Credit: Sue/Adobe Stock

Melissa Magliana
LALIVE, Zurich
mmagliana@lalive.law

Roopa Mathews
LALIVE, Zurich
rmathews@lalive.law

The resurgence of nuclear energy

Amid increasing energy costs and a worsening climate crisis, demand for low-carbon energy sources like nuclear power is on the rise.

This growing demand for nuclear energy has triggered a surge in construction projects for newbuild nuclear power plants across the globe. Approximately 60 nuclear reactors are currently being constructed in 15 countries.^[1] A further 110 nuclear reactors are planned, with mainland China and India expected to lead global nuclear power development in the coming years.^[2] European countries are also driving the nuclear energy renaissance. Among several new-build projects in Europe, Westinghouse and Bechtel have formed a consortium to design and build Poland’s first nuclear power plant.^[3] The United Kingdom is also planning to quadruple its generation of nuclear energy and has held early-stage discussions with South Korea’s state-owned nuclear developer, KEPCO, to develop the Wylfa Newydd site in Wales.^[4] Emerging economies on the African continent, such as Ghana, Burkina Faso and Uganda, are also working towards their first nuclear power plants.^[5]

All of this is in addition to the approximately 440 currently operational nuclear reactors in 32 countries,^[6] many of which are aging and require modernisation to extend their operating lifetimes. After more than a decade offline, and despite plans to phase out nuclear power in Japan following the Fukushima disaster, Japan is now aiming to restart its Kashiwazaki Kariwa nuclear facility in late 2024.^[7]

At the same time, rapid technological advances in the field, including the development of small modular reactors and fusion technology, are likely to lead to even further growth. In March 2024, Germany announced a new funding programme for fusion research aimed at paving the way for the construction of the first fusion power plant in Germany by 2040.^[8]

Against this background, the recent resurgence of nuclear energy presents significant opportunities for businesses operating in, or seeking to enter, the nuclear construction industry. These businesses should, however, be mindful of the risks involved in construction projects in the nuclear sector and seek to mitigate these risks from the outset and during the life of such projects.

Overview of key risks

Construction projects in the nuclear sector have unique characteristics. Given the radiation risk inherent in nuclear energy generation, safety is critical. Nuclear construction projects are thus subject to rigorous regulatory scrutiny and extensive approval processes, both at the design and planning stages, as well as during construction. These regulatory requirements add a layer of complexity that cannot be underestimated. Indeed, it is often said that nuclear projects have to be built twice, first on paper and then again on the ground.

Design and planning risks

Nuclear construction projects are characterised by an extensive design and planning stage, during which the planned delivery’s compliance with contractual specifications and regulatory requirements must be demonstrated.

To satisfy regulatory obligations, nuclear projects also have more stringent documentation requirements than non-nuclear projects. For example, in some countries, applicants for a construction licence must submit extensive safety analysis reports, environmental impact reports, quality management programmes for the planning and construction phase, emergency preparedness concepts and decommissioning plans. Preparing such documentation requires the regulator, licence holder and suppliers to collaborate closely, with suppliers generally submitting the documentation to the regulator and licence holder for review and approval. This process must therefore be carefully built into the project schedule.

A further challenge is that regulatory regimes can vary significantly in different jurisdictions, with each country having its own regulatory authority overseeing nuclear projects. Businesses supplying to or operating in markets with which they are not already familiar must thus ensure that they are sufficiently familiar with the relevant regulatory requirements, in particular where they expressly warrant the compliance of their goods and services with those requirements, as is often the case in relevant sales or works contracts. Because regulatory requirements can also change over the duration of a project, businesses must also stay abreast of changes that may impact their delivery.

Moreover, while some regulators have been established only relatively recently, others have decades of experience. Countries may have: (1) mature and privately funded nuclear programmes and projects, such as in the United States and UK; (2) state-funded nuclear programmes, as is the case in China and India; or (3) emerging nuclear programmes, as in Bangladesh, Egypt and Turkey. The experience of regulators and lessons learned from past projects may thus inform the approaches taken within the regulatory framework. As a result, suppliers working internationally may face difficulties in understanding the relevant regulatory requirements applicable to new projects, particularly in situations where they are working in a particular jurisdiction for the first time.

