How to create infrastructure jobs and pay for clean energy: public and private models deliver success in Ontario

At its height, the nuclear refurbishment at the Bruce power plant on the east shore of Lake Huron was the biggest capital infrastructure project in Canada. It generated 3,000 jobs, mostly in the building and construction trades, at a time when jobs were scarce and urgently needed in Ontario. At the time the refurbishment project started, the Bruce plant had six reactors operating and was already one of the biggest clean energy producers in the world. The refurbishment involved the original two units of the plant, and was a massive feat of coordinated engineering which paid off, with the return of units 1 and 2, in 2012. Those units are generating over 1,400 megawatts of zero-carbon electricity as I write this. At any time of the day, the Bruce plant produces between one-quarter and one-third of Ontario’s electricity, without emitting a gram of carbon dioxide into the atmosphere.

Taken out of service in 1995, Bruce nuclear unit 2 was refurbished and returned to service in 2012. Refurbishment was financed through an innovative public-private partnership, which created 3,000 high paid, high skilled jobs. The success of this model holds potential for future zero-carbon nuclear construction in Ontario.

The Bruce plant was built by Ontario Hydro, the provincially owned vertically integrated electric utility, in the 1970s and 80s. Units 1 and 2 started making electricity in 1977. In the mid-1990s, Hydro, after a 20-year new-build campaign of unprecedented scope and ambition, experienced a workforce crunch and found itself unable to commit the human resources necessary to perform the complex technical upkeep of its older nuclear units.

Hydro therefore decided, beginning in the mid-90s, to temporarily lay up the 8 units of its two oldest plants, Pickering A and Bruce A; these represented 2,060 and 3,000 megawatts of capacity, respectively. The utility turned to its fleet of coal-fired plants to cover the shortfall. Electricity-sector carbon dioxide (CO2) emissions accordingly began to skyrocket—at precisely the time the Canadian federal government signed the Kyoto Protocol to fight climate change by reducing man-made greenhouse gases, of which CO2 is the most prevalent.

The next question was: whether, when, and how to bring these plants back into service. By this time Ontario Hydro had been deregulated, i.e. split up into separate parts, with the generation arm becoming Ontario Power Generation (OPG).

The “workforce crunch” I mentioned was partly artificial. It came about when the provincial government, which owned Ontario Hydro, had compelled management, in the recession of the early 1990s, to cut the workforce: this was to show the public the government was prepared to spread the pain. The layups, and deregulation, happened under the next (Conservative) government, which was similarly reluctant to commit the resources to rebuild the workforce.

Because of the huge prominence of Kyoto and growing public support for cutting CO2 emissions, the Ontario government started feeling serious public heat for the ramp-up of coal-fired power production. This turned into a major political issue, and is why the current Liberal government formalized the coal phase out. And it translated into strong pressure within the then-Conservative government to bring the laid-up Pickering and Bruce reactors back into service. Ontario needs electricity, after all.

But returning most of the laid up units required refurbishing them, and refurbishment is a very complex, involved, and expensive process. Was anybody willing to share the expense? The answer was yes. In 2001, Bruce Power was formed: it is a partnership made up of two private-sector companies, a pension fund, and the two main electricity-sector unions. Bruce Power offered to lease and operate the “B” plant (which had continued running), restart units 3 and 4 of the “A” station, and to refurbish units 1 and 2. In return, the Ontario government guaranteed a long term rate for the electricity. That rate is over six cents per kilowatt-hour: a bit more than the rate guaranteed for electricity from the OPG-operated nuclear plants in Ontario but still by far among the cheapest rates in Ontario. More important, it is one that reflects the financial risks the partners took in committing to bring back units 1 and 2.

Most important, the Bruce arrangement points to a promising way forward in financing nuclear projects. Ontario law forbids the regulated utility to pay for major projects by increasing current electricity rates. The Bruce reactors are not regulated, they are contracted. This innocuous-sounding distinction is what allowed the higher rate for Bruce B’s output and made Bruce Power immediately viable and therefore willing to commit the billions of dollars to the refurbishment. As I noted above, this commitment translated into—in addition to the 1,500 reliable and carbon-free megawatts that are being generated right now—3,000 high skilled jobs. Each of those jobs adds to Ontario’s tax revenues. Each of them produces spin off benefits, in the form of additional spending and sales tax revenue for the province.

I have never had any problem with paying for new or refurbished nuclear power with higher rates. As long as the rates are reasonable, as they are in the case of Bruce Power, then this is a perfectly legitimate way of financing clean electricity. And compared with the rates we are paying for other kinds of clean energy, for example wind, Bruce Power’s electricity is extremely cheap.

In the still-regulated part of Ontario’s nuclear fleet, things are much more politically charged. OPG is directly owned by the province. As I mentioned, by law it cannot pay for major projects by increasing rates. So OPG must finance refurbishments and new builds from its existing regulated rate base, i.e. out of the profits it sends into the provincial coffers. This is all public information, and it has made the company a favourite target in political wrangles. The government loves a cash cow, and hates it when the cow’s production drops, even if slightly, because those drops have to be explained in an atmosphere where the salient point—that Ontario nuclear plants are by far the biggest and most reliable contributors of low-cost clean electricity—sometimes goes overlooked.

The public finance model for nuclear projects has also been successful, but that success has come at a price. The project to refurbish Pickering unit 4, the first CANDU refurbishment undertaken, went over schedule and over budget. The senior OPG management team paid for that with their jobs—to repeat, the government hates having to explain, in a politically competitive environment, why a cash cow has produced less cash than expected. That lesson was incorporated in the second OPG refurb, Pickering unit 1, which came in on schedule.

The Bruce and OPG refurbishments have totally reversed the coal situation, and returned Ontario’s electricity-sector CO2 emissions to many millions of tons below the level that Kyoto called for. This is a remarkable environmental achievement which clearly shows how advanced industrial economies can operate sustainably without sacrificing economic output. In spite of this, it has been unsung, unmentioned, and unappreciated by almost everyone except me and the two utilities. However, it is very difficult for the provincially operated part of Ontario’s nuclear fleet to ensure that this and other benefits of nuclear do not go overlooked. It is much less difficult for the “unfettered” part of the fleet to make the important points.

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10 years ago

Germany, Japan, Quebec and others decommission their nuclear. Ontario’s up. The nuclear is the most polluting and insidious form of electricity. Not in Kyoto because at that time Japan and Germany loved nuclear. I worked at Chalk River btw.