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.
Conservative
The Chair Conservative Leon Benoit
Good afternoon, everyone. We're here today to continue our review of the state of the nuclear industry in Canada and abroad.
We have four groups of witnesses today. I'll start the presentations in the order listed on our agenda.
We'll start immediately with the presentation from AREVA Canada Inc. We have with us today Roger Alexander, president, and Jean-François Béland, vice-president.
Please go ahead with your presentations, for up to 10 minutes.
Welcome.
Roger Alexander President, AREVA Canada Inc.
Thank you.
I am pleased to have this opportunity to address the standing committee and exchange some views regarding something that is so vital to our country: the nuclear industry. It produces energy without CO2 and has a total life-cycle carbon footprint similar to that of wind-generated power.
AREVA is a company that has focused on energy production without CO2 production. Yes, we are a nuclear company, but we're also a renewables company, with wind, biomass, and solar. We believe in the right mix of energy solutions, and although we believe that nuclear energy is not the only solution, it is part of the solution.
At AREVA we have 75,000 employees worldwide in a vertically integrated company engaged in CO2-free power generation. We incorporate activities ranging from mining through to the manufacture of reactors, nuclear services, spent fuel reprocessing, and electrical transmission and distribution. Here in Canada we employ over 1,100 people across the country. We have been conducting uranium exploration and mining activities in Saskatchewan for over 40 years.
I'm sure you've heard of the nuclear renaissance around the globe, and yes, it has been slowed by the ongoing global economic and financial crisis. Some potential customers, such as U.S. utilities, have delayed their investment plans, as they have felt the need to clean up their balance sheets before going forward.
In this industry, we're used to thinking in terms of decades, not weeks or months. Whatever the current difficulties, it's a simple truth that in the next few decades a huge investment will be needed to cover the world's energy demand.
In the long term, demand for energy will continue to grow. It's a moral imperative. There's simply no way to reduce poverty in a growing world population without increased energy consumption.
The current generation capacities will age and need replacement. The price of fossil fuels may be low today, but oil and gas reserves are not infinite. These prices will almost certainly escalate when economic growth resumes. In the meantime, the world will keep looking for CO2-free electricity generation to reduce global warming.
Our estimate is that the demand for new nuclear reactors will reach approximately 300 by 2030. Countries such as China have massive reactor-building plans, and others such as France and the U.S. are looking at steady development and replacement over the next decades. Twenty-five building sites are active as we speak, with 16 in Asia, five in Russia, and four in Europe.
More importantly, perhaps, the industry is still investing. We recently announced a major investment plan to expand the capacity of existing equipment factories in Europe and to build new facilities in the U.S., where we will have reactor orders.
But demand is not enough. We need to adapt and organize to answer that demand. That is what has happened all over the world in the nuclear industry in the past few years.
First of all, we have experienced significant consolidation. Initially this was due to the increased costs of designing and building nuclear plants that are both safer and more economical than the existing fleet, the models known as generation III reactors. It took hundreds of millions of dollars to design generation II reactors, while the bill amounts to several billion for each generation III design.
This means that no one can go it alone anymore. Our industry has had to give up on that quaint, outdated notion of national champions that are able to do everything by themselves.
AREVA was created in 2001 through the merger of French, German, and American companies. In 2007 we partnered with Mitsubishi to create ATMEA, a joint venture for new plant design and the development of new nuclear fuels.
I don't represent a French company at all; I represent a multinational company headquartered in Paris. This company sells global technology, not French technology. This technology evolved out of a U.S. design, thanks to the common work of French and German engineers who, for our next products, will be complemented by Japanese teams, proven out of experience from China and Finland. Of the 102 nuclear plants that AREVA has built or is currently building, only 59 are in France. The rest can be found in 10 different countries over four continents.
This is the only way it can be today. AREVA was not the only company to gain a global industrial foothold in the last decade. All of our major competitors did as well. In 2006 Toshiba purchased Westinghouse and created the third-largest nuclear company in the world, straddling the Pacific. In 2007 GE and Hitachi joined forces in a series of joint ventures. This is the new face of nuclear: large multinational companies that can reach across the continents, bring together R and D teams of thousands, and invest billions of dollars in the development of new designs.
