First Wave or Second Wave?

Fri Jul 24 16:24:38 EDT 2009
By Edward Kee

In this paper, NERA Vice President Edward Kee examines the US nuclear power industry, noting that most new nuclear power plant projects seem to be pursuing a first-wave build strategy. This strategy involves a significant early commitment of resources, while deferring the investment decision and retaining the option to defer or cancel the actual power plant investment as long as possible. As only a handful of these projects are expected to actually start construction in the first wave, Mr. Kee points out that there are a number of first-wave nuclear projects that may be able to create significant value for shareholders (and for consumers of power, for those that are regulated) by moving now to a second-wave nuclear build strategy. By aiming for a later construction start, second-wave projects will have access to additional information -- some of which will be linked to the outcomes of projects that started construction in the first wave -- that will allow for better decisions. With so much at stake, Mr. Kee recommends that all nuclear project invest in a formal analysis, using decision analysis tools to examine uncertainties, decision points, and external factors such as carbon prices and nuclear reactor costs, to craft an appropriate strategy.