Economies of multiples Do they really exist?

Transcription

1 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 glocatelli@lincoln.ac.uk

2 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 2

3 The nuclear market investor dilemma NuScale VK-300 PRISM AP600 AP1000 ABWR EPR APWR 45 MWe 150 MWe 311 MWe 610 MWe 1117 MWe 1350 MWe 1600 MWe 1700 MWe Small < 300 MWe 300 MWe<Medium<700 MWe Large>700 MWe Economy of scale! Increasing the size the specific cost decreases 3

4 Really? Ostrich egg g/egg /egg /Kg Uncommon suppliers Few suppliers Chicken egg g/egg 1-2 / [6 eggs pack ] 2,5 5 /Kg Standard product Standard suppliers Experienced suppliers Many suppliers One Ostrich egg feeds people it is not a common family dinner 4

5 Trade off 5

6 Trade off Economy of scale Economy of multiples 2 key Phenomenon in Economies of multiples Learning by doing + site sharing economies 6

7 Industrial Learning General 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 7

8 Industrial Learning General concept The Learning Curve model posits that for each doubling of the total quantity of items produced, costs decrease by a fixed proportion Technology Period Year 1 Production Cumulative Production Progress Ratio Ford Model T Auto ,741 8,028,000 87% Integrated Circuits million units 828 million units 67% CFC Substitutes ,000 tons 3,871,000 tons 93% Scrubbers GW 84.3 GW 89% Photovoltaic % Magnetic Ballasts million million 97% Electronic Ballasts , million units 88% Refrigerators million million 88% Freezers million 26.1 million 78% Clothes Washers million million 87% Electronic Clothes million 61.0 million 88% Gas Clothes Dryer million 18.2 million 90% Dishwasher million 69.7 million 84% Room Air Conditioner million 63.3 million 85% Selective Window Coatings million m² million m² 83% 8

9 Industrial Leaning Power industry Lena Neij, Cost development of future technologies for power generation A study based on experience curves and complementary bottomup assessments, Energy Policy, Volume 36, Issue 6, June 2008, Pages , Technology Learning rate Capital cost O&M cost Flue gas desulfurization (FGD) Selective catalytic reduction (SCR) Gas turbine combined cycle (GTCC) Pulverized coal (PC) boilers LNG production Oxygen production Hydrogen production 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 , 9

10 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 had experience 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 10

11 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 ) 11

12 USA France Japan Korea Case studies 12

13 Learning and co-siting FACTS USA US Nuclear Reactors (IAEA-PRIS data) 132 reactors (100 in operation) 113 reference unit power (83 in operation) 82 sites (59 in operation) 13

14 Learning and co-siting FACTS USA 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, , Energy Policy, Volume 35, Issue 11, November 2007, Pages

15 Learning and co-siting FACTS USA Projected and Actual Construction Costs for Nuclear Power Plants (USA) Actual = budget X 3 15

16 Learning and co-siting FACTS FRANCE FRANCE Nuclear Reactors (IAEA-PRIS data) 71 reactors (58 in operation) 23 reference unit power (11 in operation) 22 sites (19 in operation) 16

17 Learning and co-siting FACTS FRANCE Fleet Standardization 32 3-Loop 900 MWe 20 4-Loop 1300 MWe 4 4-Loop 1450 MWe Gravelines Site Chooz Site Paluel Site 17 17

18 Construction time [months] Learning and co-siting FACTS FRANCE 3 Cluster 1550 MWE 1 Cluster 950 MWE 2 Cluster 1350 MWE EPR (OL3-FL3) 1650 MWe Year of grid connection 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

19 Learning and co-siting FACTS FRANCE & USA Do you see economy of scale here? 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

20 Learning and co-siting FACTS JAPAN JAPANESE Nuclear Reactors (IAEA-PRIS data) 64 reactors (48 in operation) 31 reference unit power (24 in operation) 20 sites (16 in operation) 20

21 YEARS Learning and co-siting FACTS JAPAN CONSTRUCTION TIME FOR BWR AND PWR JAPANESE REACTORS BWR PWR Linear (BWR) Linear (PWR) /6/68 2/12/73 25/5/79 14/11/84 7/5/90 28/10/95 CONSTRUCTION STARTED 19/4/01 10/10/06 UK in SMR; SMR UK 25/09/2014, Manchester Only LWR above 700 MWe. Size increased over time from, 760 to 1325 MWe 21

22 Learning and co-siting FACTS SOUTH KOREA Korean Nuclear Reactors (IAEA-PRIS data) 28 reactors (23 in operation) 19 reference unit power (18 in operation) 6 sites (5 in operation) 22

23 YEARS Learning and co-siting FACTS SOUTH KOREA CONSTRUCTION TIME FOR THE STANDARD 1 GW KOREAN PWR HANBIT R² = HANUL KORI SHIN-KORI SHIN-WOLSONG /8/76 18/2/82 11/8/87 31/1/93 24/7/98 14/1/04 6/7/09 CONSTRUCTION STARTED 23

24 Learning and co-siting FACTS SOUTH KOREA 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 , 24

25 Learning and co-siting FACTS SOUTH KOREA Overnight Capital costs and construction duration of Korean NPP. YGN=Yonggwang; UCN=Ulchin (Matzie, 2005). 25

26 Learning and co-siting FACTS SOUTH KOREA -Key success factors Standardisation Leveraging international Know-how Role of the government Focus on constructability Workforce education Interdisciplinary 26

27 Trade off Economy of scale Economy of multiples 2 Phenomenon Learning by doing + site sharing economies 27

28 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 GWE? 28

29 Further bibliography G. Locatelli, C. Bingham, M. Mancini Small Modular Reactors: a comprehensive overview of economics and strategic aspects Progress in Nuclear Energy. Vol. 73, May 2014, pp G. Locatelli, M. Mancini, E. Romano Systems Engineering to improve the governance in complex project environments (International Journal of Project Management In press. Available on line - G. Locatelli, M. Mancini, N. Todeschini Generation IV nuclear reactors: Current status and future prospects Energy Policy, Volume 61, October 2013, Pages G. Locatelli, M. Mancini A framework for the selection of the right nuclear power plant International Journal of Production Research. Vol. 50, No. 17, 1 September 2012, pp 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 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 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 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 G. Locatelli, M. Mancini Small medium sized nuclear coal and gas power plant: A probabilistic analysis of their financial performances and influence of CO 2 cost. Energy Policy, Volume 38, Issue 10, October 2010, Pp 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

30 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 glocatelli@lincoln.ac.uk