Thank you for the opportunity to present evidence to this important inquiry.
My presentation is divided into four main parts. In the first part, I will examine the factors that determine the economic competitiveness of nuclear power. In the second part, I will examine what factors will determine whether the widely predicted nuclear renaissance will actually occur. In the third part, I will examine the key markets worldwide for nuclear power. In the final part, I will examine the prospects for sales of CANDU reactors.
Let me start with the economic competitiveness of nuclear power. As a rule of thumb, it is generally assumed that about 70% of the kilowatt-hour cost of electricity from a nuclear plant is accounted for by the fixed costs of building and finance, so I will focus on the determinants of these fixed costs. There are three main elements that make up the fixed cost: the construction cost, the cost of borrowing, and the annual plant output.
Let me look first at the construction cost. Ten years ago, when the new designs that it is hoped will form the basis for the nuclear renaissance were first mooted, the nuclear industry confidently predicted that they could be built for $1,000 U.S. per kilowatt, so that a typical 1,200-megawatt plant like an ACR-1000 would cost about $1.2 billion U.S.
This prediction has proved unrealistic. Cost estimates for proposed new U.S. plants seem to be clustering around the $5,000 U.S. per kilowatt mark, while if press reports of the Ontario bidding contest for nuclear capacity held in the summer of 2009 are correct, the current price is at least $7,000 U.S. per kilowatt.
So cost estimates have gone up by a factor of five to seven in only a decade. These estimates are all in advance of any construction, and historically such cost estimates have almost invariably been an underestimate of actual costs. The one plant of modern design that has had significant construction experience, Olkiluoto, in Finland, was reportedly 75% over budget in the summer of 2009, after four years of construction.
Let me move on to the cost of borrowing. The cost of borrowing is difficult to generalize about, as it depends strongly on the creditworthiness of the customer and the role of competition in the electricity system the plant is going to feed into. In the past, financing nuclear power plants was cheap and easy because consumers took all the risk. Whatever costs were incurred were passed on to consumers, so that the risk to the bank of lending money to a utility was very low because consumers were underwriting the risk.
Now, in most markets in Europe and North America, this assumption of cost pass-through doesn't apply. This makes nuclear investment very risky. For example, there is now a significant risk that the owner of the Olkiluoto plant in Finland will default on the loan and banks will be left holding a very large liability. The cost of borrowing will--if finance is possible at all--be very high for markets where cost pass-through does not apply.
The third element, reliability, I won't say much about. In the past, the reliability of nuclear power plants has been much poorer than predicted by the reactor vendors and utilities. However, performance has improved in the last decade or so. Reliability of new plants should not be assumed, but it seems that the risk of poor reliability is lower than it was.
To conclude on economics, many cost estimates for nuclear electricity are based on unrealistic assumptions on construction costs and on a cost of borrowing that does not reflect the economic risk of nuclear investment. More realistic assumptions could easily increase by a factor of three the generation costs these estimates would produce.
I'll move on now to whether the renaissance will occur. The premise of the renaissance was that there would be new designs of nuclear power plants, the so-called generation III+, evolved from existing designs, but which would be cheaper, quicker to build, safer, and would produce less waste. This would persuade countries in western Europe and North America, which seemed to have abandoned the option of nuclear plants, to restart ordering.
No orders have yet been placed in what you might call renaissance countries. When the U.S. program to relaunch nuclear orders was started in 2001, it was forecast that at least one unit would be in operation by 2010. It now looks likely that construction on new orders in the U.S. will not begin before 2013.
So at best, the renaissance will be very late.
U.S. orders will be placed if the Obama administration is willing to cover 80% or more of the construction cost with federal loan guarantees. If the program of subsidizing three units of each of the five new designs being considered in the United States is granted, this could require guarantees worth about $120 billion U.S. The Congressional Budget Office estimates that the default rate could be about 25%, which would leave a bill to U.S. taxpayers of about $30 billion U.S.
In the U.K., the government is adamant that it will not provide subsidies for new nuclear orders. But utilities, which had previously suggested that orders without subsidies would be possible, are now lobbying for a guaranteed carbon price and a consumer levy to pay the additional costs of nuclear power.
If the U.K. and U.S. governments do not provide subsidies, orders are improbable. And if these two important markets do not materialize, orders elsewhere in the west are much less likely. If subsidized orders are placed in the U.K. and the U.S.A., it might prove no more than that governments can get nuclear plants built if they are willing to provide large enough subsidies.
Let me move on, then, to the key markets for nuclear power. There are four key markets nuclear vendors must open up for the renaissance to happen: the United States, the United Kingdom, China, and India.
The very bad economic experience with nuclear power in the United States and the United Kingdom seems to mean that new orders would not be possible there. To convince these two countries to give nuclear power one more chance would be a considerable coup for the nuclear industry.
China is building 21 of the 55 nuclear power plants worldwide that are under construction or are firmly ordered. Of these 21 units, 15 are being supplied by Chinese companies based on a 1970 design. China has ordered CANDUs in the past, but China's policy seems to be to investigate all nuclear technologies and then supply the options it chooses using indigenous companies.
India's experience is very different. The projections from the Indian government of a huge number of orders for India are implausible and the Indian nuclear industry will fight hard to ensure that a large proportion of any orders placed are for Indian designs and Indian vendors. Orders for CANDUs seem highly unlikely there.
Finally, let me look at the prospects for CANDU sales. Part of the U.K. and the U.S. policies to relaunch nuclear ordering was to give generic safety approval to several generation III+ designs so that utilities could choose from a range of designs. CANDU, in the form of the ACR-1000, was submitted to both processes, but was withdrawn from them at an early stage.
This means that sales of CANDUs in the United States and Europe in the next decade will not happen. The only exception might be if Romania resuscitates a very old order placed 30 years ago for three or four plants and orders a third unit there.
Outside Europe and North America, CANDUs have been sold to Korea, Argentina, and Pakistan, but Korea has developed a U.S. PWR design for its own market and will not be importing units. The Pakistan market is small and will probably be supplied by China, while Argentina has been unable to complete construction on a plant it began building 30 years ago. So it would be unwise to count on Argentina to order large numbers of plants.
Exports of CANDU reactors, apart from one or two of the old design, are only likely to be possible if the new design, ACR-1000, can be demonstrated to be competitive and reliable in Canada. This summer's bid by AECL for a CANDU was reported to be about $10,000 U.S. per kilowatt, a prohibitively high price. This clearly reinforces the message that nuclear power orders are economically highly risky, because the AECL bid factored in some of the construction risk.
The cost to whoever bears this risk will be high and ultimately will be passed on to the public. Whether Canadian taxpayers and electricity consumers are again going to bear this risk is for the Canadian people to decide.
A decision to opt for nuclear orders does have opportunity costs. Nuclear power programs tend to absorb a very high proportion of the available R and D funds and, equally important, they absorb political resources and attention. In short, if a nuclear power program is chosen, renewable and energy-efficient options, which would appear far less risky and probably more cost-effective, are likely to be neglected.
Thank you.