Why is it so hard to build big energy projects? The barriers that obstruct new infrastructure development, and how to get past them

29:29What it means for Bechtel is EPC means you are the principal, we are the principal designer, the principal buyer and the principal builder. And with competent people, single company, integrated platform, tools that use the same data in each of those three phases, E and P and C and you optimize your execution for the total cost. You're engineering to buy the right things and to build efficiently. And it's all very, very deeply integrated. And that was the key number one lesson of Vogel is that it was not an integrated EPC from the beginning where you had one competent builder who could do all three things doing all three things.

30:17And I know we'll get into some other industries later where we have proof points and precedents of how that works. But that was the number one lesson. Set the requirements early in a really informed way for how it will impact engineering and procurement and construction and design for field productivity and minimization of rework. So that's all that big lesson number one. And just a couple more I'll mention. And you really have to invest in training early. And we partner with the trades. I mean, NABTU, North American Building Trades Union, they're like us. We're partners, a deep partnership, and they're a fantastic partner.

31:05and you have to invest really early in understanding your labor challenge. And you can't just stumble into it. You have to understand what labor can do, what assistance is needed, what kind of training needs to be done. You have to invest. You have to get out to the colleges and the high schools. And you just have to be – you can't underinvest in the human side of building these jobs. And you just can't wait and react. Same for the supply chain. You have to invest much earlier. You have to understand what your supply chain is capable of. You can have a great design, but if the supply chain can't deliver it, it's not a great design.

31:42And so much greater insight into the supply chain. And those are some of the key high-level lessons.

31:53So what I wonder is, do those lessons then get forgotten? So what I mean is, you've had this fantastic amount of learning by doing. you've developed all this capability in the workforce and in the supply chain you've driven down the cost such that vogel 4 cost a lot less than vogel 3 presumably the right thing to do at that point would have been to go on to build vogel 5 and 6 and 7 and 8 or other civil plants wherever they might have been to take advantage of all that capability you've built up if you don't immediately move on to new projects how big of a risk is there that that whole supply chain and everything just atrophies again the workforce goes off people take other jobs doing different things and so on and so all that uh all those gains you made all those benefits you acquired from doing the hard work at vogel don't um get carried through into the future yeah so this starts to get back to the point that Melissa mentioned.

33:01A lot of the lessons I just described are actually not unique to just nuclear. These lessons of integrated EPC have been learned in the LNG market, in the combined cycle power market, in airports, in metro systems. Integrated EPC is typically, poor integration is typically the cause of project blowouts, and good integration is usually the cause of a success. where nuclear is unique is it's a different language the quality requirements are unique the way you trace materials is unique and so there are additional requirements in nuclear and and you don't want it to atrophy again but i just want to make sure folks understand that that the The bigger issue here is just good old fashioned pure execution.

33:58And it's not just a nuclear issue. In the nuclear world, you know, we have such an opportunity now to reverse the atrophy, reconstitute it. And hopefully if we're successful, it doesn't happen again. Not in my lifetime. Right. And so you're working on this one other project in Poland then. and what there's the expectation hope that there'll be more AP1000s built in the US. I know we've had quite a few, we've had some statements about that from the administration or the administration's keen to press ahead with new nuclear construction. Doesn't seem to have been that much actual activity so far and not so many contracts being signed.

34:44What's your sense of how that's going? I wish it were going more quickly. But things are happening. And I think I mentioned Natrium. That's not an AP1000, but it's an advanced reactor, and we're building it. We are in construction in Wyoming. And sorry, I forget. So which one is that then? That's one of the new advanced reactors. That's the TerraPower project that Bill Gates is the principal investor in, and it's sodium-cooled reactors. And it's got their NRC license to construct, which is a huge accomplishment. It's the first advanced reactor or SMR construction license, and that's just a few months ago.

35:34So quiet progress, but definitely progress. And I'm aware of some of the larger nuclear utilities in the country that are seriously evaluating AP-1000 deployments and lining up their investors and regulators and soliciting information from industry. And so things are happening. And I do believe that it'll happen. And the same way Vogel hopefully inspires someone to go second, somebody who goes second will inspire someone to go third, fourth, and fifth a lot more quickly. Yeah, so just to baseline some of this, one thing I just wanted to review for folks who didn't follow or live Vogel very closely, in terms of the overall timeframe, I mean, it was a 14-year process, roughly.

