APPENDIX 4
Memorandum by Atomic Energy of Canada
Limited (AECL)
CONTENTS IN
BRIEF
Introduction
Summary
The Case for New Nuclear
Low Carbon
Advanced Design, Delivery and Performance
Affordable
Fuel Security
Enhanced Safety
Enabling New Nuclear
Economics
Planning and Consents
Cost and Schedule Risk
Fair Treatment
Spent Fuel
Figures
Figure 1: AECL Project Delivery Experience
Figure 2: CANDU 6 Lifetime Performance, Year
Ending 2005
Figure 3: Comparative Cost of Generation
Figure 4: Comparative Cost Structures
Figure 5: Localisation Experience and Potential
INTRODUCTION
1. Atomic Energy of Canada Limited (AECL)
welcomes the opportunity to present written evidence to the Select
Committee on Trade and Industry's investigation of the Energy
Review.
2. AECL is a fully integrated nuclear technology,
products and services company. The CANDU reactor is our flagship
product and it has been delivering safe, reliable and affordable
electricity to millions of consumers on four continents. Our 4,000
employees are dedicated to delivering leading edge nuclear services,
R&D support, design and engineering, construction management,
specialised technology, waste management and decommissioning in
support of CANDU reactor products and other nuclear utilities,
worldwide. AECL is a Crown Corporation fully owned by the Government
of Canada.
3. Our comments describe some of the key
issues that vendors, generators, and owners must weigh when facing
a nuclear new build decision. We are happy to provide further
detail or background on any of these areas to assist the Committee
in its enquiry and will also be making a submission to the Government's
Energy Review Consultation.
SUMMARY
4. AECL believes that new nuclear plants
to replace and augment the existing nuclear generating capacity
have a central role to play in meeting the UK's key energy goals
on affordability, fuel security and reducing carbon emissions.
5. However, implementing a limited number
of policy initiatives will act as an important catalyst for the
construction of the first nuclear units and realising the benefits
of nuclear energy. These initiatives should be focused on three
areas:
(a) addressing specific elements of risk
that lie beyond the control of private sector project participants;
(b) creating an environment that attracts
private investment; and
(c) levelling the playing field and achieving
fair policy treatment for nuclear technology.
THE CASE
FOR NEW
NUCLEAR
Low Carbon
6. Renewable energy is necessary to achieve
a clean and balanced energy portfolio, but the trade-off is higher
cost and intermittent output (eg off-shore wind). Consequently,
renewable energy on its own is not a panacea to solving the UK's
energy challenges. The intermittent characteristic of renewable
energy must be supplemented with a high-availability (non-intermittent),
low carbon, affordable source such as nuclear.
7. The challenge to achieving the UK's energy
goals, particularly with respect to meeting the CO2 targets, is
heightened as the proportion of generating capacity supplied by
nuclear falls from its current level of around 19% to 7% by 2020.
Today, nuclear energy is the United Kingdom's largest low carbon
electricity generating source. Failure to replace this with new
nuclear generating capacity will create significant pressures
on UK CO2 emissions targets.
Advanced Design, Delivery and Performance
8. Fears of cost overruns, delays and cancellations
for nuclear projects are largely a legacy from the early days
of the industry. As the industry has matured over the last few
decades, a strong understanding of design and regulatory interfaces,
along with an effective project management discipline have emerged
to reduce the risk of these difficulties returning. Today, construction
of nuclear plants can be achieved on schedule and within budget.
AECL has completed six plants since 1996 (figure 1).
Figure 1
AECL PROJECT DELIVERY EXPERIENCE
| In-Service Date |
Plant | Status |
| 1996 | Cernavoda Unit 1, Romania
|  On budget, on schedule*
|
| 1997 | Wolsong Unit 2, S Korea
| On budget, on schedule
|
| 1998 | Wolsong Unit 3, S Korea
| On budget, on schedule
|
| 1999 | Wolsong Unit 4, S Korea
| On budget, on schedule
|
| 2002 | Qinshan Phase III, Unit 1, China
| On budget, 43 days ahead of schedule
|
| 2003 | Qinshan Phase III, Unit 2, China
| On budget, 112 days ahead of schedule
|
| 2007 | Cernavoda Unit 2, Romania
| Under construction
|
| * As per completion contract |
| Source: AECL |
| |
|
Each plant was completed within budget and on-schedule. AECL's
most recently completed project, a pair of reactors at the Qinshan
Phase III site in China, was completed 112 days ahead of schedule
and 10% under budget, setting world records for construction and
commissioning. These projects were completed under very different
environments, cultures, and customs.
