Case study: The nuclear industry in the USA and South Korea

Comparing the construction of nuclear power plants in the USA and South Korea is one of the best examples of transaction costs in projects, programmes and portfolios.

For this case study, you will read about the South Korean nuclear sector.

The findings for the case study come from the following paper: Sungyeol Choi, Eunju Jun, et al. 2009. Fourteen lessons learned from the successful nuclear power program of the Republic of Korea. Energy Policy . 37(12), pp. 5494-5508. You will explore an overview of the paper and consider what lessons we can learn about how to efficiently develop and manage a large scale infrastructure programme.

The USA nuclear industry

The USA was a pioneer in nuclear power development. Westinghouse (a key vendor in the sector) designed the fully commercial and privately owned pressurized water reactor (PWR) of 250 MWe capacity. This was called Yankee Rowe and it operated from 1960 to 1992. Meanwhile, the boiling water reactor (BWR) was developed by the Argonne National Laboratory, and the first commercial plant - Dresden 1 250 MWe designed by General Electric - began operation in 1960. A prototype BWR (Vallecitos) ran from 1957 to 1963. By the end of the 1960s, orders were being placed for PWR and BWR reactor units of more than 1000 MWe capacity and a major construction programme began.

There was, and still is, a free market in the USA consisting of different utilities and vendors. Utility companies made specific requests for custom built reactors and most of these were one-off projects. There was no long term view towards a fleet of reactors or long term partnerships. Consequently, these projects lacked standardisation and transaction costs were very high while learning across projects was limited.

On 28 March 1979 an accident occurred at the Three Mile Island Unit 2 NPP near Middletown, Pennsylvania. The accident was the most serious in US commercial nuclear power plant operating history. Nuclear development in the USA suffered a major setback after this, even though the accident seemed to validate the conservative approach to design used in these types of reactors. Many orders and projects were cancelled or suspended, and the nuclear construction industry went into decline for around two decades. Nevertheless, by 1990 over 100 commercial power reactors had been commissioned.

At the time, the electric power industry in the USA was made up of essentially three types of utility systems:

A number of different utility companies bought these plants from a number of vendors. In the nuclear sector, vendors are the companies in charge of designing a nuclear reactor and, to some extent, they coordinate the procurement and construction of the reactor. Westinghouse and General Electric are two key vendors in the USA. The USA built many reactors in the 1970s and 1980s and utilities bought them from a range of vendors. At this stage, there was little standardisation and general coordination and therefore the vendors designed and built each reactor uniquely to the specific requirements of the customer (utility).

At that time, construction times doubled from under 60 months in 1968 to more than 120 months by 1980. At the same time, the real cost per kilowatt of capacity tripled; then productivity was far lower than expected. Proponents of nuclear power blamed construction and operation problems on two causes: regulation and a lack of standardisation.

In other words, in the USA, the construction costs for nuclear reactors were very high. It was common for projects to experience over-budget of around 300%, and consequently, many utility companies went bankrupt. A key reason for this was that they considered each project individually and not as part of an overall programme.

In the USA, there are about 100 commercial nuclear power plants in about 50-60 different sites across the country. On average, there are fewer than two power plants on the same nuclear site. In the map below, you can see the location of the nuclear power plants (2017) indicated by the white dots.

The South Korean nuclear industry

In South Korea, the situation is different. Typically, nuclear reactors are grouped together, and there are around thirty nuclear reactors across five sites. The map below shows where these reactors are.

They have developed a standardised design and project delivery chain for running the construction of a nuclear reactor.

The same companies always work together delivering very similar plants. The emphasis here is on managing as a programme rather than as a single project. As a consequence, nuclear power plants are delivered on time and within budget. The construction process takes about five years which is very good in respect of nuclear industry performance. The operational performance of these plants is also very good.

Please refer to the glossary to check any terminology you are unfamiliar with: Glossary of Project Management Terms

Coming up...

In the next section, you will analyse the South Korean nuclear industry in more detail.