Keys to Lowering Reactor Costs: Economies of Scale or Serial Production?

I consider my "Keys" series to be relevant to the current debate on the cost of nuclear power.

David Walters passed on to me a 2004 study, by the University of Chicago," The Economic Future of Nuclear Power." This study looked at both nuclear construction and capital costs, and challenged some frequent assumptions and common beliefs. We should be aware that Rod Adams had already done this. Let us begin with the notion of economies of scale. As Rod Adams explained 12 years ago: "Pick up almost any book about nuclear energy and you will find that the prevailing wisdom is that nuclear plants must be very large in order to be competitive. This notion is widely accepted, but, if its roots are understood, it can be effectively challenged."

In the small worked of nuclear blogger, Rod Adams is known as a mighty smart man. Adams argues that the notions about economies of scale in the nuclear power industry was a legacy of the experience reactor manufacturers had had with fossil fuel powered generating facilities. "Experience had taught" Westinghouse, General Electric and their competitors, "that larger power stations could produce cheaper electricity and that electricity from central power stations could be effectively distributed to a large number of customers whose varying needs allowed the capital investment in the power station to be most effectively shared between all customers."

Adams continued:

"Their experience was even codified by textbook authors with a rule of thumb that said that the cost of a piece of production machinery would vary by the throughput raised to the 0.6 power. (According to this thumb rule, a pump that could pump 10 times as much fluid as another pump of similar design and function should cost only four times as much as the smaller pump.)"

But in 1996 Adams challenged the idea that economies of scale worked with nuclear power. He asserted,

"it is safe to say that there has been no predictable relationship between the size of a nuclear power plant and its cost."

It appeared that large nuclear plant size tended to increase construction time, which in turn increased capitol expenses. Hence, some studies found diseconomies of scale. that outweighed the increased economies related to parts costs.

The University of Chicago's 2004 literature review came to the same conclusion that Adams had. The Chicago study concludes, "It seems reasonable to conclude that few if any scale economies existed in nuclear plant construction in the 1970s and 1980s to confound the identification of learning effects."

Adams advocated small rather than large nuclear power plants. "If a market demand exists for 300 MW of electricity, distributed over a wide geographic area, traditional nuclear plant designers would say that the market is not yet ready for nuclear power, thus they would decide to learn nothing while waiting for the market to expand."

Adams was clearly ahead of his time.

Small size, leads for the demand of a larger number of units in order to meet electrical demand. Thus if the standard reactor size produces 100 MWs of electrical power, 10 such units would be required to produce the same amount of electricity as 1000 MW unit. The demand for ten units would lead almost inevitably to serial production. Adams notes, "Though the "economy of scale" did not work for the first nuclear age, there is some evidence that a different economic rule did apply. That rule is what is often referred to as the experience curve. According to several detailed studies, it appears that when similar plants were built by the same organization, the follow-on plants cost less to build. According to a RAND Corporation study, "a doubling in the number of reactors [built by an architect-engineer] results in a 5 percent reduction in both construction time and capital cost."

This in tern lead Adams to point to another factor, that the learning curve, facilitated by serial production, lowers cost through time. It should be noted that the University of Chicago study did not take this line of thinking as far as Adams did, but then Adams thinking about reactor design was far in advance of the thinking found in the august halls of the University of Chicago.

Adams added,

"When picking the proper size of a particular product, the experience curve should lead one to understand that high volume products will eventually cost less per unit output than low volume products and that large products inherently will have a lower volume than significantly smaller products."

Adams did not say in 1996, "Mass produce 'em in a factory, but I will wager if I asked him if that was what he was thinking, Adams would have answered, "yes."