9. In a similar fashion, based on several thousands of
reactor years of operating experience, achieving operational excellence
has emerged as a primary goal for owners and operators over the
last few decades. This focus on operations has led to the development
of technologies and methodologies that have helped the owner increase
the performance of their plant assets. As a result, plant performance
is high and continually improving. The experience in the United
States illustrates this point—annual performance increased
from about 50% in the early 1980s, achieving 90% in 2002[35].
AECL's CANDU technology has always delivered leading performance.
The global CANDU 6 fleet enjoys the highest performance around
of any technology, delivering high capacity factors over the entire
life of the plant (figure 2). The latest available information
from Nuclear Engineering International ranks three CANDU 6 units
within the top 10 list for lifetime performance[36].
10. In response to the needs of the owner, nuclear vendors
have engineered their newest plant designs to meet expectations
for rapid construction and high performance. Unlike the early
days of the industry, design requirements now incorporate construction
and operation requirements from the earliest stages. This has
led to the use of construction innovations such as "open-top"
installations, and modularisation. Advanced engineering tools,
such as 3-D Computer Aided Design and Drafting (3-D CADD) allow
the designer to simulate maintenance activity to ensure adequate
allocation of space, optimise work flow, and provide accessibility.
AECL's pioneering work developing modular construction techniques
on recent projects has allowed significant portions of the plant
to be fabricated ahead of time and assembled on-site, significantly
reducing construction risks. As a result, the currently projected
construction schedule for the new build is reliable and as a vendor,
AECL will be ready to make contractual commitments on its achievement.
Affordable
11. Benefiting from the advancements in project delivery
and plant performance, nuclear energy is now an affordable option.
Studies from the Organisation for Economic Cooperation and Development
(OECD)[37], the Royal
Academy of Engineering, [38]and
others have shown that nuclear energy is economically attractive.
Figure 3 shows the generation cost of nuclear is competitive to
gas and coal, and significantly more affordable than wind.
12. Furthermore, the price of electricity from nuclear
energy is stable and relatively insensitive to fluctuations in
the price of uranium fuel. Unlike other sources of electricity
generation, fuel represents a very small fraction of the cost
of generation—15% for nuclear versus 76% for gas (figure
4). Consequently, variations in the cost of uranium fuel have
a minimal impact on the overall cost of electricity. For example,
doubling the cost of fuel for nuclear would increase generation
costs by about 15% whereas a similar increase in gas prices will
result in a 70-80% increase in the generation cost.
Fuel Security
13. In addition to economic and environmental benefits,
nuclear energy does not carry many geopolitical concerns typically
associated with fossil fuels. Canada and Australia, with long-term
political and economic stability, account for 42% of the world's
known recoverable uranium reserves. [39]Consequently,
nuclear energy can play an effective role in achieving fuel security
and reliability goals.
14. Achieving fuel security goals could also be considered
in terms of developing domestic capabilities and infrastructure.
Technology transfer is an option that allows the United Kingdom
to achieve self-sufficiency in manufacture, maintenance and operations.
For customers who wish to pursue a comprehensive technology transfer
program, AECL works closely with local partners, providing them
with the "know-how" and "know-why" to effectively
serve domestic needs. A successful program may also generate attractive
export opportunities.
15. AECL's technology transfer and localisation program
is the most effective of its kind in the industry, capable of
achieving the highest level of local content with the fewest number
of units. In Korea, for example, CANDU technology achieved up
to 75% local content by the fourth unit (figure 5). Similarly,
all CANDU owners have successfully localised fuel manufacturing
after the construction of only one CANDU 6 reactor.
