Sunday, February 10, 2008

ACR1000 slated for New Brunswick province

Go ahead for reactor depends on the financial future of AECL

The Toronto Globle & Mail reports that a consortium of private sector companies is teaming up with Atomic Energy of Canada Ltd. (AECL) to finance and build an ACR1000 reactor in New Brunswick. It will be a test of a new ownership model for Canadian nuclear plants. It also would involve first-of-a-kind construction of a reactor which is still in the design stage. The cost of the new reactor has yet to be determined, but the consortium that wants to build it will have to balance these factors and more.

The project at Point Lepreau, N.B., would mark the first time in the Canadian marketplace that a reactor consortium financed the construction of a plant and continued to own it while selling the power to the utility customer. The province supports the construction of the 1,100 MWe reactor, which would supply both domestic and export markets.

New Brunswick Energy Minister Jack Keir said in an interview with the newspaper his confidence in the Candu design is based on the willingness of AECL's partners to take ownership of the nuclear facility. The merchant model involves negotiating long-term power purchase agreements with utilities and then using those agreements to raise debt from investors such as hedge funds, pension funds and other capital pools.

According to the World Nuclear Association, a study has found that building the first new-design Candu reactor could be feasible in the Canadian province of New Brunswick. The big "if is that the partners who will build the plant gets the financial details and the risk levels right. As part of its push to become an 'energy hub', the government of New Brunswick last year commissioned the report on the idea of building a second nuclear power reactor at the Point Lepreau site.

A feasibility study carried out by MZ Consulting concludes that a project to build a first-of-a-kind Advanced Candu Reactor (ACR-1000) at Point Lepreau was feasible under certain conditions. The provincial government issued a press release with a long list of "feasibility" issues, most of them financial, that it said would make or break the proposed nuclear project.

The MZ Consulting report primarily considered an ACR-1000 unit operating on a 'merchant' basis - that is, selling its power to a range of customers rather than supplying one major utility. MZ said about half the output from the plant would go to New Brunswick itself, the rest could be exported to the neighboring Atlantic coast province of Nova Scotia as well as New England states. Critics of the deal said there is not enough transmission capacity in Maine to send electric power to other New England states. For their part New England states, fed up with the high cost of imported oil, would likely welcome economical electricity from the plant. Competition is expected from a proposed new unit at Bruce Power in Ontario. In effect. Canadian investors see opportunities to sell nuclear power to electricity customers in their own country and to feed the ravenous appetite of its neighbors to the south.

Meeting not over yet

According to the financial press coverage for the New Brunswick reactor, AECL would not take an ownership stake. Its partners that include SNC-Lavalin Group Inc., [a construction firm], General Electric Co., Hitachi Ltd.; and, Babcock & Wilcox Co. would retain ownership and finance the project by concluding long-term contracts with New Brunswick Power and other customers. In effect the state-owned corporation isn't going to take an equity position in a merchant plant. One of the risks for the consortium is that the provincial government is asking for a fixed price contract and thus unloads the risk on the builders. For their part they need to have very sharp pencils and excellent construction managers to bring the plant in on time within the cost parameters of business success.

Another uncertainty is that the Canadian government is reviewing the ownership structure of AECL, which is a Crown corporation, and is considering whether to sell shares to investors including foreign competitors such as Areva. Mr. Keir said he wants to ensure that the federal government remains committed to the future of struggling AECL and its heavy-water Candu design before the province signs on. Otherwise, an outside investor could change the terms of the deal.

The ACR1000 reactor is still in the design stage, and certifying it will take time and a lot of money before AECL can build one. Private investors might not want to bear these costs, and may demand that the Canadian government only offer shares for sale after the reactor design is certified for the power market. For its part if the Canadian government wants the ACR1000 to be as domestic success and serve as an flagship export in the global nuclear market, it may have to hold on to AECL for a while longer at least until it can get the ACR1000 out the door.

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The Point Lepreau nuclear generating station, which produces 630 megawatts of electrical power, is currently being refurbished at a cost of $1.4 billion.

Typically, as David Walters points out, the ACR1100 is marketed to customers as a twin-unit reactor with a total of 2,200 MWe. This is the configuration AECL proposed to Energy Alberta last summer. Given the reported construction price of $5 billion, that would bring in the New Brunswick facility at a very competitive price of $2,300/Kw.


David Walters said...

Dan, if I am not mistaken it is an "ACR-1000 *PLANT*" comes with 2 reactors, at least that is how I think they configure it or market it.

David Walters

Rod Adams said...

I am intrigued by the idea of the vendors having a stake in the long term success of the plants rather than getting their payments simply by selling equipment and services.

If you dig deeply into the cost control problems that plagued projects in the First Atomic Age, you can find a lot of instances where the vendors bid low to get the project and then continued to add cost by increasing prices, encouraging design changes, and developing new equipment solutions to problems that could have been avoided with better design.

That is the way the industry was structured. Utilities had no real incentive for cost control and vendors had every incentive to increase the cost so they pocketed more money with each of a limited number of projects.

Of course, part of the issue was that the industry was dominated by companies who had long experience on government projects that follow similar business practices.