Delay risks in project execution

Nuclear construction projects are also more prone to suffering delays during project execution. Recent publicly known examples include Hinkley Point C nuclear power station in the UK; although the project was initially planned to be completed by 2027, it is expected to be delayed until 2029 at the earliest, reportedly due to complex technical issues, such as the installation of electromechanical systems and intricate piping.^[9] Similarly, the Vogtle nuclear power station in the US was delayed by several years, in part due to supply chain delays and design changes after the start of construction.^[10]

Regulatory oversight is a frequent cause of delays. For instance, regulations often require that working procedures be pre-approved by the nuclear power plant owner or regulator. The time required to apply for and obtain these approvals must be factored into any project schedule. In addition, site changes implemented during project execution may require additional inspections and approvals from the regulator. As such changes are not always foreseeable at the outset, contractors would be well advised to build sufficient float into the project schedule.

Like many construction projects, nuclear projects also have long lead times that must be anticipated well in advance. These include the procurement, manufacturing and installation of certain complex components and systems, such as steam generators, heat exchangers or instrumentation and control platforms. In addition, however, given regulatory requirements, long-lead items frequently also include complex training programmes and management systems. These long lead items must be contemplated and thoroughly planned at an early stage of a project to avoid negatively affecting the project schedule.

Finally, the evolution of nuclear technologies is accompanied by unique challenges that risk having an impact on project schedules. Equipment with no or only limited prior operating experience may require additional testing and validation, which, if not properly anticipated, also risks delay.

Risk management

The risks outlined above apply to all aspects of a nuclear construction project, involving contractors and suppliers that operate internationally to manufacture and deliver equipment and components. Businesses involved in such projects, especially contractors or suppliers that are unfamiliar with the nuclear industry, should be mindful of the risks involved in nuclear construction and modernisation, replacement and retrofitting projects. While the management of such risks must be considered on a case-by-case basis, there are overarching principles that may help to mitigate them.

Awareness of risks

A thorough understanding of the applicable regulatory regime, from the early stages of a project, is essential. Particularly where a contractor or supplier is operating in a new or less familiar jurisdiction, or has little or no experience with nuclear applications, it is critical to be mindful of the applicable nuclear regulations. To enhance knowledge of the regulatory regime and applicable requirements, businesses should consider engaging nuclear consultants with experience in the relevant jurisdiction to assess regulatory and other risks, as early as possible in the project, and already at the stage of contracting. Understanding the applicable regulatory requirements can be essential in setting a realistic project schedule, as well as the selection and supervision of vendors in the supply chain.

Contractual allocation of risks

Once the risks involved in a project have been identified, parties must allocate them contractually and assess the impact of that allocation. Parties should thus carefully consider how their respective roles, responsibilities and obligations are defined; who bears the risks of compliance with regulatory requirements and/or any changes in such requirements during the course of the project; how the risk of unforeseen circumstances is to be allocated, including suitable change management provisions; and how to define appropriate limitations on liability. Improper risk allocation can result in delays, cost overruns and an increased likelihood of disputes.

Factors to consider in deciding how to allocate risk include determining:

Which party is best placed to control the risk and its associated consequences?

Which party can best foresee the risk?

Which party can best bear the risk?

Which party most benefits or suffers when the risk materialises?^[11]

While it may not always be possible for contractors to achieve a desired risk allocation during the negotiation phase – and indeed, contractors frequently do assume the risk of ensuring regulatory compliance in the relevant contracts – understanding the risks involved and how they have (or have not) been contractually allocated is critical in assessing the overall commercial transaction.

Mechanisms for dispute management

Stakeholders in nuclear construction projects should put in place appropriate mechanisms to resolve disputes and minimise disruptions to ongoing projects. As with other construction projects, there are a variety of procedures available to resolve disputes that arise during the life of a project, ranging from the involvement of senior management, the creation of standing dispute boards or the referral of disputes for expert determination. Selecting the most appropriate procedure for the particular project at hand, and defining its key features at the outset, can greatly assist in avoiding delays and the escalation of disputes during project execution.

Robust claims management procedures, such as clearly defined notification requirements with realistic timeframes, can facilitate the early detection, mitigation and resolution of potential disputes.

It is also important for all aspects of the project to be properly recorded in the event that a potential dispute should arise. In addition to maintaining a well-organised project file and safeguarding written project correspondence, it is also critical that meetings and calls be carefully documented through minutes or notes. It is not uncommon to find, at the dispute stage, that key information discussed in meetings or on calls has not been adequately captured in the available documentation, thus leaving gaps in the evidentiary record and making a reconstruction of the relevant facts more difficult.

Conclusion

Although opportunities abound for companies seeking new projects in the nuclear construction industry, investing time and effort in preparing for and carefully assessing risks at the outset is critical for avoiding potentially significant consequences and disputes at a later stage.