ICAEW.com works better with JavaScript enabled.

International developments on Uncertainties and Benchmarking in decommissioning costing

Article written by Simon Carroll, Swedish Radiation Safety Authority & Chair of the OECD Nuclear Energy Agency’s Decommissioning Cost Estimation Group, following the ICAEW Energy and Natural Resources Group webinar on 7 Feb 2017.

Thank you to everyone that joined in the webinar. Decommissioning cost estimates in the UK’s civil nuclear estate have increased 70-fold over the last 20 years, and there is similar experience in other EU countries and in other industries, particularly Offshore Oil and Gas, where cost estimates are highly variable, and variances are skewed towards higher than expected costs. The ICAEW ENR webinar on How to Estimate a Fair Cost for Decommissioning, held on Feb 7, 2017 prompted an excellent article from Simon Carroll, Swedish Radiation Safety Authority & Chair of the OECD Nuclear Energy Agency’s Decommissioning Cost Estimation Group. The OCED are seeking to build up global participation in cost benchmarking, in order to better understand and provide greater confidence in decommissioning cost estimation for governments and investors. ICAEW ENR Members are encouraged to engage in the OCED’s efforts, and are welcome, as individuals, or on behalf of your company, to register your interest. The OCED’s Benchmarking project will be formally launched in June, and UK experts are represented both in the current planning group and in the full committee.

The technical ability to decommission nuclear facilities shut down after normal operation is well demonstrated. Issues of current concern include the ability to accurately calculate and demonstrate the validity of decommissioning cost estimates, and to control costs during decommissioning projects. This article summarises recent work at the OECD Nuclear Energy Agency (NEA) which addressed uncertainties in nuclear decommissioning cost estimation. It also describes a new NEA project which will explore aspects of benchmarking decommissioning costs.

The need for better estimates

Historical experience of estimating decommissioning costs has not been particularly satisfactory. In response to this, the process of decommissioning cost estimation is evolving. The general trend is towards showing greater levels of detail in estimates and more explicit representation of the uncertainties that bear on the final cost. Driving these developments is a need to give greater confidence that funding will be sufficient, and for developing tools for improving project management and enhancing project delivery.

The International Structure for Decommissioning Costing (ISDC) was published in 2012 by the NEA, the International Atomic Energy Agency (IAEA), and the European Commission (EC). The ISDC provides a useful common reporting format for decommissioning costing. It builds up a deterministic estimate starting from the scope and assumptions set out in a detailed basis of estimate (BoE). However, the ISDC does not fully address uncertainties or explain how to incorporate these in estimates. A consistent and comparable treatment of uncertainties in decommissioning cost estimation would aid comparison between estimates and enhance understanding of and confidence in the estimates themselves. Figure 1 shows the main elements of a cost estimate in relation to what is included in the ISDC.

Elements of the cost estimate and the ISDC

Addressing uncertainties

In 2014 the NEA and IAEA initiated a joint activity to facilitate preparation and presentation of nuclear decommissioning cost estimates. This project concluded in 2016, and the results are to be published shortly. The results include explicit consideration of uncertainties in an integrated manner, and as a complement to the existing ISDC format. It offers an approach to treating uncertainties reflecting current good practices in cost estimating. Specifically, it describes how uncertainties in decommissioning cost estimation can be addressed using standardised methods of estimating uncertainty and risk analysis. Its recommendations aim at enabling better consistency of application of the treatment of risk and uncertainty in the preparation of decommissioning cost estimates.

Incorporating Risk Mitigation into the Project Scope

The ISDC addressed the development of an estimate for a given, defined scope and did not fully consider issues relating to poorly defined or immature scope, and how these should be addressed in an estimate. To address this, attention needs to be given to an iterative process of scope refinement or optimizing of the initial project scenario. It may take several iterations of scenario development to optimize the base scenario for the project, with an understanding of the potential impacts of alternative decommissioning strategies. This iterative development of the base scope can be undertaken progressively at any time in the cost assessment process.

An initial Base Scope can be adjusted by adding additional scope in order to mitigate potential risks. Where an initial assessment reveals potential events and outcomes that may be seen as intolerable or undesirable, these may be better dealt with by adding appropriate risk mitigation scope to the original Base Scope, rather than by being addressed separately as potential out-of-scope risks. The additional cost for the risk mitigation scope should then be estimated as part of a revised Base Cost for the project.

Adjusting terminology to incorporate a wider range of uncertainties

The ISDC used the term 'contingency' to describe a provision for uncertainties within the defined scope of the project. These are associated with conduct of work under other than the ideal (theoretical) conditions used to derive the project base cost. These uncertainties are likely to occur during the execution of a project such as equipment breakdown, inclement weather, logistical delays, etc. The ISDC assumes this provision will be fully spent during execution of the project.

