Saturday, July 18, 2009

Is AECL down for the count?

Can anyone really add up the numbers in the Darlington bids?

shish ka bobObservers of the political turmoil now underway in Ontario over the media reports that AECL bid $26 billion to build two new ACR1000 reactors (2,220 MW) are in good company trying to make sense of these figures.

The news media, notably the Toronto Star, had a field day with the numbers sticking provincial politicians like they were morsels on a shish-ka-bob skewer. The problem with all the fire, smoke, and spit from the grill is that the numbers are undoubtedly wrong and wrongly reported in the news media.

First, $26 billion is an aggregate number that includes two reactors, turbines, transmission and distribution infrastructure (power lines or T&D), plant infrastructure, and nuclear fuel for 60 years as well as decommissioning costs. The most important number in the whole controversy has gone largely without notice and that is the delivered cost of electricity from the plants is in the range of five cents per kilowatt hour.

Shis-ka-bob costs less in Canada than Turkey

By comparison, over in Turkey the government in Ankara is stuck with a single bid from a Russian consortium that proposes to deliver electricity from 5 GWe of nuclear plants at $0.15/KwHr. That’s three times the rate bid in the Darlington project and it represents a forced reduction from the astonishing first offer of $0.21/KwHr.

It would be the equivalent of asking rate payers to get rolls of quarters from the bank and put them one-by-one into a slot in the kitchen for each hour of heat and light. The delivered cost of electricity from natural gas plants in Turkey is in the range of six-to-eight cents per Kw/Hr. If you want to talk about heat and shish-ka-bobs from a failed nuclear tender, the place to look is Turkey not Canada.

Unbundling the cost numbers

inflatable earthSecond, the widely reported figure of about $11,000/Kw for AECL’s reactor package is also wildly inaccurate because it wraps the entire cost of the package into a single bundle and then allocates all of them to a figure designed to inflate the cost of the electricity generated by the reactor alone.

The other bidder at Darlington agrees this kind of analysis is nuts. In a conference call with nuclear energy bloggers on July 17, a spokesman for Areva declined to provide exact numbers, but did not specifically dispute a report in the Toronto Star on July 14 which pegged the cost of two 1,650 EPR reactors at $7.8 billion. Doing the math, that comes out to just under $2,400/Kw which is a very competitive price.

For comparison purposes, AECL bid two of the new ACR1000, which is an 1,100 MW reactor, which comes to 2,200 MW. At a reported bid price of approximately $6.0 billion, the price per Kw/Hr of the reactors is $2,700/Kw or very close to the price reported in the news media for the Areva reactors.

The spokesman for Areva said in the conference call the bulk of the “all in” price includes “balance of plant,” including turbines, T&D, and local and regional transportation improvements to bring plant components and the construction workforce to the site. It also includes nuclear fuel for 60 years! According to the Toronto Star for July 17, Areva’s total “all in” cost was $23.6 billion compared to AECL’s of $26 billion.

Readers should therefore be very skeptical of alarms raised by Greenpeace that the price of the reactors is in the stratosphere. It’s not true. Lumping all the costs of the entire project, and then dividing them by the reactor power output at the turbine alone is not accurate or fair.

Note also that because the Ontario provincial government put a “gag order” on the bidders, all of the numbers in this blog post are based on figures leaked to the Canadian news media by people in the Energy ministry. Provincial Premier Dalton McGuinty told the Toronto Star July 14 he did not refute the numbers for both bidders published by the newspaper.That’s also interesting since there has been little effort to hide the home town push to award the project to AECL and preserve its 4,000 jobs.

So what’s a risk factor?

high wire actAreva’s bid was judged “noncompliant” in its bid as a result of a lopsided evaluation by Ontario Energy Minister George Smitherman. The reason is that the French nuclear giant did not price out “risk factors” which the provincial government demanded in is RFP. AECL, which was betting on subsidies from the central government in Ottawa, added them in hence its reported higher price and the resulting political uproar over it.

The evaluation is lopsided because no commercial reactor vendor worth its shareholders’ skin is going to assume in a bid that a fairy godmother will show up to pay for avoidable cost overruns. That’s exactly what AECL, as a crown corporation, sees in the central government in Ottawa, and it is why PM Stephen Harper is so hard over about not fulfilling that role.

A real “risk” is a what former U.S. Defense Secretary Donald Rumsfeld would have called a “known unknown.” It is a contingency for cost escalation often brought on by rapid changes in the cost of key materials such as concrete and steel, or changes in specifications by regulatory agencies.

A compelling example of risk and cost is the impact of including directives from regulatory agencies into the design of nuclear waste cleanup facilities at the Hanford site in eastern Washington. A ruling by the Defense Nuclear Safety Board on seismic tolerances sent the Department of Energy and its contractors back to the drawing boards adding several billions to the cost of the cleanup plant.

What’s AECL’s real risk?

AECL SymbolAECL’s risk is that it’s reactor design is still in certification review with the Canadian Nuclear Safety Commission. No one knows how that process will turn out, not even the regulator, which is still pouring over the engineering documents provided to it by AECL.

The cost of building the ACR1000 will depend in part on changes to the design, specified for safety purposes, by the regulator. The prescriptive changes could inflate the cost of the reactor as built. Because no one yet knows the outcome of the review process, AECL is carrying a very large risk about the delivered cost of a first-of-a-kind reactor and included cost contingencies in its Ontario bid hence the higher price.

Are we there yet?

GreenpeaceSouthPark1In a case of the triumph of rhetoric over reason, Shawn Patrick Stensil, a spokesman for Greenpeace Canada, condemned what he called a “media blackout” on the real cost of the reactors. This is nonsensical because the Toronto Star and other news media in Ontario have had one headline after another all week with the purported bid numbers. How can there be a “media blackout” when the Energy Ministry has blanketed the press with numbers. In fact, there have been so many numbers released into the wilds, it looks a lot more like the Cartoon Network than a “media blackout.”

On July 17 some reason did emerge like sunlight after a summer thunderstorm. The Ontario Energy Ministry started talking about the project in terms of costs to the rate payers for electricity. It said the bids were being evaluated based on the “Levelized Unit Electricity Cost” or LUEC. The Energy Ministry told the Toronto Star . . .

“This measure is more sophisticated than just considering the capital cost of a facility as it projects the facility's lifetime electricity output, costs during construction, cost of nuclear fuel, operating expenses over its lifespan.”

Remember the ratepayer doesn’t care about most of these things. What customers do care about is whether they are paying for electricity with nickels, dimes, or quarters. That’s the customer perspective on LUEC.

Even so the stakes in Ontario are not chump change, but anyone who believes the current numbers in the Canadian news media needs to get out a calculator and start from scratch.

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For your added edification, here is comedian Raechel Donahue in a 2007 performance on "unknown unknowns." Advice for the unwary . . .

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1 comment:

Bryan Kelly said...

Rachel should take a look at "How We Decide," by Jonah Lehrer.

http://www.nytimes.com/2009/03/22/books/review/Johnson-t.html