With many of the Canadian province of Ontario’s 20 existing AECL-designed Candu units headed towards retirement or total refurbishment, Ontario energy planners recently recommended Ontario utilities commission as much as C$40 billion ($36 billion) in new nuclear investment to avert a future energy crisis. This suggestion – which the Ontario government has been studying since December – fuelled hopes for new reactor sales at AECL headquarters near Toronto. But US and European reactor vendors also responded enthusiastically. For the first time in its five-decade history, AECL faces tough competition for the reactor market on its home turf in Ontario.
The last of the four units at the 3940MWe Nanticoke coal-fired generating station is due to close in 2009, leaving a huge capacity gap that needs to be filled
In Pittsburgh in the USA, Nils Breckenridge, Westinghouse’s global head of strategy and nuclear power marketing, considers a Canadian breakthrough increasingly possible. Along with efforts to lobby the Ontario government, which owns all of the province’s 20 reactors and operates 12 of them, Westinghouse sales teams have also been meeting with executives at Bruce Power, the private sector operator of the eight Candu units at Ontario’s largest nuclear station. Westinghouse’s 1100MWe AP1000 reactor recently won design certification approval in the USA, spurring contracts with US utilities. The company now hopes to make similar inroads in Canada. “The US market for new reactors is moving quickly, and we’re looking to expand north of the border,” said Breckenridge.
French giant Areva is also gearing up to compete in Ontario. After establishing a reactor services division to bid for work on Ontario’s Candus, Areva is now vigorously promoting its 1600MWe EPR reactor. Steve Hamilton, Areva’s vice president for Canada, thinks the EPR suits Ontario’s emerging need for large baseload generation. “We’re working to demonstrate that our technology meets or exceeds the need,” Hamilton said. “There’s sufficient demand and grid in Ontario and we’re showing the government, the utility companies and the regulator what we’ve got.”
General Electric (GE), which operates a US unit dedicated to selling its 1350MWe ABWR and 1500MWe ESBWR reactors as well as a Canadian unit largely dedicated to servicing the Candu fleet, has yet to formally confront AECL in Ontario. “We’re giving it a lot of thought,” said Peter Mason, vice president for nuclear products at GE Canada in Peterborough, Ontario. “But we don’t have plans at the moment for marketing in Canada.” But GE is fully poised to do so. Peter Wells, marketing manager for GE nuclear energy in Wilmington, Delaware said “exploratory discussions” started more than a year ago with officials at Bruce Power and Ontario Power Generation (OPG), the provincially-owned utility. But Wells was careful to emphasise that at this point the discussions are “generic” evaluations of “what it would take to build a new plant – costs, schedule [and] technology updates,” but not “what I would characterise as a formal review for a specific project opportunity.”
HOME TEAM ADVANTAGE
With 4000 jobs at AECL in Ontario largely dependent on Candu sales and maintenance, and a further 30,000 jobs at other companies also dependent on servicing the 28 Candus in operation worldwide, Ontario utility officials have a strong local incentive to purchase Candus, which are largely fabricated with Canadian-made components. Even so, in the wake of efforts to encourage private participation in Ontario power markets, the provincial government has now been strongly advised to open the reactor market to international competition.
A high-level panel commissioned in 2003 by Dalton McGuinty, premier of the Ontario, to investigate commercial practices within OPG suggested economic nationalism should not be a factor when it comes time to decide what type of reactors to build in future. “A broader industrial development strategy for the domestic nuclear industry should not enter into decisions,” the report to the government warned. “Ontario should not be biased towards choosing Canadian-developed technology, but should seek out the best available technology worldwide.”
Ron Osborne, who struggled with billowing Candu refurbishment costs at the Pickering nuclear plant near Toronto as CEO of OPG between 1998 and 2003, said this advice makes good sense: “I’ve always felt that if Ontario is going to build new reactors it shouldn’t be automatic that it’s Candu,” said Osborne. “Ontario should be looking at all the competitors.”
Canadian investment analysts agree. Matthew Kolodzie, a senior vice president at Dominion Bond Rating Service in Toronto who tracks Canadian electrical markets, is convinced new reactors will have to be built in Ontario, and that international competition is warranted. “The Candus are pretty well known in Ontario,” said Kolodzie while noting AECL has obvious home team advantages. “But if we are looking at a project pre-construction financing, we’d want to look at the manufacturer’s credit rating. GE’s would look pretty good.”
AECL executives said that they are ready to compete. Ken Petrunik, AECL’s chief operating officer, argued the well-publicised stress-related troubles that have plagued Ontario’s fleet of older model Candus have been resolved through modifications incorporated in its second generation Candu 6 models, which unlike Areva, Westinghouse and GE models, are currently licensed for sale in Canada.