36:27And I'm thinking through it in terms of when an EPC could, should, we won't go into those pieces of it, be involved. But it was March of 2009 when the Georgia Public Service Commission was approving that expansion project on VOGAL to add those. I think the first nuclear concrete was poured in 2013, so roughly four years later. And then it was roughly four years later when y 'all got involved, Craig. So it was 2017 when y 'all were stepping in. And then fast forward, it was in the spring of 2023 when Unit 3 came on. And I think Unit 4 followed roughly, was it nine, ten months later? Something like that?

37:05Yeah. And so I think about that. And just as a high level to this question, it's like if we can translate a lot of lessons learned that are non-nuclear specific and then layer on all the nuclear specific pieces of it and do the same for other big energy infrastructure projects, whatever they are, whatever fuel they are. It feels like there is the first few years that's getting approval from the Public Service Commission, that's getting approval from the NRC. That's a lot of stuff that just has happened, but it's really in that 2013 onwards and the run up to that 2013 pouring in the first concrete that we can do things to actually shorten up timeframes to give more certainty in terms of when this sucker is going to land and get commercially connected and actually be providing large amounts of electricity to the grid.

37:51Is that fair to say in that way? Yes, I think that I can't think of any of the periods from 9 to 13, 13 to 17, and 17 to 23 that didn't have significant speed-up opportunities. Every aspect. Even the decision to pour concrete in 2013, the minimum requirements to do that were met. But in hindsight, was there enough engineering maturity and supply chain maturity to financially justify that? Hindsight would say we should have waited. At the time, I might have done the exact same thing if I were there when that was happening. But there's no one part of the system in that whole 15-year period, 14-year period that didn't have a lot of opportunity to speed up.

38:54and within that ed i'm thinking about to your question this is where this popped into my head was okay if we want to not lose lessons learned if we want to keep kind of the train running down the tracks and not have it slow down for a bit then there's certainly that that initial before the first pouring of concrete where it's like lining up projects i mean even before 2009 like there was a lot of work that went into actually getting approvals having the concept for where these things were going to land but that bigger plan but without that kind of front work we probably can't realize a lot of these opportunities, but lining up projects so that we can realize those opportunities, say, okay, we learned this here, let's bring it over here.

39:30That's a pipeline of projects challenge. And that does, does it not depend in large part on the economics of those projects, which at the moment for new nuclear in the United States are pretty marginal. If the market alone is going to drive what people are building, people will be building new gas fire generation and new renewables and new storage and those are the things which will give you the lowest cost power supply and get it to market the quickest which is as we've discussed many times on the show a particularly important issue at the moment for everyone interested in data center development and ai so does that mean i mean melissa i know what you think about this but does it need a lot more government action then to put the economic frameworks in place before you get to any of these issues about how the projects are actually delivered, you know, the country needs to decide collectively, we actually want new nuclear.

40:25Because as I say, if you leave it just to the market, it's not going to happen. I think there's opportunities across the board. I don't think that you need to have absolute certainty in terms of what the total pipeline looks like to move forward productively with the projects that are in the pipeline and to be, you know, having this integrated approach that can speed stuff up and make things, you know, land closer to on time, closer to on budget, in some cases that we talked about ahead of time. And maybe there's some examples we could talk about ahead of budget or lower spending than expected is a more accurate way of saying that.

40:58It certainly helps though, Ed. And that is kind of the point I was driving at, which is how do you balance the decision-making under uncertainty principles here? So we do have some uncertainty. We can't get rid of all of it, of where the next project's going to land, but then not lose these learnings in the meantime. And I think, Craig, y 'all have a different perspective than most anybody because you do this internationally. So, okay, we don't have a pipeline here, but we have these things going over here. My number I came up with, I'll say is that y 'all have been involved in more than 150 nuclear power plant.

