The Turnkey Era in Nuclear Power

The turnkey era is viewed as a temporary deviation from the traditional pattern of conventional contracting that arose because of the informational problems associated with scaling of nuclear reactors to commercial size. General Electric's decision to offer turnkey contracts at a cost competitive with coal units was a decision to invest in a private demonstration program with prospective quasi-rents from later-generation reactors. Competition from Westinghouse kept turnkey prices at levels that increased investment costs for both GE and Westinghouse, and cut into profits in the post-turnkey era. The return to conventional contracting was a natural development, which occurred as soon as the reactor manufacturers had obtained sufficient orders to provide the scaling information they required. The return was natural because the incentive structure of the regulated utility industry encourages risk taking on the part of utilities in their contracting for capital goods. The preference of utilities for conventional over turnkey contracts contributed to the post-turnkey boom in nuclear orders, which occurred before bottlenecks and other difficulties caused such massive cost increases that the economic merits of nuclear power became questionable.