New nuclear build programme presents huge opportunities for UK supply chain, but support is needed from Gov't - EY report
EY says the next decade will be 'critical' for the UK's nuclear supply chain.
The approaching decade will be critical for the UK’s nuclear supply chain if it is to increase capacity and capability to meet the demands of the new nuclear build programme and the industry’s developers.
This is according to a new report from EY, Creating confident investors and competitive advantage for the UK nuclear supply chain. The report is built on interviews with leaders across the nuclear industry on how to capture the opportunity of a new nuclear power build programme, in the UK and internationally, to deliver a world-class UK supply chain capability.
Huge opportunities for the nuclear supply chain
The nuclear new build programme offers a significant opportunity for the UK supply chain to demonstrate capability and realise economic benefit. The Government estimates investment of more than £45bn will be needed to develop the first three nuclear power plants at Hinkley Point C, Wylfa Newydd and Moorside. Furthermore, the potential for new opportunities, such as SMRs (Small Modular Reactors) or international nuclear activities, provide an opportunity to upskill and increase the capacity of the UK nuclear supply chain.
Chris Lewis, EY’s UK & Ireland Infrastructure Lead, commented: “This report calls for clarity on the need for nuclear power in our energy mix, and commitment between Government and Industry to invest in the UK capability. For the UK’s nuclear supply chain to capitalise on these opportunities, the industry needs to provide the pivot from an uncertain outlook. We need a model where the supply chain has the confidence from a clear pipeline of new build contracts, a unified industry championing the UK’s expertise and credentials, and investors are motivated and clear on the domestic and export opportunities.”
Uncertainty on number, scale, and pace of nuclear new build in UK
It is imperative that the Government provides visibility of project pipelines to ensure that the supply chain has the increased confidence to invest in the collective national capability, according to the report. Further nuclear plants are critical to ensure security of supply, as it is expected that all but one of the UK’s nuclear plants will close by the end of the 2020s, coupled with an estimated 20% increase in demand for electricity over the next two decades.
Lewis adds: “Our research stressed the importance of a clear view from Government on the approaching nuclear new build projects. This is to ensure that suppliers are able to deliver the required capability. It was suggested by an interviewee that there is significant development required to upskill capability and suppliers do not always have the confidence that the work will arrive.
“Respondents also said that the supply chain will only respond when the demand arises and developers cannot expect the supply chain to absorb the risk to develop their capability. It is arguably the responsibility of Government to commit to the project pipeline and deliver the certainty to suppliers that is essential to upskill and invest in capability.”
Championing the UK’s nuclear capability
The UK is recognised as a world-leader in the nuclear sector, demonstrated through the record breaking safety and operational performance achieved in the existing fleet, and the inward international investment in new build programmes. In addition, building upon the strong nuclear development record, the UK is home to some of most advanced and ambitious decommissioning programmes in the world, including Sellafield and Douneray.
As a result, the UK has significant capability across the nuclear value chain. In order to drive economic growth in the sector, it is critical to understand the attributes of the UK supply chain.
Miranda Kirschel, from EY’s Capital & Infrastructure Energy Advisory team said: “Our research repeatedly noted that the UK is far too humble about its capability. It was suggested that, due to the poor marketing of the industry, the current UK supply chain contribution to new nuclear is in the lower value civil requirements, such as earthworks, as opposed to the higher-value work in technology.
“The common view was that the industry should be held accountable and collaborate in a strategic manner, as there could be a stronger approach to positively market the capabilities – at home and internationally. Ultimately, this is about recognising the extensive capability and capitalising on this for the benefit of the UK supply chain.”
David Roxby, who focuses on energy strategy at EY, added: “Decommissioning is a huge global growth sector, and the UK supply chain has a head start as we are tackling bigger issues earlier than many other countries. Converting that into a winning capability and internationally competitive business model is a huge prize and a significant challenge. It is at the heart of British industrial strategy: how to convert bespoke, specialist technical skills, with high public sector reliance, into an outward facing, world-leading sector, with capabilities across multiple industries as we shift from one generation of energy infrastructure to the next.”
Low financial capacity for innovation and investment
The report highlights that international suppliers possess comparatively larger financial backing, i.e., stronger balance sheets, than UK suppliers. As a result, the UK supply chain is in a less favourable position to absorb the risk required to innovate and grow. Innovation is sometimes seen as a risk within the sector and this is at a time when the UK must adopt leadership in innovation through the Government’s Industrial Strategy.
Kirschel adds: “Interviewees commented that there may be an opportunity for Government investment in capabilities or mechanisms to support SMEs to share risk at the delivery side. This would help encourage innovation for the benefit of national capability.”
Cross-sector skills plan
The high attrition rates of those working in the nuclear industry means that the sector must recruit 8,600 people each year. In order to maintain the UK nuclear capability and high level of SQEP (Suitable Qualified and Experienced Person), suppliers must continue to invest in their capability.
According to the report, interviewees said that the overall skills gap is not a concern, but the shortage of highly-skilled nuclear regulators is. As a result of too few regulators it is sometimes challenging for senior stakeholders to action decisions quickly and effectively, which can cause expensive regulatory delays.
“The fragmented approach to skills planning across sectors is creating an impending pinch point. It is imperative that the UK Government recognises how to optimise a finite workforce that will deliver commercial needs, societal requirements and infrastructure delivery. The key threat to delivering infrastructure programmes across sectors is the lack of strategic skills planning; ensuring the right people, are in the right place, at the right time,” said Kirschel.
Optimising UK infrastructure delivery
Interviewees unanimously acknowledged that the UK has substantial capability in nuclear, but there is simply not the capacity to deliver. This is both due to the internal industry demands and exacerbated by the aforementioned wider infrastructure programmes. The report highlights that there is an urgent requirement to assess the approaching supply chain demands across each of the sectors and identify suppliers that will receive demands beyond their capacity.
Lewis concluded: “It is imperative to grow national capability by understanding capacity limitations, capability requirements and the ability to deliver across the value chain. The Nuclear Sector Deal should provide an opportunity for cross-sector supply chains to maximise utilisation and increase capability through the alignment of plans and optimisation of assets.
“The interviewees unanimously stated that there is a requirement for clarity on what the Government desires to achieve in infrastructure delivery and its long-term strategic goals, such as in the form of a national infrastructure imperative.”