41:30I mean, that sounds right. Now, most of those, you know, most of those were in the 60s, 70s and 80s. But since Since the 80s, there have been in the U.S., there have been a few completions, jobs that were paused after Three Mile Island got continued and completed. And we're the ones that did all of those. They were in the 90s and the early 2000s and even the teens, Watts Bar, Browns Ferry. We did finish those nuclear jobs. So there was never a decade where we weren't building one, even though people thought the industry wasn't. But what I would say about the feasibility, the financial feasibility, in the U.S.

42:13today, first of all, the regulatory system, the NRC, they're ready. And that is not the bottleneck. And so we're in a really good position, I believe, with the NRC's readiness and willingness. There's really good policy and public support right now. It's growing, and I don't think that's going to be the issue. The need for the power, really high quality. There's a big difference in the power quality when it's nuclear power. It's online all the time. It's very steady. It's high, high quality power, which is what the data centers need. So there's a really significant demand for this type of large-scale high-quality power.

42:55And I believe the return on investment parameters do work. however there is a commercial hurdle right now in the next couple of units and what i mean by that is it's still early in the cost curves maturation as you go from serial number one to serial number two to serial number three there's a a phrase you know how quickly can we get to nth of a kind cost and schedule yep and vogel is like serial number one And so there's still cost overrun risk that has to be dealt with. That's the hurdle that we have to get past. What we've been out touting is every party has to take a little more risk to make this happen.

43:42We do. Westinghouse does. The utilities do. Everybody's got to take a little more. And then we are going to need a little help from the government. If we can get past that hurdle, I think it all works. and we'll get into that pipeline of work that you're mentioning. Right. Yeah, that's really interesting. And, of course, I mean, one of the things about this is because each individual project is so big because they end up being tens of billions of dollars, as you say, then the risk of that going wrong for a specific company can be enormous. It has a huge impact on you or could have a huge impact on you.

44:22To that point, then, as you say, government backing being very important. I know the administration has talked quite a lot about the role of the energy dominance financing group, the old loan programs office, as it was. That clearly could play a very useful role in backing nuclear projects. I think they've got resources already allocated by Congress to do that. Is that something you think is going to turn out to be important? Yes, it is. First of all, every little bit helps. And those types of incentives improve the ROI. And if the ROI is improved, then the parties that are taking on the project have more capacity to absorb overrun risk.

45:08but there's still the issue of the last tranche of overrun risk. But those things that the government's doing absolutely helps and the government's been really very supportive and encouraging of industry. The government wants industry to go faster. So those are really helpful. Just to think about some other examples from the energy industry and perhaps some very clear success stories, uh in particular interested in building lng plants um so so general view it is too expensive and takes too long to build large infrastructure projects in the us lng plants it seems like have been a pretty outstanding exception to that in that the industry has grown very very rapidly um i think the first fid for a new lng export plant in the us was in 2012 maybe 2011 um since when capacity has absolutely rocketed us is now by some distance the world's largest exporter of lng and it is growing very fast there's a huge wave of construction now underway And I think a great majority of those projects, built by yourselves and by others, have come in on time or thereabouts and on budget thereabouts.

46:33I wouldn't claim there's been no cost inflation. Certainly there has been some. But in general, that industry really seems to work. Are there particular lessons, do you think, that other energy sectors could learn from the LNG industry and what it's got right? One of the things I mentioned earlier about – when I mentioned earlier that a lot of the challenges that the nuclear industry – just one more point on the nuclear industry that face is the more generic challenge of just large-scale EPC and not necessarily nuclear-specific, two different things and two different issues. To be clear, the cost of the EPC is always the most dominant cost of delivering a project.

47:18The equipment from the technology provider, whether it's the compressors for an LNG plant or the reactors for a nuclear power plant or the turbine generators and steam turbine for a combined cycle plant, those are the things that get everybody's attention and tickles everybody's fancy because they're technical and it's really exciting. But the fact is those things are generally less than one-third the cost of these jobs. And the cost is in the EPC. And that's where all the people are, and that's where the costs are. And what we learned in LNG, it's not only their lessons, it's the model. And it's the model that we're touting because it's a fantastic example.