Enhanced Safety
16. Safety and security have been priorities for the
nuclear industry since inception. Events such as Three Mile Island
and Chernobyl, although regrettable and tragic, have led to significant
improvements in reactor safety through implementation of lessons
learned. In the case of AECL, CANDU plants have operated safely
around the world for over four decades, accumulating over 400
reactor-years of operation safety without any accidental release
of radioactivity. As the technology advances, enhancements continue
to deliver high safety for the protection of the public, on-site
personnel, and investment.
17. For example, AECL's Enhanced CANDU 6 (EC6) containment
design is significantly improved to provide greater protection
against malevolent events like sabotage or a deliberate aircraft
strike as well as external "Acts of God" such as earthquakes,
tsunamis and tornados. Strengthened buildings and hardened containment,
equipment separation and redundancy and other measures protect
the plant, population, as well as customer assets from threats,
both internal and external.
ENABLING NEW
NUCLEAR
Economics
18. On the basis of economic analysis alone and based
on the current prices of electricity in the UK, one might conclude
that the investment community is prepared to invest in a nuclear
project today, without the need for any incentives. However, this
is not the case. The economic analysis obscures the issues and
risks that prevent generators from securing financing for the
first units of the new build program. These risks are amplified
by the sheer amount of capital required. Nuclear energy has the
largest capital requirements of any available generation option
by far, around £1 billion for a 1,000MW facility.
19. When considering investing in a nuclear project,
the financial community seeks a premium on the use of their capital
in comparison to other generation options. This premium reflects
the higher commercial risk and uncertainty associated with the
construction of the first nuclear plant in a generation. Reducing
the risks, the uncertainty, and consequently, the investment premium
are essential before any private investor will participate in
a project.
20. For a nuclear project, the economic analysis illustrates
that the project is attractive over the operating life of the
asset, typically 30+ years. However, cash flow can be negative
for the first five to ten years of operation. Cumbersome licensing
and planning regimes that in the past have introduced delays of
up to 10 years have meant that an investor will not make meaningful
progress towards recovering their investment for at least 15 years.
Faced with this scenario, investors are choosing to invest in
other projects that can achieve a higher rate of return in a shorter
period of time. This is one of the reasons behind the "dash
for gas". Mechanisms that accelerate the payback period,
and improve the project cash flow are needed to attract private
financing to nuclear projects.
21. For publicly traded companies, their participation
is further complicated by concern over negative share price movements.
The company will expose a large portion of their capital in a
nuclear project with poor prospects for short-term recovery. As
a result, earnings will be diluted causing share prices to fall
and debt ratings to be downgraded. For a publicly traded company,
this is a very unattractive scenario.
22. The United States also grappled with these issues
as it sought ways to initiate its nuclear program. Over the last
few years, a variety of vehicles were examined, including production
tax credits, power purchasing agreements, loan guarantees, and
investment tax credits. These vehicles may not be needed in the
UK if the right environment for investment can be created. AECL
is willing to build in the right environment of policy and economic
stability without government subsidy.
Planning and Consents
23. Licensing is a crucial component of a new build project.
Until the necessary consents and licenses are secured, the project
cannot proceed to the next stage. In this way, licensing controls
the cash flow for the project. For the investor, the goal is to
secure the approvals, or have significant confidence that the
approvals can be secured, in a timely fashion before large sums
of capital are committed.
24. The process of securing the necessary consents for
the UK's first new nuclear plant is difficult to predict in terms
of time-scale, cost and outcome. For a new reactor, the lead-time
necessary to gain planning consent prior to construction could
take several years. Sizewell "B", the most recently
built nuclear plant in the UK, took over six years, from January
1981 to March 1987 with significant associated costs.
25. Lengthy timescales are likely to be compounded by
the requirement for further public consultation after construction
and prior to commissioning, necessary in order to justify the
plant and gain a radioactive discharge authorisation. This has
proved to be a prolonged and costly process, with no certainty
over the outcome. Status quo application of this process increases
commercial risk, erecting additional barriers against any new
nuclear capacity in the UK.
