 1980-1998 2.5 million 61.0 million 88%

Gas Clothes Dryer 1980-1998 0.7 million 18.2 million 90%

Dishwasher 1980-1998 2.7 million 69.7 million 84%

Room Air Conditioner 1980-1998 2.4 million 63.3 million 85%

Selective Window Coatings 1992-2000 4.8 million m² 157.4 million m² 83%

Page 9: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Industrial LeaningPower industry

9

Lena Neij, Cost development

of future technologies for

power generation—A study

based on experience curves

and complementary bottom-

up assessments, Energy

Policy, Volume 36, Issue 6,

June 2008, Pages 2200-

2211,

Edward S. Rubin, Sonia Yeh,

Matt Antes, Michael

Berkenpas, John Davison,

Use of experience curves to

estimate the future cost of

power plants with CO2

capture, International Journal

of Greenhouse Gas Control,

Volume 1, Issue 2, April 2007,

Pages 188-197,

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Technology Learning rate

Capital cost O&M cost

Flue gas desulfurization (FGD) 0.11 0.22

Selective catalytic reduction (SCR) 0.12 0.13

Gas turbine combined cycle (GTCC) 0.10 0.06

Pulverized coal (PC) boilers 0.05 0.18

LNG production 0.14 0.12

Oxygen production 0.10 0.05

Hydrogen production 0.27 0.27

Page 10: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning in the nuclear industry

The contribution of learning applies at various levels:

• better work organization on the same site where the manpower have already hadexperience in the construction and assembling of the previous NPP module;

• a learning component in factory fabrication of the equipment;

• a learning in the utilizations of materials and equipment by more skilled workers

• regulation knowledge and suppliers selection

• …

10UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 11: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Co-siting economies

Having more than one unit in the site leads to co-siting economies:

• FEED and detailed design

• The set-up activities related to siting

– acquisition of land rights,

– connection to the transmission network,

– Licensing

– …

• Construction

– Shipping of large cranes

– Workforce temporary accommodation

– …

• Operation

• Various (spear parts…)

11UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 12: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

USA – France – Japan – KoreaCase studies

12UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 13: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSUSA

13

US Nuclear Reactors (IAEA-PRIS data)

132 reactors (100 in operation)113 reference unit power (83 in operation)82 sites (59 in operation)

Page 14: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSUSA

14

Total levelized total busbar costs (in 2004 cents/kWh), plotted against the year of commercial operation for each reactor.

Jonathan Koomey, Nathan E. Hultman, A reactor-level analysis of busbar costs for US nuclear plants, 1970–2005, Energy Policy, Volume 35, Issue 11, November 2007, Pages 5630-5642

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 15: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSUSA

15

Actual = budget X 3

Projected and Actual Construction Costs for Nuclear Power Plants (USA)

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 16: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSFRANCE

16

FRANCE Nuclear Reactors (IAEA-PRIS data)

71 reactors (58 in operation)23 reference unit power (11 in operation)22 sites (19 in operation)

Page 17: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSFRANCE

Gravelines Site

Paluel Site

Fleet Standardization

32 3-Loop 900 MWe

20 4-Loop 1300 MWe

4 4-Loop 1450 MWe

Chooz Site17 17

Page 18: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSFRANCE

1° Cluster950 MWE

2° Cluster1350 MWE

3° Cluster1550 MWE

EPR (OL3-FL3) 1650 MWe

Year of grid connection

Co

nst

ruct

ion

tim

e [m

on

ths]

18Arnulf Grubler, The costs of the French nuclear scale-up:

A case of negative learning by doing, Energy Policy,

Volume 38, Issue 9, 2010, Pages 5174-5188

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 19: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSFRANCE & USA

19UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Arnulf Grubler, The costs of the French nuclear scale-up:

A case of negative learning by doing, Energy Policy,

Volume 38, Issue 9, 2010, Pages 5174-5188

Do you see economy of scale here?

Page 20: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSJAPAN

20UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

JAPANESE Nuclear Reactors (IAEA-PRIS data)

64 reactors (48 in operation)31 reference unit power (24 in operation)20 sites (16 in operation)

Page 21: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSJAPAN

21

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

11/6/68 2/12/73 25/5/79 14/11/84 7/5/90 28/10/95 19/4/01 10/10/06

YEA

RS

CONSTRUCTION STARTED

CONSTRUCTION TIME FOR BWR AND PWR JAPANESE REACTORS

BWR

PWR

Linear (BWR)

Linear (PWR)

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Only LWR above 700 MWe. Size increased over time from, 760 to 1325 MWe

Page 22: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSSOUTH KOREA

22

Korean Nuclear Reactors (IAEA-PRIS data)

28 reactors (23 in operation)19 reference unit power (18 in operation)6 sites (5 in operation)

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 23: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSSOUTH KOREA