48:05We've delivered 32 trains that are operating today that we delivered this century since the early 2000s, mid-2000 knots. 32 trains, 120 million tons per annum. It's one-third of the world's capacity, over half of the U.S.'s export capacity. And it was all on schedule and all within budget, 100%, every one of them. We didn't have any that didn't achieve the contract schedule. But you got to trace the roots of that back earlier to before the turn of the century when somebody was doing them first. And there was overrun risk. And there were things to be learned. And so the LNG industry went through what the nuclear industry needs to go through.

49:00And the LNG industry is what sort of puts the North Star of what's possible. Like this can be done. And we're now doing – we just turned over six Corpus trains, Corpus Christi trains for Chenier, six trains in the past year. And every one of them was breaking new records of time to market. And so we're still breaking records at 32, 17 – we have 49 trains between done and doing. So there's a lot of encouragement there. And these are capital-intensive jobs, compressed timelines. They require deep integration of ENPNC. We're doing heavy digital delivery. The way we carry lessons and teams forward from unit to unit is very systematic and deliberate.

49:53And it is absolutely the north star for nuclear. And that's how we're approaching it. that's really interesting and so then basically volume is crucial then is it's being able to do essentially the same project or very similar projects over and over and over again as you say to get to that point where you're at kind of nth of a kind where the one you're going to do you know the the n the n plus one of the n plus two are very much like the n uh which was like the n minus one of the n minus two that these are you know just things that are um completely repeatable unsantarized. Yeah, no, that's exactly right.

50:31The engineering is done to optimize construction. The data is integrated between E and P and C, the tools talk to each other. We just take the risk of rework out of the system. Another thing that we do in LNG, which is a really good lesson for nuclear is we've done it so well now that when we see an LNG job, We see like a organism and our job is to de-bottleneck it. It's like an assembly line almost and our job is to de-bottleneck it. So every single time we find a bottleneck in the process, we take control of that bottleneck. So for example, we fabricate our own pipe now. Pipe is the critical path of these jobs.

51:17We kept running into problems with pipe suppliers, so we decided to make our own pipe. we're constantly de-bottlenecking and that's a great lesson in nuclear as we mature. When you talk about a train with LNG, so that's what is it? It's an independent liquefaction unit and purification unit, right? So taking that natural gas and making it into LNG, right? So when we talk about trains, that is not small. That's a big one. So I just wanted to These are$10 and$15 billion contracts. For one train, that would be. For a three-train plant, you're in the$15 billion range. But then the second thing is I've got two things that I know this came up when we were talking before the show a little bit and when you and I were talking.

52:06But I also want to come back to the workforce piece of this. So when you're able to go from LNG to LNG to LNG to LNG with the same or very similar workforce, you've got a lot of folks who carry through them. You carry the lessons through really similarly. So I've got two pieces that I'm thinking through, which is how much of this can be transferred to other projects, other energy projects, back to what we were discussing earlier. But the second thing is, I mean, the workforce is not infinite. And so, you know, when do you start hitting on those really uncomfortable places where you say, I mean, I've got a good lesson learned.

52:38I don't have the person to help me translate it to this next project if I want to speak into that. Yeah, it's definitely – that is definitely a factor, Melissa. We have a phrase in our company that we're paced by the capacity of our talent. And we can't take on something we don't have the capacity to perform and we are turning work away to this day. We are turning work away because of this. But we won't take something on if we don't have – when we do our planning, We actually think through from the designers to the craft professionals to the startup engineers. We're thinking, who are these people?

53:17Where are they coming from by name to a large degree? And at what pace can we onboard new people? At one time, we were doing one LNG plant only, and then we went to two at a time and then three at a time. And now we're doing six different plants at a time by growing capacity. So we are doing that. But you have to be really mindful of your ability because the worst thing you can do for an industry is have a big failure on a job. That sends a wave of no confidence into the industry. It's really tough to recover from. A big failure in the sense of what you mean being late. Cost and schedule blowout.

53:59Cost and schedule blowout. Yeah, got it. Yeah, yeah, yeah. Well, my brain, I've got another question, but my mind goes to if you don't do that, you lose trust, you lose confidence, and everything becomes a problem. So it's a very intentional investment there. But around this, you also mentioned pipes, I have to ask. So I live in Transformers world a lot of my life and other pieces. And so when you think about the things that are getting in your way of delivering on time on budget, okay, so you got pipes and you said, you know what, we're going to do it. We're going to pull that in closer. Um, what are the other things top of mind for you as you look at the, I'm focused on the energy portfolio, obviously, but like what pieces of that puzzle, is it pipes across the board or is it other things that you're like, we may have to pull this one in closer to, to get the job done?