Since 1983, AECL has built ten Candu 6 reactors in five countries, including one in the Canadian province of New Brunswick, and one in Quebec. “The Candu 6 reactors are the best in the world,” said Petrunik, pointing to performance data from units in Korea as well as at New Brunswick’s Point Lepreau station. Commissioned in 1982, the reactor at Point Lepreau was the first Candu 6 built. It delivered strong performance for 20 years. But in an ominous reminder of the fate of many earlier model Candus in Ontario, doubts about the longevity of the Candu 6 reactors are growing. After prolonged debate last year, the government of New Brunswick announced that its Point Lepreau reactor will get a C$900 million ($810 million) overhaul due to technological problems very similar to those associated with Ontario’s older Candu units. The refurbishment at Point Lepreau will begin in 2008 and will force the reactor offline for an estimated 18 months.
CANDU UNITS FOR SALE
To win new reactor contracts in Ontario, AECL spokesman Dale Coffin said the company proposes to offer a mix of its second generation Candu 6 and a third generation 1000MWe Advanced Candu Reactor (ACR) design still undergoing development. By commencing new construction with Candu 6 units before shifting to the ACR, Coffin said Ontario can bring new nuclear generation online without waiting for the ACR to win regulatory approval, which may take up to ten years according to the country’s regulator.
Coffin noted that because Candu 6 is already licensed in Canada it may prove to be the most expeditious choice of reactor to help fill Ontario’s looming energy supply gap. Coffin said AECL is counting on sales of the ACR in Ontario to allow it to compete with other third generation reactors in international markets.
Proposed innovations within the ACR design include a 50% reduction in the use of heavy water within the reactor, the introduction of new alloys aimed at alleviating fuel tube and pressure system deterioration associated with earlier Candus, and the use of enriched fuel, which will have to be imported due to Canada’s lack of enrichment facilities (existing Candus are designed to run on natural uranium). Partly because of the plan to use enriched fuel, AECL said the ACR will be cheaper to operate as well as faster and cheaper to build than existing Candus have been. But some analysts worry the plan to run the ACR on imported enriched fuel may prove awkward. Canadian operators may be reluctant to begin sourcing fuel offshore, said Bill Garland, a former Candu designer who teaches nuclear physics at McMaster University in Hamilton, Ontario. “I don’t know if the penny has dropped yet about that in Canada,” said Garland.
Efforts by AECL to promote its ACR concept outside Ontario have not so far shown promise. In January 2005, the US utility Dominion terminated an agreement to seek a US licence for the 1000MWe version of the ACR and instead decided to support GE technology. Soon afterwards, officials in China, where two Candu 6 units have been built, announced that more Candus will not be built during China’s current nuclear development planning phase. AECL vice president Ken Hedges said efforts to promote the ACR in the UK have also proven difficult.
Observers in Ontario worry AECL’s plan to launch the ACR without sales abroad may result in Ontario ratepayers and possibly taxpayers solely shouldering the development costs for a new generation of Canadian-made reactors, much as they did with the development of the first generation of Candus in the 1960s and 1970s.
Utility officials in the province continue to face public wrath for vast cost overruns, severe technical troubles, and colossal debts associated with building, maintaining and modifying the provincial reactor fleet. “It’s not just what the reactor costs to build that matters but also the cost of its lifecycle research and development,” warned former OPG CEO Ron Osborne. “We need to buy technology for which we won’t be alone in financing that lifecycle R&D. If we buy French or American reactors we’ll share these costs with a larger number of operators,” Osborne believes. “If we buy the ACR, we risk having to go it alone.”
Although the Ontario government has been advised to commit sizeable new resources to nuclear renewal by its energy strategists, it remains unclear whether new nuclear plants would be built by the government-owned utility, OPG, or by a private operator such as Bruce Power, which leases the province’s eight largest Candus from the government.
At OPG, although CEO Pierre Charlebois said OPG’s Darlington nuclear station offers a good site for new build, he stressed that it’s up to the Ontario government to determine whether or not OPG commissions new reactors. At present, said OPG spokesman John Earl, OPG “does not have a mandate for new nuclear.”
In a speech to investors and market analysts in Toronto last April, AECL’s Petrunik suggested the Ontario government may prefer to leave decisions about the specific details of new nuclear projects to private parties. “The Ontario government would probably prefer to let the private sector handle the risks,” he noted.
That’s a suggestion which Duncan Hawthorne, the Scottish-born CEO of Bruce Power, keenly endorses. In a recent interview, Hawthorne said he’s studying proposals from numerous reactor vendors. The decision to choose a reactor will be made on its commercial merits alone, he said. Asked how much of Ontario’s future appetite for new reactors Bruce might want to handle, Hawthorne was quick to offer a ready reply: “Why shouldn’t we build them all?” Hawthorne asked.
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