Race to the (2-year nuclear) pole: pressure mounts on Canadian government to support reactors

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Last week, the Ontario government announced it is delaying its decision on which reactor design to choose for the planned construction project at the Darlington generating station. What underlies Ontario’s skittishness is the fact that none of the three competing reactor designs is currently in service anywhere in the world. This gives significant pause to prospective project financiers, and hence to prospective buyers like Ontario. The international financial crisis has exacerbated this general uncertainty.

The situation is not unique to Ontario. American utilities are gearing up for a large-scale expansion of nuclear power. To jump-start private sector investment in nuclear power, which produces no greenhouse gas emissions, the U.S. government has set aside $18.5 billion in loan guarantees, together with further funds to cover construction delay insurance and power production tax credits. At the end of September, the government had received applications from nine aspiring builders for $122 billion in loan guarantees alone—six and a half times the allocated amount. Industry says it needs at least the applied-for amount.

That’s not all. According to Nucleonics Week, the U.S. is now working with France and Japan to revise export credit rules for nuclear power plants so that the rules jibe more closely with the U.S. loan guarantee program. The intent is to formalize the situation I described back in August: to allow the French and Japanese governments to add their weight behind the U.S. government guarantees, thereby providing the ultimate backstop to reactor projects in the U.S.

The loan guarantee applications described above involve French, American, and Japanese reactor designs. The Ontario competition also involves French, American, and Japanese firms. Unlike the U.S. applications, though, it also includes a Canadian design: the ACR 1000, from Atomic Energy of Canada Limited (AECL).

What is the prospect of the U.S. government increasing the loan guarantees? The bulk of progress in the Bush Administration’s three major civilian nuclear initiatives—the loan guarantee program, the Global Nuclear Energy Partnership (GNEP), and the deal with India—was made with the cooperation of a Republican congress. Republicans have generally favoured nuclear power; the Democrats generally haven’t, though they have shown recent signs they’re re-thinking their traditional opposition (see article). We’ll soon learn how the new president and congress will deal with nuclear power in America. My prediction is that the loan guarantees will increase, but not to $122 billion. That is, the French, U.S., and Japanese reactor firms will have access to U.S. federal financial support for their new designs. (I’ll discuss the prospects for GNEP and the India deal in upcoming posts.)

So, even if export credit rules are rewritten to allow national export credit agencies to support activities in a second country for a project in a third country, AECL even on its home turf will be at a disadvantage against its competitors. Financiers need to see a reactor design in service for at least two years before they’re satisfied it is worth backing without a government gurantee.

Since AECL’s competitors are eligible for U.S. government guarantees to get to the two-year in-service point, AECL should be elegible for something similar from the Canadian government.

What prospects would there be for further ACR 1000 sales if the design reached the two-year in-service milestone ahead of its non-AREVA competitors? How would AECL then be valued?

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11 years ago

Good analysis – I had not recognized how the newness of the prospective designs was affecting the selection process. Essentially, Ontario politicians who know absolutely nothing about math, physics, or fission, have to pick a reactor design. They know that they will be asked lots of questions when they do this, and they know they will look foolish when they answer the questions incorrectly. I expect this decision will be put off until the people insist that new reactors be built. This could be a long delay indeed. Do you think a petition with a million signatures could be drawn up and sent to the Ontario government telling them to get going with lots of nuclear reactors?

You can expect the anti-nukes in the Democratic ranks to capture all the key decision points affecting new nuclear facilities in the USA. More long delays can be expected.

11 years ago

The point-by-point-by-point negotiations which relate to the light water designs could be approached and resolved using the EPAct guarantees and insurance criteria as a guideline—why reinvent the wheel.

It would be nice if a pro-nuclear petition could help this along. There’s already an anti-nuke one, sponsored by the Ontario Clean Air Alliance, calling for a Nuclear Cost Responsibility Act which would make it illegal for power companies to pass capital cost overruns onto consumers. David Suzuki and Margaret Atwood, two of the first people I turn to when I need objective information on nuclear power, have thrown their overwhelming moral weight behind this. Who’s next, Naomi Klein?

Why doesn’t the OCAA advocate making it illegal to pass excessive fuel costs on, since fuel costs would have a more deleterious effect on power bills? Because the OCAA is pro-gas, and in its perfect world Ontario electricity would be 75 percent gas-fired.

I’m cautiously optimistic about the U.S. situation. Rahm Emanuel, Obama’s chief of staff, was active in the Democratic Leadership Council, which in 2006 endorsed nuclear plants as a way of cutting carbon emissions. Obama himself is pro-nuclear, though he spends way too much time talking about renewables and conservation.

[…] Yesterday morning Ontario energy and infrastructure minister George Smitherman told reporters the province has all but chosen AECL, but that the company’s price is way too high. Smitherman said “the ball is in the court of the government of Canada.” This continues a negotiation that began before March of 2008, when Ontario launched its first-ever international competition for reactor vendors. The feds, who own AECL, want Ontario to buy Canadian, and Ontario wants the feds to put their fiscal weight behind a firm, and reasonable, price. This negotiation is wide-ranging and complex, and involves an issue critical to the success of the so-called nuclear renaissance; see article. […]

[…] to catch up to the French company in the all important drive to the two-year-in-service mark (see article). This benchmark is considered critical to demonstrate to nervous power utilities that the […]

[…] In other words, the Rothschild report is not likely to provide information any more or less useful than last year’s National Bank report on exactly the same subject. The only thing that has changed is that AECL’s Ontario competitors, Areva and Westinghouse, will reach the critical two-years-in-operation mark well ahead of AECL (see article). […]