26. Vendors are reducing licensing risk by heeding the
lessons of the past. Today, a vendor would not undertake a project
until the design was sufficiently advanced.
27. Investors are willing to fund the planning and consent
process on the premise that the basic approvals are given prior
to the start of construction. The remaining obligation for the
project implementer is to demonstrate compliance with the conditions
of the given approvals throughout the construction, commissioning
and operation.
28. Generally, introducing improvements to the consents
process is needed to enable a new nuclear project. These improvements
must maintain transparency and public confidence, but should be
aimed at reducing the schedule (streamline the process), reducing
schedule risk (ensure adherence to specified consultation and
review periods), and reducing licensing risk (identify potential
licensing issues as early as possible). In order to initiate the
improvements, a clear and unambiguous statement of Government
policy in support of nuclear new build is required.
Cost and Schedule Risk
29. AECL, as a responsible nuclear vendor, is prepared
to assume the cost of risk in those areas over which it has control—construction,
design, technology, etc. AECL projects in Korea and Romania were
delivered on a firm price basis, and the Qinshan Phase III project
in China was delivered using a full turnkey model. This gave the
owner certainty over cost and schedule for those areas with AECL's
span of control. AECL is prepared to deliver future projects under
similar models.
30. In order for the vendor/constructor to assume this
level of risk on project delivery, however, it is important that
there is stability in planning, political and regulatory structures
and that risks to the project arising from these are minimised.
Fair Treatment
31. The current market mechanisms fail to recognise the
environmental benefits of nuclear energy. In particular:
(a) electricity from nuclear is subject to the Climate
Change levy;
(b) nuclear energy is exempt from the Emissions Trading
Scheme; and
(c) Renewable Obligations Certificates, which are driven
by the need for climate change control, are not available for
nuclear energy.
As a result, nuclear is treated at a disadvantage versus
other generation sources.
SPENT FUEL
32. For decades, the world has been using electricity
generated by nuclear power reactors. Nuclear energy is the only
generation alternative in which all harmful releases to the environment
are fully managed and controlled. Used nuclear fuel requires proper
shielding and careful handling to protect humans and the environment.
Although the radioactivity decreases with time, used fuel will
remain a potential health risk for a very long period, likely
thousands of years or longer.
33. Like many other countries with nuclear power programs,
Canada has yet to decide what to do with the final disposal of
its radioactive used fuel. Currently, when used nuclear fuel is
removed from reactors it is placed in wet storage for about seven
to 10 years to reduce its heat and radioactivity. It is then transferred
to containers for dry storage in a facility at the reactor site.
The design life of the concrete and steel storage containers is
about 100 years. There are seven storage sites in Canada and it
is projected that these storage facilities would need to be completely
refurbished or replaced about every 300 years.
34. The Canadian Nuclear Waste Management Organization
(NWMO) was established to research, consult widely and make recommendations
to the federal Canadian government about an appropriate long-term
management approach for used nuclear fuel. Their recommendation
for long-term management of used nuclear fuel in Canada has as
its primary objectives safety—the protection of humans and
environment—and fairness to this and future generations.
35. The NWMO recommends a risk management approach[40]
with the following characteristics: centralised containment and
isolation of used fuel in a deep geological repository, flexibility
in the pace and manner of implementation through a phased decision-making
process, provision for an optional step in the implementation
process in the form of shallow underground storage of used fuel
at the central site, prior to final placement in a deep repository,
continuous monitoring of the used fuel to support data collection
and confirmation of the safety and performance of the repository;
and potential for retrievability of the used fuel for an extended
period, until such time as a future society makes a determination
on the final closure and the appropriate form and duration of
postclosure monitoring.
35
Nuclear Energy Institute. Back
36
Nuclear Engineering International, June 2005. Back
37
OECD Projected Cost of Generating Electricity 2005 Update. Back
38
"The Cost of Generating Electricity", The Royal Academy
of Engineering, March 2004. Back
39
World Nuclear Association (http://www.world-nuclear.org/info/inf75.htm). Back
40
"Choosing a Way Forward. The Future Management of Canada's
Used Nuclear Fuel", Nuclear Waste Management Organization,
November 2005. Back
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