Surety & The US Nuclear Renaissance

A nuclear renaissance has begun in this country.

Here is a cursory overview of what is coming and when, respectively: “Proposed New Nuclear Power Plants” and “First Wave or Second Wave?”. As you can see, the plans span decades. That is because nuclear energy facility construction requires years of wide-ranging and comprehensive planning, licensing and financing efforts. All of this is changing rapidly, but it is already underway. The extent of the work that will be bonded is not clear, but given the the risks, public responsibilities and probable general contractors, the use of construction contract surety bonds is likely. My personal opinion is that it is highly advisable, and I have written about it here:

Surety Bonds for Nuclear Energy Facility Construction Cost-Savings.

On a personal note, I should mention that before I had ever heard of a surety bond, I was involved in the tail-end of the last round of new nuclear construction in several capacities. I have been following the progress of the nuclear renaissance for about a year now, reading everything available and finally meeting some of the people involved in June. There is no primary source for this news and information, but there is an extensive blogosphere covering the developments. There are few traditional sources covering this other than highly-specialized, expensive paid sites and studies, very few of which specialize in the construction side of the nuclear industry, much less matters of interest to surety.

I would summarize my findings simply by saying that it looks like there is a sizable new market opportunity awaiting, but it is fraught with unfamiliar risks, particularly in regard to construction standards as well as nuclear and environmental regulations, state, federal and local. This is a whole other world of construction, folks.

“How big is that market?” I hear you asking. Well, $188 billion is one number that was floating around last last year. And at the National Press Club in July, Senator Lamar Alexander of Tennessee announced a $700 billion plan to almost double the number of reactors nationwide. There is similar legislation pending in Congress, e.g., the American Energy Act.
I am loathe to put a number on it myself, and hereby chastise the mainstream construction press for being so late to the game reporting on this with any kind of comprehensive summary. The numbers on the board change frequently for reasons including: federal licensing, corporate fluctuations, financing, federal loan guarantees and state approvals, listed here in no particular order. But I would submit that they are indeed substantial.

Due to their sheer size, complexity and duration, these projects do not easily lend themselves to bonding in their entirety. But some proportion of bonding is probably feasible for many of the subcontracts and large fabrications. In fact, “modularity” is a phrase used a lot in the renaissance circles, and that ties-in very well with surety, at least in my opinion. The overall financial guarantees for the general contracts with the utilities are mostly confidential, thus not revealed on the state utility regulatory websites. But just to give you number-hungry sureties one red-meat example, the first new project underway is Plant Vogtle 3 & 4 in Georgia, at $6.446 billion, so sharpen your pencils boys and girls. Other projects on the boards may be higher or lower, as some are expansions at existing facilities and others completely new. At least one of the general contractors involved has mentioned that there may be a need for financial guarantees for its subcontractors, citing surety bonds specifically. For a number of reasons, I think it can be expected that others will soon follow suit, if they have not already done so. You might want to give the old “heads-up” to reinsurers, as nuclear exclusions are prevalent in insurance and surely confusion will ensue among that quarter. Sureties which predominantly bond smaller subcontractors should also take note and dust-off the old guidelines from thirty years ago before they are blindsided. Questions may be forthcoming.

Bear in mind, these are only the domestic projects, dwarfed by what is planned worldwide. China, India, Brazil, Italy, the UAE, Finland and even Saudi Arabia are all in the mix. Those of you in international markets may have even greater opportunities there.

The surety industry has a lot to offer in this effort, as I’ve argued in the other post. I see it as an opportunity that should be explored.

by Surety Insider