What if they held a sale and nobody came?
One of the arguments for having the government build nuclear reactors in Canada, via a ‘crown corporation,’ is that the private sector won’t have to take the risks given the enormous amounts of capital needed to pay for them. That principle is being called into question.
Atomic Energy Canada Limited (AECL) is facing the prospect of being broken up via sale of its assets to investors. The problems are no one is sure what AECL is worth, who would buy it, or even whether the sale is in the government’s best interests.
No can say the conservative government of Stephen Harper hasn’t been paying attention. Members of parliament are in an uproar over the sale and also the escalating costs associated with AECL’s operations. It’s an issue ripe for the opposition party which wasted no time taking advantage of it.
NDP MP Nathan Cullen told the Montreal Gazette Nov 1 he thinks the return on investment from the sale of AECL’s assets to investors, sans the Chalk River reactor, will be near zero. He estimates the government has poured $8 billion in subsidies into AECL in recent years. Industry source reached by the Gazette apparently agree saying a sale of commercial side might bring $300 million.
According to the Gazette, the more numbers you look at the worse it gets. The newspaper reported that for the 12-month period ending last March, AECL received $642 million in government funds, including R&D support for the ACR-1000. It had $401 million in revenue, but recorded an operating loss of $413 million.
Current and former employees, speaking to the newspaper anonymously, went far beyond the boundaries of civility calling the firm “bloated” in terms of employment growth, and having “no firm prospects.”
It’s raining cheeseburgers, but they’re over cooked
At the top of the list of problems facing AECL is an ever increasing repair tab, and mounting delays, for the Chalk River isotope reactor. What started out as a minor leak has escalated into a $70 million retrofit and the possibility of return to service in March 2010 at the earliest. The closed reactor has created an international medical crisis because it supplies so much of North America's medical isotopes for diagnostic and therapeutic procedures.
Another high profile problem child for AECL is the retrofit of thePort Lepreau plant in New Brunswick province. There a planned $1.4 billion million refurbishment, designed to give the plant another 25 years of operating life, has gone south.
Best estimates are the price will increase by more than 50%, and instead of being completed in October, the plant might not be back in revenue service before next Spring. Meanwhile, ratepayers are being socked with the higher cost of replacement power at an estimated cost of $1 million a day.
Sales prospects
On the government side of the ledger, Serge Dupont, a government energy minister, told the newspaper AECL needed to be restructured if it is to survive. He thinks the new ACR-1000 reactor could generate revenue if sales could be booked for new plants in Alberta, Saskatchewan, and Nova Scotia. Those sales would answer the catcalls of the opposition members of parliament and cement AECL’s future as a viable nuclear reactor vendor.
Dupont’s boss, Natural Resources Ministers Lisa Raitt, is trying to figure out if and when to sell AECL to investors. She hired bankers Rothschild & Sons to make recommendations, which they did, but so far Raitt has refused to release their findings.
A few entries in the order book would boost the price. Bruce Power has been looking at twin ACR-1000 reactors for a site in the tar sands region of Alberta. It would supply electricity and process heat to the oil industry there. Prospects look good for now. Bruce Power is building on its acquisition of Energy Alberta which has unmet demand for 9 GWe of electric power over the next decade.
There are doubts about the future of nuclear energy in Saskatchewan. Despite being a major exporter of uranium, the low population density of the western province puts it on the fence in terms of the economic feasibility of nuclear reactors there. Changes in Canada’s commitments to cut greenhouse gases as a result of the Copenhagen climate conference this December could boost the chances reactors will be built there.
In January 2009 AECL floated the idea of a merchant plant with two new reactors at Port Lepreau. However, the difficulty of developing a merchant project remains. None have ever been built in Canada.
Bright spots and long shots
There might be some bright spots on the horizon, but the immediate business and political climate is so dark that no one is likely to see them.
First, AECL’s newest design for a nuclear reactor, the ACR-1000, has completed a major milestone in its design review by the Canadian Nuclear Safety Commission (CNSC). In September, the CNSC said “there are no fundamental barriers to licensing the ACR-1000 in Canada.” This means AECL will eventually be able to sell the reactor in Canada and perhaps for export.
The bad news so far -- no one is buying it. A major contract for the Darlington site in Ontario is mired in complex cost negotiations. Areva has a cost-competitive bid that is vying for the attention of provincial officials. They worry about lost AECL jobs in Ontario if they contract is award to Areva. What worries AECL executives more is how they are going to stimulate export sales abroad if they can’t sell the reactor at home.
Second, while all this turmoil is taking place, PM Harper is off to India to try to sell them the new AECL ACR-1000 reactor. Harper will be there starting Nov 16 for a three-day visit. During the trip Harper will update Canada’s civil nuclear trade agreement with India. The country has some aging, low power CANDU reactors. There is no word from the Indian government how they view Harper’s planned sales pitch. AECL could be late in its trip to the sales floor.
India is serious about building nuclear reactors. Last March it raised [euro] 8 billion from European banks for this purpose. Russia inked a deal last December involving four new reactors. Areva has a deal for two more with the longer term prospect of six EPRs. Both firms will sell India fuel for the reactors, once built, for the next 60 years.