AREVA spent $1.2 billion last year on research and development. That does not include Mitsubishi's share of our new reactor developments. But it's not enough to consolidate existing resources. We must also prepare for the future by hiring the right people and organizing a strong global supply chain. Crisis or no crisis, AREVA needs the best people available to deliver the best products and services.
In 2008, we hired 12,000 new recruits globally, but based on the current economic situation, we have taken a recruitment pause. At the same time, we have invested massively in the supply chain, in some cases through acquisition, while sometimes we have expanded or created new factories. As I have mentioned in other cases, we chose to build long-term strategic partnerships to ensure future deliveries, just as we would like to do more of here in Canada.
Typically these partnerships serve both a global and a local purpose. Globally, they give our partners an opportunity to provide highly specialized components to our new builds around the world. Already this is happening with Canadian companies as well. The plant we're building in Finland has Canadian valves and a Canadian simulator.
Locally, these partnerships allow us to build at a lower cost and with maximum benefits for the local economies. This helps us build local skills in a way that is consistent with our responsibilities as the industry leader.
How does this apply to the Canadian situation? It applies directly. Since AREVA has a strong record of partnering with local companies in our other markets, I do not see why anyone could believe that the situation would be different for us here in Canada. Our corporate track record with uranium-mining joint ventures in Saskatchewan supports this.
Canada has a great nuclear tradition. Even more importantly, this country kept its skills alive when others were letting their own industry decay in times of low demand. AREVA's database includes the resumés of 25,000 Canadian nuclear professionals. That's a very attractive situation for a company such as ours that needs the best skills worldwide.
If AREVA were to win a reactor in Canada, it would be absurd to believe that anybody with nuclear skills in this country could lose their job. The exact opposite is true. We would need not only to preserve the existing skills, but to build even more of them in Canada, as we have done elsewhere.
I want to touch briefly on the current process in Ontario. We are of course disappointed regarding the current suspension of procurement. We believe that a long-term focus is needed to supply energy here. We are proponents who think that the Province of Ontario should start an initiative to build a reactor in Ontario now. Of course, we would like it to be AREVA technology. We are interested in and have offered the federal government the possibility of transferring a licence for proven AREVA technology to Canadian entities, including, possibly, AECL.
A licence transfer to Canada would create new jobs in the nuclear industry here and will guarantee that existing skills remain in Canada. Canada could have access to the light water reactor technology market, which is 90% of the world requirement. This is about diversification, not replacement. Canada will naturally retain its role as a leading heavy water player while gaining expertise in light water technology. AREVA would be proud to accompany the Canadian nuclear industry in this diversification process and to create long-term partnerships.
There's also the U.S. Already, U.S utilities have announced that they will build seven AREVA reactors. Four of these projects are already in front of the U.S. safety authority, while three others have been delayed due to the current economic crisis. When this is over and AREVA finds itself building two reactors or more at the same time in the U.S market alone, we will need all the help we can get. We'll need engineers, valves, electrical equipment, construction capabilities, and uranium, you name it. Canadian industry would be a valuable partner in this venture.
What about the waste? That's always the question I get asked in this business. Well, at AREVA, we believe we have part of the solution. It's an innovative concept: recycling. How does that work? We have the technology to reduce the volume of hazardous waste by approximately 80% to 90%. The plutonium and uranium from spent fuel are recyclable and final waste can be stored or buried after the process of vitrification.
North American jurisdictions have not yet come to grips with this issue, but I personally believe it is one of the key topics that will ensure the sustainability of the nuclear industry going forward. It needs to be taken on here in North America.
The topic of isotopes has received a lot of visibility recently. We think AREVA can help. We have successfully built research reactors in many jurisdictions and we are confident we can do so here in Canada. We think it makes sense to do this in cooperation with a Canadian university engaged in nuclear research.
