Bechtel boss urges US government to share risk of nuclear build-out
Danger of cost overruns is obstacle to financing Donald Trump’s plan for 10 new reactors by 2030
The construction group that rescued the last big US nuclear energy project from bankruptcy has called on Washington to share the risk of cost overruns to deliver Donald Trump’s “American nuclear renaissance”.
Bechtel president Craig Albert told the Financial Times industry could deliver on the president’s executive orders to start work on developing 10 large-scale nuclear reactors by 2030. But government and the private sector would need to work together to overcome financing hurdles linked to risks of cost overruns and delays.
“The advice we’ve been giving the government is . . . there is overrun risk, and no one company can take it all because they’d be betting their company,” he said in an interview.
“The government has provided very good tax incentives that improve the rate of return, but that doesn’t address overrun risk, that just improves the rate of return. So, I do think the government will have a role to play.”
The last two nuclear reactors built in the US at Plant Vogtle in Georgia faced several years of delay and cost more than double their original $14bn budget, forcing reactor designer Westinghouse to file for Chapter 11 bankruptcy protection in 2017. Bechtel was later selected to complete construction of the project — the first nuclear reactor built from scratch in the country in more than 30 years.
The private company, which has been run by the Bechtel family since its founding in 1898, also faced delays and overruns on Vogtle, underlining the complexity and risk involved in large-scale nuclear projects.
Albert said the experience at Vogtle left Bechtel well positioned to lead the revival of nuclear power in the US, which was being driven by surging energy demands linked to the artificial intelligence boom. But he said all players — construction companies, reactor developers, the hyperscalers who want to buy power and the government — would need to get in a room and agree how to share this risk.
Albert said Bechtel was willing to change its approach to contracting and take on more risk.
“All the nuclear power projects that we’ve ever built in our history were done on a cost-reimbursable basis, where we took ‘no cost’ risk . . . We’re actually revisiting that going forward because we are part of that team that’s got to make this happen.”
“We are right now revisiting what parts of our work can we have enough certainty about and have the ability to control, such that we can take the overrun risk for that work. And if everyone takes some overrun risk . . . I think there is a solution here.”
In May Trump directed the nuclear industry to fast-track construction of large and small nuclear reactors in an attempt to quadruple US nuclear capacity by 2050. This has energised the sector, enabling companies to raise billions of dollars in capital to help build multiple projects.
But the industry’s poor record of delivering nuclear projects on time and on budget in western nations is a hurdle, say experts. In the UK, for example, Hinkley Point C, a nuclear plant developed by EDF, is forecast to cost £46bn, compared with initial estimates of £18bn.
The Nuclear Energy Institute, an industry group, backs a draft bill introduced to US Congress last year which includes financial measures to mitigate overrun risks to unlock project financing for nuclear projects.
“Policies that mitigate potential construction cost overruns for early movers and first-of-a-kind projects . . . can enhance confidence and stability for investors,” said the NEI’s John Kotek.
Under the draft bill, which has lapsed and would probably require bipartisan support if it is reintroduced, the first 20 per cent of overrun costs would be borne by the project. Then a delayed 50:50 cost share would kick in with the maximum government contribution capped at $1.2bn, according to an analysis by ClearPath, an non-governmental organisation lobbying to promote cost overrun insurance.
However, some experts believe cost overrun insurance creates moral hazard and other mechanisms, such as milestone-based financing from government, are better.
“Industry needs to properly cost a project and manage the project,” said Adam Stein at The Breakthrough Institute, a think-tank. “Instead of an insignificant protection on the back end that won’t actually protect ratepayers, we should solve the root cause.”
Albert said the key to delivering nuclear projects on time and on budget was to adopt an integrated approach to engineering, construction and procurement.
“The model of design and then bid and then build — it does not work for complex jobs like nuclear,” he said, citing the example of Vogtle.
To succeed companies would have to assemble the right proportion of trained craftspeople to ensure high-quality work. They would have to pull together supply chains early in the process and be proactive about risks, said Albert.
“We are not trying to come up with a price that looks attractive to somebody. We’re coming up with a price that is accurate. We don’t want people investing billions of dollars and then running into surprises . . . The Vogtle job, it should have been estimated higher,” he said.
Bechtel’s experience in building multiple liquefied natural gas plants in the US and elsewhere provides a blueprint for success in beginning construction on multiple nuclear units, said Albert.
“We have to be really smart about the sequence, really deliberate about the actions. But you know, when you think back to LNG, I remember when we could only do one LNG plant, well now we have six at once.”