Select Committee on Trade and Industry Written Evidence


Memorandum by Atomic Energy of Canada Limited (AECL)




The Case for New Nuclear

  Low Carbon

  Advanced Design, Delivery and Performance


  Fuel Security

  Enhanced Safety

Enabling New Nuclear


  Planning and Consents

  Cost and Schedule Risk

  Fair Treatment

Spent Fuel


  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


  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.


  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.


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

In-Service Date PlantStatus
1996Cernavoda Unit 1, Romania On budget, on schedule*
1997Wolsong Unit 2, S Korea On budget, on schedule
1998Wolsong Unit 3, S Korea On budget, on schedule
1999Wolsong Unit 4, S Korea On budget, on schedule
2002Qinshan Phase III, Unit 1, China On budget, 43 days ahead of schedule
2003Qinshan Phase III, Unit 2, China On budget, 112 days ahead of schedule
2007Cernavoda 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.


  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.



  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.


  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 ( 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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