AREVA has also been concerned with the federal government's non-resident ownership policy related to uranium mining in Canada, having advocated its elimination for a number of years. We were encouraged by the Competition Policy Review Panel recommendation last year and the subsequent commitment of the federal government to implement those recommendations, in particular in the domain of uranium mining.
This policy required non-resident owners to reduce their ownership in a uranium mine below 50%. Obviously, without the elimination of this restriction, AREVA would be discouraged from continuing our 40-year interest in Canada, where our long-term presence both in exploration and in mining operations has been a significant development factor, with billions of dollars invested, resulting in employment and business opportunities that are often focused on northern aboriginal communities.
This policy could hinder several more billions of dollars of potential investment in exploration and development projects in Nunavut and Quebec. We are hopeful that the non-resident ownership policy will be eliminated.
The electricity industry is at the dawn of a new era, an era that promises to deliver steady, reliable, zero-emission energy to meet the growing need in both developed and developing nations. AREVA is proud to be the industry leader and to work with governments in developing a long-term view in this sector. We look forward to helping Canada carve out for itself a significant role in the growing market.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you very much, Mr. Alexander.
Mr. Alexander is the president of AREVA Canada.
Just before we go to the next witnesses from the Nuclear Waste Management Organization and then from the University of Saskatchewan, I want to mention that we have as the last witness, by video conference from the University of Greenwich, Professor Stephen Thomas, professor of energy studies.
Professor Thomas, can you hear us?
Conservative
The Chair Conservative Leon Benoit
Thank you. I was just checking to make sure you're catching everything.
We will now go to our next presenter. Mr. Kenneth Nash is president and chief executive officer of the Nuclear Waste Management Organization.
Go ahead, please, for up to 10 minutes.
Kenneth Nash President and Chief Executive Officer, Nuclear Waste Management Organization
Good afternoon. Thank you for this opportunity to appear before the committee this afternoon.
Used fuel arises as a byproduct of electricity generation. My remarks will focus on Canada's progress on the long-term management of this material.
Work on used fuel disposal in Canada was initiated in the early 1980s when the Governments of Ontario and Canada established the Canadian nuclear fuel waste management program, where AECL was assigned the responsibility for the development of geologic disposal. In 1989, in response to public concern about siting the repository, the concept of geologic disposal was referred to a federal environmental assessment panel, and a moratorium was placed on siting a disposal facility.
The federal panel conducted a comprehensive review of AECL’s disposal concept and in its 1998 report said that the technical safety of a geologic repository had been demonstrated at a conceptual level, but public support had not been demonstrated. The panel made recommendations that were largely translated into the 2002 Nuclear Fuel Waste Act, a new framework of responsibility and decision-making.
Canada now has 2 million fuel bundles or 30,000 tonnes of used fuel in safe interim storage, principally in the province of Ontario. Nuclear power plant operators have adequate future capacity for decades to come and, with care and maintenance, the storage structures can safely store used fuel for up to 100 years. However, this material will remain hazardous almost indefinitely and requires sound long-term management.
In accordance with the requirements of the Nuclear Fuel Waste Act, significant progress has been made since 2002. The NWMO was formed by Ontario Power Generation, Hydro-Québec, and New Brunswick Power Corporation with a mission to collaboratively develop and implement a socially acceptable, technically sound, environmentally responsible, and economically feasible plan for Canada’s used nuclear fuel. An advisory council was formed by the NWMO and trust funds have been established by the used fuel owners. Accumulated balances in these funds now exceed $5 billion.
NWMO completed a study of alternative methods of storage and disposal and submitted recommendations to the Government of Canada in 2005 in accordance with the Nuclear Fuel Waste Act. During the three-year study, significant efforts were made by the NWMO to address societal aspects of long-term nuclear fuel management.
Some 18,000 Canadians, including 2,500 aboriginal people, were engaged in and contributed to this study, and it received contributions from 500 experts. There were 120 information and discussion sessions held across all provinces and territories. Not surprisingly on a subject like this, there was a wide diversity of views.