54:45Yeah, we do it all the time. It's actually one of the most fun parts of my job because Bechtel has the – we have the strength to do it when we see it needs to be done. It started – it's actually started a long time ago. We basically fabricate our own pipe, big spools. And it not only did it de-risk the supply chain for us, but it allowed us to speed up the process of fabricating pipe. It's a very, you know, engineering feeds the requirements and then the fabricator gives information to construction and there were a lot of handoffs. So by taking control of the supply chain, we also sped up the EPC process and we basically moved pipe off the critical path.

55:31Like it's no longer the critical path of our work. It's amazing. We did it with steel just three years ago. We replicated our pipe strategy with structural steel. so now we fabricate our own steel we get the steel from the you know from the mills but then we fabricate the part that takes long we do that ourselves now we um we do it with labor in the sense that we have our own welding organization and because welders are really hard to come by and and and so we decided we would just have our own welding organization that we could call upon for some of the more complicated welding and not have to go to market every time So we do it with people.

56:13We build our own LNG tanks, and we used to rely on other contractors to do it, but it got to the critical path, and it replaced pipe on the critical path, so we started doing the tanks ourselves. So that's sort of a Bechtel way of doing things. We call it vertical integration. Vertically integrate to get control. Sure. And pick the pieces on that. And am I right? I think, Ed, you flagged this, that Bechtel, this primary source of steel, is it from the UAE? Did I remember that right? Yeah, that's right. I'm thinking about your world, Ed, dynamics around that and just how that plays in. But I'll leave that one for the moment.

56:54Yep. Go ahead, Craig. Sorry. Oh, no, I was just going to say, yeah, UAE is where we made an investment. We source a lot of steel in the U.S. And we do a lot of work with the steel fabricators in the U.S. to better integrate with our engineering. But we don't have an asset in the U.S. that we own and control in that way. Yeah, understood. Yeah, and so when you talk about repeatable projects in energy, I guess the same is true with solar and wind, right? that those projects are being built over and over and over again in very similar ways. And that's been a crucial factor in contributing to being able to drive down costs for solar and wind power around the world.

57:37Is that right? Yeah, it's more right than what a lot of people would think, actually. You know, solar... In the sense that people think it's simpler, and maybe these things don't apply. But that is not the case at all. I always like to tell people if the work is technically simpler, then you have a higher expectation for how well it can be done. And then everybody's trying to do it as best as they possibly can and competition kicks in and the definition of world class is just different, but it's still, phenomena is still there. Solar has all the same matters. The permitting is the biggest cost driver, and getting connected to the grid is a big cost driver.

58:28But then once you get those things done, then it all comes back down to EPC again and how efficiently you can build. With the five jobs that we have in the U.S., we took an industry that was doing like maybe 2 ,000 or 3 ,000 panels a day erected, and we are up at 15 ,000 panels per day in Indiana. 15 ,000 panels per day. I had a conversation with one of the CEOs of the panel suppliers, and they couldn't believe – they didn't even imagine that their own product could be installed that quickly. And it's because we're using drones and machine-controlled feedback and automated piling and – but digital execution, integrated EPC.

59:13It's happening in solar. and we're bringing the cost curve down and the scale of gigawatt scale now. You know, it was the vision of solar was to get to this scale. And we're kind of there. And it doesn't get as much attention in the country today, but we're doing all of everything. Yeah, no, that's fascinating. And because, as I understand it, as the cost of the panels has come down and down and down, all those other things, everything to do with construction, balance of plant grid connections um i guess the the racks that the panels are mounted on all of that all that stuff becomes relatively more significant relatively more important to the overall economics of the project and therefore something that it really makes sense to focus on and actually if you look at kind of all in system costs of construction of solar in the united states compared to other parts of the world, it's still relatively high, right?

