Legal energy: nuclear power stations

Nuclear power is back on the agenda in response to rising energy demands, the need to control carbon emissions and the need for greater energy security.

A number of countries have already recognised the need for more nuclear power plants and are well advanced in their preparations. In some instances, the design and construction of plants is already under way. Just across the channel, for example, work is proceeding on a plant for EDF at Flamanville in France. Looking more widely, the International Atomic Energy Agency says construction began on 10 plants around the world last year, the highest number since the mid-eighties.

There is much the UK can learn from these projects in terms of the technical and legal challenges to be overcome, not least the commercial and procurement issues created by the scale of nuclear projects. For instance, the design and construction process can take several years and price tags of £3-4bn are being talked about. This, along with the complexity of designing and constructing a generation of nuclear power stations, means if these projects encounter problems, the time and cost implications could be huge.

Furthermore, nuclear plants today are designed and built under intense public scrutiny. Nuclear power is a controversial subject, because of political views and public concerns over safety and waste disposal. As a result, construction will need to be carefully managed in the public domain if support is to be maintained, while ensuring the security of the plants and sensitive technical information is also critical.

If public concerns are to be allayed, the involvement of nuclear regulators is inevitable. Whatever contractual structure is adopted between the utility companies and the nuclear plant suppliers, the regulatory authorities will be closely involved in scrutinising the design and construction process, even before projects begin.

Even with a turnkey approach, there may be important risk areas to be negotiated, such as limitations of liability and remedies for delay

In the UK, for example, the Nuclear Safety Directorate is conducting a “generic design assessment” of the leading suppliers’ plant designs. This has to take place before proposals are considered for individual projects and before such schemes can get permission to proceed. This process is not expected to complete until mid-2011. After this, once specific projects begin, the regulatory authorities will continue to be involved in a supervisory role, which may involve additional stages of checks and approvals that will have to be accounted for in the construction process. The associated time and cost risks will need to be dealt with in the parties’ contractual arrangements.

In terms of the plants themselves, each of the leading suppliers has its own proprietary reactor and plant designs. There are only a few suppliers of nuclear reactor systems worldwide and there are limited global facilities available for the manufacture of high-specification nuclear reactor primary components (which can take years to fabricate). This may result in supply difficulties as global demand for nuclear plant accelerates.

All of these factors will need to be taken into account in contracts for the design and construction of nuclear plants in the UK. As the leading suppliers of nuclear reactors and plants are based outside the UK, the contracts will also have to consider the usual issues associated with international contracts, such as currency exchange fluctuations, the choice of governing laws, and the procedures to used to resolve disputes in international contracts, for example international arbitration instead of litigation.

Given all these factors, the allocation of design and construction risk in the choice of procurement will need careful consideration. So far, turnkey procurement appears to have been the preferred model for utility companies, in which all the risks are passed to a single supplier which takes overall responsibility. However, even within a turnkey approach, there may be some scope for important risk areas to be negotiated, such as overall limitations of liability, remedies for delay and performance problems, nuclear liability and insurance, licensing delays, and material price fluctuations during the lifetime of the project. Within all of these factors to consider, the scope for disputes is obvious. With UK construction contracts, these will presumably have to be dealt with under the statutory adjudication regime, at least initially.

Hopefully, nuclear projects in the UK can learn the lessons from the experience that has been gained on nuclear schemes already taking place in other countries.