However, there was common ground: safety and security is a top priority; this generation must take action now to manage the waste we have created; we must take advantage of best international practice; and the approach must be adaptable to allow for changes in technology and societal priorities.
NWMO’s recommendation for adaptive phased management emerged as the approach that would best meet the priorities and values of Canadians. This plan was approved by the Government of Canada in 2007. APM, or adaptive phased management, is both a technical method and management system.
The technical method is isolation in a deep geologic formation where used fuel can be monitored and can be retrieved if necessary. This method is aligned with international best practice, where almost all countries with major nuclear programs have made national decisions for a deep geologic repository.
Equally important is how we get there, and this is specifically tailored to Canadian values and priorities. It requires flexibility in the pace and the manner of implementation and responsiveness to new developments and traditional aboriginal knowledge, and openness, transparency, and staged decision-making, with the involvement of Canadians at every step of the way. It also requires the facility to be located in an informed and willing host community.
NWMO is now responsible for implementing a national infrastructure project that will involve an investment of $16 billion. It will be a high-technology project with skilled employment for hundreds, over many decades, and will operate a centre of expertise for international collaboration. It will involve a long-term partnership between NWMO and the host community and must foster community well-being. It will be highly regulated, with strict scientific and technical criteria to assure safety.
In 2008 NWMO published an implementation plan after two rounds of public consultations. We very much see ourselves as working on behalf of Canadians, and we can succeed only if we maintain a social licence to proceed.
We've established several mechanisms to achieve this in a systematic way: a forum of aboriginal elders from across Canada and projects with several aboriginal groups; a forum of municipal associations; a network of citizens' panels and multi-party dialogues where we bring together interested parties such as industry, aboriginal people, special interest groups, and labour; and ongoing briefings of provincial and federal governments. We use these mechanisms on a frequent basis to seek input to our implementation plans and, more recently, to our plans for site selection.
Probably the most challenging task is the selection of a site for the used-fuel repository. NWMO has held two rounds of public dialogues on siting, using the mechanisms I've just described. Provided we have sufficient consensus, we could start siting selection as early as next year. The draft siting document, which is available on our website, contains a nine-step process for social, safety, and environmental assessment. It embodies the concept that a community chooses to participate and has the right to withdraw. It commits to a partnership approach and provides for the inclusion of surrounding communities and aboriginal people.
Canadians have been very helpful in providing their views on our draft document, including the need for federal and provincial support to the siting process, and the recognition that the eventual host community will be making a major contribution to Canada.
Canada, together with our international partners, has the technology for the safe long-term isolation of used nuclear fuel in a geologic formation.
Canada has the benefit of a strong government policy and legislative framework to support progress.
Trust funds and mechanisms are in place to ensure that financial burdens will not be passed to future generations.
As a result of successive reviews, extensive dialogues, and government decision-making over the past 25 years, NWMO now has a mandate that is consistent with the expectations of Canadians.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you very much for your presentation, Mr. Nash.
We'll go now to the next witness, who is from the University of Saskatchewan. Richard Florizone is a policy fellow in the Johnson-Shoyama Graduate School of Public Policy.
Go ahead please for up to 10 minutes.
Dr. Richard Florizone Vice-President, Finance and Resources, University of Saskatchewan
Thank you, Mr. Chairman and members of the committee, for the opportunity to appear before you today.
As you heard in the introduction, my name is Richard Florizone and I am a policy fellow in the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan. I am also past chair of the Uranium Development Partnership, which I will say more about shortly. I hold a Ph.D. in nuclear physics from MIT and am currently vice-president, finance and resources, at the University of Saskatchewan.
I understand that your mandate is to review the state of the nuclear industry in Canada and abroad, and I am here as an informed individual to provide you with my own perspective on these topics.