Third, once the Port Lepreau reactor refurbishment is done, New Brunswick will sell the power station to Hydro-Quebec for $4.4 billion. However, Hydro-Quebec will not assume the debt, or cost over runs, from the current AECL refurbishment. Instead, the plant will become a subsidiary and retain its own set of business books.
New Brunswick Premier Shawn Graham is pointing his finger at Canadian Prime Minister Stephen Harper. He wants the central government, which still owns AECL, to pay for the massive cost increases. Harper’s Natural Resources Minister, Ms. Raitt, hasn’t yet said whether she will pick up the tab.
AECl had hoped to use the Point Lepreau project as a showcase to promote its services to the global nuclear market. Instead, it has egg on its face. If Ms. Raitt succeeds in breaking up AECL, like Humpty Dumpty, no one will ever be able to put it back together again.
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3 comments:
I am a Canadian, and I know both AECL and the inside of Crown Corporations better than most, and can tell you that this one is long overdue to be broken up. The crown corp. system was designed to do several things: develop an industry where none exists and where little interest from capital, to develop markets deemed to risky, to provide services where the market is not large enough, to provide competition where there is none, and to act as an agent-at-arms-length to the government as well as a policy instrument. The problem is that after the industry as a whole matures and grows past a certain size, many of these mandates begin to conflict with each other. Also because a profit was not expected at the company's beginning, a culture more reminiscent of the civil service than that of commerce develops.
It has been my observation and experience from the inside that even when there is an awareness that things must change, the very structure of the organization itself resists. Due to its bureaucratic roots, most things are covered by procedures and processes and these have not so much been developed as they have grown by accretion and changing them can be difficult, or I should say changing them slowly is almost impossible. Links between sections forged decades ago that cannot be broken asunder, budget flows that can only be described as byzantine, and sweetheart agreements that have been signed with unions and outside contractors are just some of the things that mitigate to resist change. Of course too there is the ever present stink of pork-barrel politics that attend any time public money is being spent.
The ONLY cure for this that I have seen work is breaking up the corporation into separate operating companies, each with separate expectations. Chalk River should be considered what it indeed is, and that is Canada's national atomic laboratory, and like similar places in the US be seen as research centers that are not expected to show a monetary profit as much as an intellectual one, while the reactor construction, and reactor maintenance, and waste management divisions should go out into the world to earn their livings.
As much a AECL did astonishingly well, and carved out a place for Canada in the nuclear energy field much larger than its population warranted, its time has come, as it has in the past for other crown corps and it should be broken up to save its legacy.
I only hope it's not too late.
Crazy as crown corporations are, AECL must remain one for the foreseeable future. NRU II must of course stay government-owned -- as you correctly point out, who else will pony up the dough necessary to do the critical research into the next-generation reactors and fuel? And the reactor/refurb side will retain a heavy government involvement at least until Ontario makes like a major industrial jurisdiction and decides which reactor it wants.
And if Ontario chooses CANDU, then AECL's value goes up and its scientists/engineers are in the juice for at least the next decade, continuing and deepening the academic linkages that ensure the longevity of the workforce. What then? Maybe a consortium with private firms like SNC Lavalin, GE... sounds like Team CANDU.
Let's face it: we're a heavy water country, and have been one since Leslie Groves let us play with just enough heavy water to run the ZEEP. What's the point of supporting an NRU II with public money if we we're not going to commercialize the results of the research? The federal government definitely has the staying power to keep us in that game, so it's just a question of political will.
Dan,
"He thinks the new ACR-1000 reactor could generate revenue if sales could be booked for new plants in Alberta, Saskatchewan, and Nova Scotia."
Alberta, yes. Saskatchewan, maybe. Nova Scotia? Never. The ACR-1000 and even the CANDU 6 are just too big for Nova Scotia's electrical system, which has a minimum nighttime load of only 600-700 MW during light load periods.
Perhaps Mr Dupont meant New Brunswick, which was toying with the possibility of building the first ACR-1000 along with Team CANDU, before Hydro Quebec stepped in.
Hydro Quebec offered $4.7B for almost the entire NB Power utility, not just Point Lepreau. The assets involved are the transmmission and distribution systems, hydro plants, some combustion turbines and, eventually, Lepreau. The coal and oil-fired thermal plants will remain as NB crown assets.
Back to Nova Scotia, that province is presently pursuing a '25% renewable by 2015' policy, and unfortunately there are many that think 40% by 2020 is within reach and desirable. Add to this the legislation that restricts Nova Scotia Power - and only Nova Scotia Power - from owning or investing in a nuclear plant and you can see that there is no hope for nuclear development in NS. Or is there?
The restrictive legislation only prohibits NSPI, the major utility, from building a nuke but the door is still open for a merchant plant. And B&W's mPower reactor at 125 MWe is about the right size for Nova Scotia's particular grid. If CO2 is the culprit that is being targeted with the 25%/40%RES (and it is) I can't help but feel that a nuclear option should at least be on the table, now that it is a commercial possibility.
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