1:00:10The United States is one of the absolutely highest cost locations for solar construction. And so everything you can do to bring that down, not through working on the panels, but through working on everything else, is going to be really important. Yeah, that's right. We're going to have to embrace automation. Right. So I see we're getting a bit short of time. So I must get to the issue then, which I'm particularly interested in, about what could be done better kind of at a social and political level to expedite these projects. You've talked quite a lot, Craig, about what you specifically have done at Bechtel.

1:00:49You've talked about the conditions that can exist in an industry to make infrastructure development more efficient. You've talked about the way developers need to think about projects. we touched a little bit on this earlier on but just in terms of the um regulatory framework the legal framework the things that could happen with permitting reform what specifically would help you if i'm sure you do talk to members of congress talk to people in the administration and you could say to them this is what we really need what are the things you'd ask for So what we do, we're right in the middle of it, advising on policy and sharing our views.

1:01:36And the good news is the government wants our views, which is always helpful. We have found that to be true across different administrations. So that's pretty encouraging. We discussed permit reform, and I think that's number one. And it's because it's just an unlocker. The next one is labor. And we have been working really hard and well with the government on this. And, you know, construction, labor, everything we're talking about, and I, you know, the way I describe it, everything we're talking about, all these assets that the world needs for AI and more power and more transportation systems, every one of these things sits on concrete, steel, electrical instruments, wires, you know, and that's what we're talking about.

1:02:28That's installed by craft professionals, and there are not enough of them in the United States. And we have to change the way we speak about the craft profession in our country. It's an honorable, highly respected, almost heroic living. It's very different today than it was years ago. A good construction worker makes six figures. But somehow we are still a country that prioritizes college over the trades. And we go about – and our generation and my parents' generation sort of we did this. And it was wrong and it was a mistake. And we have to restore the dignity to being a construction professional.

1:03:19It's a fantastic living. you can, you know, you could be 19 years old and making$100 ,000 and not have any debt and have a car and a place to live. You know, it's just a complete, so, and so we've been working with the government like on how do you, how do you take the Pell Grant system and make it, and make a vocational education qualified for a Pell Grant that's now passed. So, but that's the second area There were government help is needed in changing the mindset of the country on what success means in America. It doesn't necessarily mean going to college and wearing a tie. Those days are gone and we have to fix that.

1:04:00You're giving me a you're making me remember a book that I read a while ago by Michael Sandel called The Tyranny of Merit. and it talks about how we measure success and failure and how we think about credentials and how we think about what a path to success looks like and how that's evolved over time. And it's like, oh, you went to this college or this thing. So you've succeeded. And it's like, oh, and how we think about that as a society. A discussion for another day in depth. It's a really good one. I think, and I might've mentioned on the show a year or so ago when I was reading it, a year or two.

1:04:29You did, yeah. I remember you talking about it. Yeah, yeah. It's a really, but this is a very important point to highlight just the value of those jobs and then the importance of those jobs and the importance of people who do that work. That, look, the electricity doesn't arrive in my home or anywhere else by accident. It arrives here through infrastructure that has to be constructed and maintained. And that takes people who understand that work. And yeah, I'm going to stop myself now because we do not have time in today's discussion, but it's such an important point. Yeah. You're right. This is a fascinating topic.

1:05:09There's so much more that we could say about this. Unfortunately, we can't, though, because I know we have to end it here. And Melissa, you have to go, don't you? So let's wrap up the discussion now. But it's been fantastic talking to you both. Thanks very much indeed. Thank you very much, Craig, for joining us. Yep. My pleasure. Thank you guys very much. Great to see you again, Melissa. We'll be talking again very soon. yeah it was great to see y 'all um craig ed i really enjoyed this discussion i've got so many notes written down of follow-ups i have and things that rabbit holes i want to go down so yeah i do agree i feel like we've only scratched the surface but yeah plenty more discussions to be had on this topic and certainly it's been fantastic hearing your perspective craig i've learned so much from this discussion just that we've had right now um many thanks to our producer Molly Merwin and above all as ever many thanks to all of you for listening and watching we really value your feedback please do keep it coming send us a message leave a comment and we'll be back very soon with all the latest news and views on the future of energy until then goodbye