The idea of a nuclear renaissance has been broadly discussed in the last several years. Indeed, it was made reference to earlier today. There is indeed a renewed interest in nuclear power around the globe, with nations planning for a total of over 200 new reactors in the next decade. This renewed interest is driven by a number of factors, including increasing energy demands, concerns about energy security and supply, and, probably most importantly, the growing urgency around global warming, and specifically the need to cut carbon emissions.
Canada is uniquely situated in this new environment. We are one of the highest carbon-emitting nations in the world. Many of our provinces, including my own, are heavily reliant on fossil fuels for their electricity production. At the same time, our provinces of Ontario and New Brunswick draw a significant portion of their electricity needs from nuclear power.
In Atomic Energy of Canada Limited, AECL--although its future is the subject of much speculation--we have our own homegrown nuclear technology, the CANDU reactor, which is employed around the world. Finally, we have Saskatchewan, which is currently the world's number one producer of uranium.
Given a potential nuclear renaissance and Saskatchewan's leading existing position as a miner of uranium, there's an important question for our province. What should be Saskatchewan's nuclear strategy? How can we best steward development of our uranium resources to contribute to the world's energy and environmental sustainability as well as to the prosperity and well-being of our own province and our nation?
To answer these questions, the Government of Saskatchewan convened the Uranium Development Partnership, or UDP, in the fall of 2008, with a mandate to “identify, evaluate, and make recommendations on Saskatchewan-based value added opportunities to further develop our uranium industry”. I had the honour of chairing the UDP, which consisted of 12 representatives drawn from industry, academe, and affected communities, including environmentalists, first nations, and urban and rural municipalities.
I would now like to comment on some of the findings of the UDP in three key areas: exploration and mining, power generation, and research and development.
Firstly, on exploration and mining, uranium mining has been a good business for Saskatchewan. It contributes approximately 3,000 jobs, 80% of them in the northern regions of the province, and over $200 million annually in royalties and taxes to the provincial and federal governments.
In terms of world demand, the outlook for uranium mining is strong and growing, with forecasted growth of 80% by 2015. That isn't just due to estimates of a nuclear renaissance; this projected growth is also due to the expectations that Russia will stop down-blending its stockpiles of highly enriched weapons-grade uranium by 2013, the so-called megatons to megawatts program, dramatically increasing the demand for primary uranium.
Although Saskatchewan is currently the world's number one producer of uranium, we are likely to lose this leadership position to Kazakhstan in the next year or two. To maintain global competitiveness, the UDP found that Saskatchewan needs to review its royalty framework and evaluate its system of exploration incentives.
The province should also work with Canada's federal government to establish more efficient regulatory approvals and to clarify the parameters and accountabilities for the duty to consult with first nations and Métis communities to enable the development of new mines.
In short, there are a number of steps that can be taken by the provincial and federal governments to support the strong and growing uranium mining business.
Second, let me turn to power generation. Governments around the world are facing increasingly difficult decisions on electricity generation. Concerns over carbon emissions are creating pressures to phase out the use of fossil fuels. However, every electricity-generating technology, including nuclear, presents a different set of advantages and disadvantages. There is no single technology or silver bullet to fill the gap.
Although controversial in some jurisdictions, nuclear power is a safe, low-carbon source of baseload electricity. Assuming capital costs in the range of $4,000 per kilowatt, and carbon pricing estimated in the range of $20 to $30 per tonne, nuclear is also cost competitive with coal and gas.
In short, there is a set of circumstances under which nuclear power can make good environmental and economic sense. The UDP therefore recommended that Saskatchewan consider nuclear power generation as part of its long-term energy mix.
However, we have a number of current challenges for jurisdictions like Saskatchewan in implementing nuclear power. Two of those challenges are public opinion and management of waste, but l'd instead like to comment on four others that are perhaps less broadly recognized, some of which have emerged more in the last year.
The first of those four is capital costs. The halting of Ontario's new reactor build suggests that capital costs may be a challenge. If the industry cannot deliver capital costs in the range of $4,000 per kilowatt, the nuclear renaissance may be short-lived.
