Limited Supplier Base

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There are also a very limited number of suppliers for many of the major components that are needed to construct a nuclear power plant. Components such as the pressure vessel that houses the nuclear reactor, the pumps, and valves used in the cooling system, and the steam generators must all be built to extremely high standards. Since very few nuclear power plants were constructed worldwide in the 1980s and 1990s, the number of suppliers of these components has dwindled significantly, particularly in the U.S. In fact, the U.S. currently cannot manufacture these large components and must rely on other countries, mainly Japan and China, for them. Japan has continued building nuclear power plants and even it has only one supplier, Japan Steel Works, which can produce the large forgings needed to make a reactor vessel at a rate of eight to nine per year. Recently Northrop Grumman and AREVA announced

8 London Interbank Offered Rate (or LIBOR); see for a more detailed explanation a joint venture to build a manufacturing facility to provide another source for the manufacture of large components such as reactor vessels [25]. Their facility would produce two complete sets of the large components per year (Data courtesy of the AREVA Group, 2009, private communication). Despite the addition of a second source, there still would not be enough capacity to produce the material needed for the construction of 24-32 reactors per year. The limited numbers of suppliers simply do not have the capacity to produce these components in the quantities needed to support such a major increase in reactor construction.

To overcome the limited number of suppliers, additional manufacturers are needed. Because of the current uncertainty, it is unlikely that such suppliers will enter the market without incentives. The situation is not unlike that experienced in the 1970s as the U.S. Navy sought to update its nuclear submarine fleet. Then, the competition for components for commercial nuclear power had made it difficult to obtain components needed for the U.S. Navy's ambitious submarine construction program. To increase the number of suppliers, the U.S. Navy developed alternative sources for these large components by paying a premium to bring another supplier into the nuclear component manufacturing business. The premium was paid for the first few sets of equipment. Once the new supplier had produced these components and demonstrated his competence, he was competed against other suppliers, enabling lower costs without subsidies for later sets of components. Such an approach could be adopted to encourage additional suppliers to enter the market, a market that at present has a very large uncertainty. It is interesting to note that the reactor vessel for the very first commercial nuclear power plant in the U.S., the Shippingport Atomic Power Station, was manufactured at the Homestead Works of U.S. Steel which no longer exists. Since these types of facilities employ skilled high paid workers, they have the benefit of increasing employment and making very significant contributions to the local and national economies, easily making it worthwhile for governments to provide initial subsidies to manufacturers as inducements to enter the business.

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