The new report remains consistent with the ISDC approach, however it renamed the 'contingency' provision 'Estimating Uncertainty'. This is so as to avoid confusion with other uses of the words contingency, in particular provisions for uncertainties considered beyond the defined project scope ('Out-of-Scope').
The ISDC does not address out-of-scope uncertainties which lie above the Project Baseline Estimate. Out-of-scope uncertainties are referred to as 'Risks' in the new approach, and are explicitly taken into consideration in the estimation process.

Adding Risk Elements Beyond the ISDC

The consequence of taking Risks into consideration is to address the need for an additional cost provision for risk above the project baseline estimate.

As we are dealing with a potential range of outcomes, it is logical to consider both deterministic and probabilistic means to derive a further funding provision to tackle the issue of funding shortfall against out-of-scope risks. This entails a step-wise approach to the analysis of out-of-scope risk and how this can be used to derive a cost provision in the final cost estimate. The process involves risk identification, assessment and analysis to generate a set of outcomes for several different scenarios (and hence a range of additional cost provisions) that are directly tied to a probability of occurrence.

A determination also needs to be made as to which of these Risks are to be fund

Putting all elements together allows the production and presentation of a cost estimate that is able to integrate treatment of issues of scope maturity, uncertainty within the defined project scope, and out-of-scope risk. This integrated approach, and its relation to the ISDC, is illustrated in Figure 2.

An integrated approach addressing uncertainties, in relation to the ISDC

Estimates are more than just numbers

Understanding an estimate also requires consideration of a range of factors beyond the process by which cost estimates are calculated, such as when it was prepared, for whom, and in what context.

The circumstances or 'context' in which a project takes place are important considerations for understanding an estimate, as facts and data do not exist in a void, unconnected from other information. These perspectives can generate very diverse outcomes for the estimate, in particular where provision for uncertainties outside of the defined project scope is being considered. Project context will vary from project to project and country to country. It may also change over time as a function of national strategies and organizational accountabilities.

Some countries have adopted standards (and created associated project control procedures) to enable better transparency and consistency in cost estimating. Sensitivity analysis can also be used to give greater insight into an estimate and the underlying calculation processes. By means of this analysis, insight is provided into how and to what extent changes in particular variables may influence the model outputs. Scenario analysis may also be used to explore the possible cost outcomes of alternative scenarios and options.

The quality of the estimate and risk analyses are tied to the quality of the input data and the analysis of specific risks and impacts. In order to enhance understanding of the estimate and confidence in the results, the analyses and calculations underpinning these provisions need to be traceable, the processes understandable, and the estimate output needs to be able to be referenced to the input data. It is therefore important to consider aspects of quality assurance and how these are addressed in an estimate.

Figure 3 illustrates one example of a systematic approach which can be used for auditing estimates and the foundation on which the cost estimate is built. Produced by the UK National Audit Office, this starts with the model concept and design, and includes consideration of the use of model outputs and the governance and assurance structure.

NAO framework for a model audit

Decommissioning cost benchmarking

Benchmarking is increasingly referred to in the context of cost estimation for nuclear decommissioning. The growing interest in 'benchmarking' in decommissioning costing reflects increasing attention on understanding variations between cost estimates and apparent escalation of decommissioning costs. A related interest is in improving the performance and ensuring value-for-money in the delivery of decommissioning projects and services.

A number of challenges need to be addressed before benchmarking approaches for NPP decommissioning costing can be practically implemented. These challenges arise in part because the key relevant project and cost data currently is not readily available. In the context of nuclear power plant decommissioning, the problem here is two-fold:

  • Firstly, there is a heavy dependence on cost estimates rather than actual cost data because of the relatively limited experience in actual NPP decommissioning; and
  • Secondly, where there is actual experience, the access to actual decommissioning project cost data is limited, not least of all because of strong sensitivity around sharing of such data.

In 2017, the NEA’s Decommissioning Cost Estimation Group (DECG) is launching a new project on aspects of benchmarking in decommissioning costing. The benchmarking work will focus on a number of inter-related components:

  • Identifying possible benchmarking approaches and discussing their specific application to decommissioning costing, including the ‘added value’ in developing decommissioning cost benchmarking approaches;
  • Discussing prevailing barriers to the necessary information and data sharing required for decommissioning cost benchmarking and exploring what is needed to facilitate development of benchmarking approaches in nuclear decommissioning costing (a possible 'road map'); and
  • Possible benchmarking exercises or case studies in order to develop and illustrate decommissioning costing benchmarking concepts and methodologies, if suitable cost estimate and actual cost data is made available.
  • There will be a ICAEW ENR seminar on Decommissioning Cost estimation at the Total Decom 2017 exhibition in Manchester at the Old Trafford Cricket Ground exhibition centre on Wednesday March 29th at 1300. The exhibition is free entry all day, but you have to register beforehand. ENR members can purchase discounted tickets for entry to the Total Decom Conference on Tuesday March 28th where there is a line up of speakers from Oil and Gas and Nuclear in the subject of decommissioning, a market which is set for very strong growth as facilities reach the end of their operating life.