The second is uncertainty in carbon pricing. Carbon pricing gives a very significant advantage to nuclear power generation. But without an established carbon pricing regime, the business case for nuclear power is less clear.
The third is the uncertainty around AECL and the extent of federal, political, and economic support for the nuclear industry. Around the world, the costs and risks involved have meant that federal governments have always been involved in some measure in all nuclear new-build projects.
The fourth is the recent drop in natural gas prices. Although this may be only in the short term, gas prices below $5 per gigajoule make gas-fired electricity generation economically attractive.
The long-term solution for Saskatchewan, like most other jurisdictions, will likely include a diverse electricity generation portfolio: expanding hydro where possible; pursuing clean coal and carbon capture; investing in further development of wind and solar potential; and building new nuclear generation capacity where it is feasible and there's public support.
But until the economics of nuclear power, carbon pricing, and the future of AECL become more clear, it will be difficult for Canadian provinces like Saskatchewan to further pursue nuclear power generation.
Third, let me turn to research and development. Canada's critical role in the global medical isotope market has been highlighted during recent shutdowns of the NRU reactor at Chalk River. In addition to isotope production, NRU, which is slated to shut down permanently in 2016, also enables research and development in nuclear power generation and is a source of neutrons for neutron science. Although the focus of the discussion, importantly, has been on medical isotopes, these two other applications of NRU have been talked about a little bit less in public.
Medical isotopes may be produced in other ways, but if Canada wants to maintain this other research and development associated with NRU, the country will likely need one or more new research reactors.
The UDP recommended that Saskatchewan could be an attractive location for a replacement to NRU. This recommendation is supported by a number of facts, but I'll focus on two.
First, Saskatchewan has a history of and an existing capacity in nuclear research and development. In 1951 the use of cobalt-60 in treating cancer was pioneered by a U of S research team in collaboration with AECL.
Second, Saskatchewan has the Canadian Light Source, Canada's only synchrotron and the largest science project in the country in a generation. There are significant operational and research synergies in co-locating a synchrotron and a research reactor or neutron source. Indeed, the U.S., the U.K., France, Switzerland, and now Sweden have recognized the value of these synergies by co-locating their neutron sources next to their synchrotrons.
The Province of Saskatchewan, the University of Saskatchewan, and their collaborators have therefore submitted a proposal to the Government of Canada for a new world-class research facility to meet Canada's medical isotope and nuclear R and D needs: the Canadian Neutron Source.
In summary, although the full extent of a nuclear renaissance is debatable and remains to be seen, nuclear power has a strong future globally. There's an existing base of nearly 400 reactors worldwide that will continue to need fuel, and there are plans around the world for several hundred new reactors.
There are significant economic advantages to nuclear if capital costs can be minimized, and particularly when carbon pricing is implemented. Countries like France and India have continued to put nuclear at the heart of their nuclear strategy, and as I said earlier, nuclear power generation is not a silver bullet, but no existing technology is.
In Saskatchewan the UDP report has provided some recommendations on how our province should position itself in this environment. A key question for the federal government now is, what should be the nuclear strategy for Canada? I hope my comments today will assist you in addressing that question.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you, Dr. Florizone, policy fellow in the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan.
We'll go to our final witness today, here by video conference from London, Professor Stephen Thomas, in energy studies at the University of Greenwich.
Please go ahead, Professor Thomas, for up to 10 minutes.
Prof. Stephen Thomas
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.
November 4th, 2009 / 4:20 p.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Professor Thomas, energy studies, University of Greenwich, London.
We very much appreciate all the presentations. Again, thank you for being here.
We'll go now to the questioning, starting with Mr. Regan, from the official opposition, who has up to seven minutes.
Go ahead, please, Mr. Regan.
Liberal
Geoff Regan Liberal Halifax West, NS
Thank you very much, Mr. Chairman.
Thanks to all of you for being here today.
Mr. Alexander, we just heard Professor Thomas's views on the state of the nuclear industry. Do you find any points of agreement? If not, what would your response be?
President, AREVA Canada Inc.
