Evidence of meeting #38 for Natural Resources in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was power.
A recording is available from Parliament.
4:35 p.m.
Conservative
The Chair Conservative Leon Benoit
Merci, madame Brunelle.
We'll go now to Mr. Cullen, from the New Democratic Party, for up to seven minutes.
Go ahead, please, Mr. Cullen.
4:35 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thanks.
Gentlemen, thank you for your testimony today.
This is a question for Mr. Thomas. I want to get into the notion of subsidies being required.
You mentioned the U.K. and the United States in terms of the need for a subsidy of their portion of the so-called global renaissance. Can you explain a little more why it's so important that these subsidies be applied and that these builds happen in those two countries, which then affect other parts of the global chain of nuclear new builds?
4:40 p.m.
Prof. Stephen Thomas
Experience in the United States suggests that the key subsidy is a loan guarantee, because that makes the finance available. Essentially it means that the bank is lending money to the federal government. That's a very safe loan; it means that the cost of borrowing can be very low. For example, the Finnish plant had loan guarantees from the French government and the Swedish government, and that meant it could borrow money at what I think was a rate of 2.6%.
Without those loan guarantees and with exposure to the risk of cost escalation, the banks would impose a very high interest rate, which would make the economics of nuclear power completely untenable.
4:40 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Can I ask about something you mentioned tangentially in regard to the Ontario bid that has been halted by the Ontario government right now? You mentioned that the scope of risk was larger or was entirely included within the new bid, but perhaps it wasn't you who mentioned this.
4:40 p.m.
Prof. Stephen Thomas
Yes. I said a little bit more in my written evidence, but I cut it out in the verbal evidence.
There were two bids, apparently, according to the reports I have seen in the newspapers. One from AREVA was for about $7,000 U.S. per kilowatt, but that wasn't compliant with the terms of the contract, because AREVA was not willing to take any of the construction risk. The bid from AECL was compliant because it did take some of the construction risk; it wasn't specified how that construction risk was taken, whether it was an entirely fixed price contract or what.
I think the relevance, though, is to the Olkiluoto order, which was a fixed price contract for 3 billion euros—or what appeared to be a fixed price contract. Now that's in dispute. AREVA is suing the customer and the customer is suing AREVA for the cost overruns, so it's a very messy situation.
But it does illustrate the point that asking a vendor to take the risk of cost overrun is going to add to the cost of the bid. That's probably one of the reasons why AECL's bid was so high.
4:40 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you for that. That's something we're trying to understand: what the actual bids mean.
Mr. Alexander, I know you'll want to say something about that. Are you familiar with the role of Moody's Investors Service in assessing the global risk of companies?
4:40 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Are they seen as a credible risk assessment agency? Are they extreme to one end or the other or are they sort of held up in the industry as reputable?
4:40 p.m.
President, AREVA Canada Inc.
I couldn't comment on that. I don't have specific knowledge of how they rank in the industry.
4:40 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
So you have no comment as to whether Moody's is any good at what they do?
4:40 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Okay.
At the beginning of the summer, Moody's came out with a report that I'm sure you're familiar with. I'll quote from the report concerning utilities that have nuclear power in their mix: “History gives us reason to be concerned about possible...balance-sheet challenges, the lack of tangible efforts today to defend the existing ratings, and the substantial execution risk involved in building new nuclear power facilities”.
It's noted that some utilities have lost as many as four points on their risk viability. Moody's is considered one of the more conservative credit rating systems in the world. Why would they knock down a utility's risk portfolio if they have nuclear energy as part of their portfolio?
4:40 p.m.
President, AREVA Canada Inc.
Well, I think Dr. Florizone touched on it. Obviously these large projects require some form of government support. You don't build a $10 billion development--or whatever it might cost--of two nuclear plants without some level of government support. Unfortunately, the average size of the balance sheet of a U.S. utility is, I think, $10 billion, so when you look at the size of a major project like this in relation to the balance sheet of the utility, it's such a big project with respect to the size of the utility that other things are required to support its financing.
4:45 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
The minister was with us a couple of days ago and talked about the AECL product as a niche product for the market. The viability of AECL is what we're trying to understand, as well as the viability of the nuclear industry right now in Canada. There are 130-plus new builds going on around the world. AECL has the contracts for exactly none of them. Why is that?
4:45 p.m.
President, AREVA Canada Inc.
Part of it, I think, relates to the light water versus heavy water topic that has been discussed here. The predominant technology in the world is light water technology; that's what the licensors are standardizing on and what countries are standardizing on.
In my remarks, I talked about the obvious consolidation in the industry over the last five or six years and about how multinational companies have formed joint ventures, just as AREVA was formed, to create a substantive size to be able to...in typical business terms, this is a huge barrier to entry. It requires huge amounts of development money. As I mentioned, it requires billions of dollars to develop new reactor technology. Only the biggest can survive, as is the case in many industries in the world now.
4:45 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
So in a sense the reason AECL doesn't have any of the contracts for new builds is that they're too small. That's one argument that can be made.
4:45 p.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Also, they're using a heavy water system that is not favoured by those wanting to build new nuclear reactors.
4:45 p.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Cullen. Your time is up.
We'll go now to the government side and Mr. Trost for up to seven minutes.
Go ahead, please, Mr. Trost.
4:45 p.m.
Conservative
Bradley Trost Conservative Saskatoon—Humboldt, SK
Thank you, Mr. Chair.
Maybe both AREVA and the Nuclear Waste Management Organization can help me out on this one. I'm wondering what the potential would be for the Canadian waste site to be used as a depository or as a place to attract material for future reprocessing. Because frequently when we talk about nuclear waste, other people talk about it as a potential for reprocessing as fuel.
I was hoping the two organizations could both comment on what the potential development could be and how the two could be integrated together, and also, what the potential market is internationally and domestically if such an enterprise were feasible.
Take it away.
4:45 p.m.
President and Chief Executive Officer, Nuclear Waste Management Organization
Thank you.
There's no doubt that when we do our dialogues with Canadians and we talk about long-term nuclear waste management they are looking for what is essentially the blue-box solution: can we recycle this? That's in the Canadian psyche, actually.
What our assessments told us at the time we did the study—and quite frankly, nothing's changed there—was that reprocessing with the current technology that exists for this does not materially improve long-term waste management prospects. We see this decision to reprocess as more of an economic security of supply issue that has certain proliferation issues around it.
One of the objectives we identified in the implementation plan that we published was to keep a watching brief on emerging technologies. The report we published last year on this subject really did identify that, in the medium term, reprocessing is not likely to become a worldwide trend unless the price of uranium goes up a lot, and this really is a decision that would have to be taken by governments and by the nuclear power generators, etc. The other observation we have is that CANDU fuel is not really a good candidate for reprocessing.
Nevertheless, the repository we're targeting to build would have the ability to retrieve the fuel if and when reprocessing did become viable and it could retrieve and utilize the energy that's there.
4:45 p.m.
Conservative
4:45 p.m.
President, AREVA Canada Inc.
Just to reiterate my previous comments, we at AREVA are doing fuel reprocessing. We think it's economically viable. We think it works in the jurisdictions we work in.
Just my personal opinion as a Canadian is that if we asked the existing populace right now whether they want it or not, that's may not be the right approach. Maybe we need some leadership here to say that recycling is the right thing to do.
4:50 p.m.
Conservative
Bradley Trost Conservative Saskatoon—Humboldt, SK
Let's say hypothetically that the waste management organization chose Saskatchewan as a location to do it. I'm not asking for a definitive commitment, but would there be a possibility that an AREVA or a similar company, one of your competitors, etc., could find it economical to take things there and reprocess them?