23

R² = 0.5522

4.00

4.50

5.00

5.50

6.00

6.50

28/8/76 18/2/82 11/8/87 31/1/93 24/7/98 14/1/04 6/7/09

YEA

RS

CONSTRUCTION STARTED

CONSTRUCTION TIME FOR THE STANDARD 1 GW KOREAN PWR

HANBIT

HANUL

KORI

SHIN-KORI

SHIN-WOLSONG

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 24: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSSOUTH KOREA

24

Sungyeol Choi, Eunju Jun, IlSoon Hwang, Anne Starz, Tom

Mazour, SoonHeung Chang, Alex R. Burkart, Fourteen lessons

learned from the successful nuclear power program of the

Republic of Korea, Energy Policy, Volume 37, Issue 12,

December 2009, Pages 5494-5508,

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 25: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSSOUTH KOREA

25

Overnight Capital costs and construction duration of Korean NPP. YGN=Yonggwang; UCN=Ulchin (Matzie, 2005).

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

Page 26: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Learning and co-siting FACTSSOUTH KOREA -Key success factors

• Standardisation

• Leveraging international Know-how

• Role of the government

• Focus on constructability

• Workforce education

• Interdisciplinary

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

26

Page 27: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Trade off

27

Economy of scale Economy of multiples

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

2 Phenomenon

Learning by doing + site sharing economies

Page 28: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Take home messages

FACT: IDENTICAL/SIMILAR UNITS DEPLOYED IN THE SAME SITE HAVE

LEARNING AND CO-SITING ECONOMIES

• Learning and co-site economy are not speculative– Proved in large set of industries

– Korea and Japan are the best examples

– A carefully selected schedule is important

• Learning is linked Front End Engineering and Design

• Standardisation is a key aspect– Physical standardisation

– “Project delivery chain” standardisation

• Focus on stakeholders & schedule

• Ideal site size for SMR? Probably 1.5 -3 GWE?

28UK in SMR; SMR in UK 25/09/2014, Manchester

Giorgio Locatelli – [email protected]

Page 29: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Further bibliography

• G. Locatelli, C. Bingham, M. Mancini “Small Modular Reactors: a comprehensive overview of economics and strategic aspects”. 2014 – Progress in Nuclear Energy. Vol. 73, May 2014, pp. 75–85.

• G. Locatelli, M. Mancini, E. Romano “Systems Engineering to improve the governance in complex project environments”. 2014 – (International Journal of Project Management – In press. Available on line - http://dx.doi.org/10.1016/j.ijproman.2013.10.007).

• G. Locatelli, M. Mancini, N. Todeschini “Generation IV nuclear reactors: Current status and future prospects”. 2013 – Energy Policy, Volume 61, October 2013, Pages 1503-1520

• G. Locatelli, M. Mancini “A framework for the selection of the right nuclear power plant”. 2012. International Journal of Production Research. Vol. 50, No. 17, 1 September 2012, pp. 4753–4766.

• S. Boarin, G. Locatelli, M. Ricotti, M. Mancini, “Financial case studies on small-and medium-size modular reactors” Nuclear Technology, Vol. 178, No. 2, May 2012, pp. 218-232.

• G. Locatelli, M. Mancini “Large and small baseload power plants: drivers to define the optimal portfolios” Energy Policy, Volume 39, Issue 12, December 2011, Pp. 7762-7775.

• G. Locatelli, M. Mancini “The role of the reactor size for an investment in the nuclear sector: an evaluation of not-financial parameters”. Progress in Nuclear Energy. Volume 53, Issue 2, 2011, Pp. 212-222.

• I. Ruuska, T. Ahola, K. Artto, G. Locatelli, M. Mancini, “A new governance approach for large projects: Lessons from Olkiluoto 3 and Flamanville 3 nuclear power plant projects” International Journal of Project Management, 2011, Volume: 29 Issue: 6 pp.647-660.

• G. Locatelli, M. Mancini “Small–medium sized nuclear coal and gas power plant: A probabilistic analysis of their financial performances and influence of CO2 cost”. Energy Policy, Volume 38, Issue 10, October 2010, Pp. 6360-6374.

• M.D. Carelli, P. Garrone, G. Locatelli, M. Mancini, C. Mycoff, P. Trucco, M.E. Ricotti, 2010 “Economic features of integral, modular, small-to-medium size reactors“. Progress in Nuclear Energy. Volume 52, Issue 4, May 2010, Pp. 403-414.

UK in SMR; SMR in UK 25/09/2014, ManchesterGiorgio Locatelli – [email protected]

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Page 30: Do they really exist? - nuclearinst.com · Agenda • The dilemma: ^What are we talking about? • The concept of ^economies of multiples – Learning and co-siting: History & Key

Economies of multiplesDo they really exist?

Dr Giorgio Locatelli BEng MSc PhD CEng

Senior Lecturer in Economics & ManagementProgramme Leader of Mechanical Engineering

School of Engineering - University of Lincoln

[email protected]