I think there are certain aspects of the cost structure of nuclear that are relatively debatable in various jurisdictions. Costs have been put out in the press that I think are probably unsubstantiated in terms of how they were developed, so I think it would be wrong to speculate on the cost of nuclear based on what reportedly appears in the odd article in the press from time to time.
Liberal
Geoff Regan Liberal Halifax West, NS
Perhaps it's a little unfair to ask that since you didn't know what his presentation was going to be ahead of time and didn't, perhaps, have a chance to read the presentation as we listened to it.
Tell me, is AREVA interested in buying AECL?
President, AREVA Canada Inc.
We're certainly following the situation with interest. I think it remains to be seen what the Rothschild recommendations are and how that will be put forward. Obviously, as the world leader in this business, we have to pay attention to changes to this and the environment. We're following it closely until the federal government comes out with exactly what they're interested in doing with AECL. Then we'll evaluate that and determine what our stand will be.
Liberal
Geoff Regan Liberal Halifax West, NS
So at this time, have you had any formal or informal discussions with the government or the minister or AECL?
President, AREVA Canada Inc.
Rothschild has surveyed the individuals who might be interested for their opinions on the situation with AECL and we have commented to them.
Liberal
Geoff Regan Liberal Halifax West, NS
Would AREVA be likely to be interested in all AECL's operations or just the CANDU technology or the sales side?
President, AREVA Canada Inc.
It's too early for us to comment on it in that regard.
Liberal
Geoff Regan Liberal Halifax West, NS
We've heard a variety of reports that put the value of AECL at about $300 million. I'm sure you're going to want to comment on that.
President, AREVA Canada Inc.
As a businessman, I will just point out that AECL is a company that.... Whatever the numbers are, I think we've all seen what they are in the press in terms of the number of subsidies of hundreds of millions of dollars it gets every year.
I think if any of us could imagine buying a business that requires that amount of cash input and that has roughly in the order of $350 million or $400 million in revenue but requires an additional $400 million or $600 million, whatever the number is in subsidy, you have to think carefully about how that would be approached, just in the generic terms of anybody buying a business of that nature, without going into the specifics.
Liberal
Geoff Regan Liberal Halifax West, NS
Let me turn to Mr. Florizone.
You talked about the expectation that Chalk River would shut down around 2016. What do you view as the advantages of building a new reactor at the University of Saskatchewan as opposed to building a new reactor in Chalk River?
Vice-President, Finance and Resources, University of Saskatchewan
I think the principal advantage may be, as I said, the synergies with that Canadian Light Source. As I referred to, a number of nations that have built new neutron sources or research reactors have tended to put them next to their synchrotrons. The reason for that is that the science is quite compatible. They both can be used.... I'm talking about something separate from the medical isotope business, but the neutron scattering is quite synergistic with what a synchrotron does, which is essentially to use photons to look at the properties of materials, and you can use neutrons to study the property of materials. It's much of the same scientific community.
You can also potentially see some operational synergies in things like user support, IT, security, or some of the things that have been mentioned when we've talked to other facilities around the world.
Liberal
Geoff Regan Liberal Halifax West, NS
Can you give us any details on the proposal submitted in August by the university and the province relating to future isotope production?
Vice-President, Finance and Resources, University of Saskatchewan
Sure. It's not the cheapest proposal out there, I'll say that up front, and that's just to say it's establishing a new reactor. The approach we took involves a couple of things. One, we wanted to build on our existing strengths, and two, we wanted to put together a proposal that minimized technical risk, so our proposal is really modelled after the OPAL reactor in Australia. It recently came on line, so it's proven technology.
There's a sense of what it's capable of and there's a sense, at least in Australia, of what the costs might be, so our proposal is at a high level on costs. The costs are in the range of $500 million to $750 million in capital and then roughly 10% of that in terms of operating. As well, we've been quite clear with the proposal that the isotope business could account for approximately 15% of the operating revenues required to operate the facility. That's a high level view of the economics and some of what we based our proposal on.