Decommissioning is the fastest-growing niche in the US nuclear power industry as plant owners plan earlier-than-expected shutdowns for many commercial reactors.1 We therefore expect significant deal opportunities for investors and vendors over the next 20 years.
But nuclear decommissioning is inherently a high-risk endeavor. And successful execution of these deals requires rigorous due diligence, along with a well-crafted deal execution strategy.
1. Joseph Sinicrope et al., ''The Expanding Niche in Nuclear Plant Deactivation,'' ASTM Standarizatoon News, March/April 2016.
Given the highly technical nature of decommissioning work, plant owners have been exploring innovative strategies to shift decommissioning responsibilities to qualified service providers through license transfers.
The growth potential of the decommissioning market has piqued the interest of institutional investors, and some have already entered the market by
This is good news for the industry as there is a high cost to winning decommissioning projects, so any potential capital investment is welcome.
Investment firms also possess sophisticated fund management capabilities and may be in a better position to deal with the nuclear decommissioning trust funds and create financial stability.
Due to the tremendous skill and intense capital requirements for a decommissioning project, the market is showing signs of consolidation.
Some Tier 1 contractors are finding value in horizontal integration to bolster their market position in particular segments of the value chain.
We are now seeing more joint ventures and merger and acquisitions – among D&D project managers; engineering, procurement and construction (EPC) companies; waste managers; and transport and logistics experts – to expand service offerings across the value chain.
The nuclear decommissioning market is unique with technical, financial, regulatory, and stakeholder risks and requirements unlike any other industry. Here are some sample questions to help traditional and new players determine if this is the right market for them.
Our analysis of the nuclear decommissioning market shows that lead players seek deals where the buyer/target fills in the gaps or enhances one of the following five critical capabilities:
Relationship management. The decommissioning market, much like many other specialized industrial business-to-business services markets, features a strong relationship component. A strong partner/acquisition will bring with it relationship skills to deal with customers and stakeholders, federal, state and local agencies, NRC and project managers.
Operational expertise. This is especially important because of the specialized nature of the nuclear decommissioning market. Plant owners, in particular, want to see a strong track record of success and safety in waste management operations as the cost of failure is too high.
Contract management. Companies need to have experience managing contracts as service bundling contracts become more common. The ability to negotiate favorable terms can ideally lead to a win-win situation for all partners involved.
Integrated offering. Partnerships should enhance the capability to offer more and better services that each entity alone cannot offer.
Asset economics. Assets across the value chain should be complementary with little overlap so that they can boost productivity. These include: processing equipment, trucks and casks (containers used for disposal).