More on the fate of Chalk River labs

If it wasn’t already in trouble enough, the media reported a “near miss” at the Chalk River Laboratory (CRL). It seems an operator at the NRU reactor erroneously shut off a cooling system but the error was immediately corrected by a manager who happened to be in the control room at the time. The only consequences were the doubts that this incident created about operator training and the overall safety culture at CRL.

The resulting negative media coverage comes at a very bad time. The government is looking for a commercial company to operate CRL. I suggested in a post here almost a year ago that a good solution would be to return the labs to the National Research Council (NRC), their original owner in the 1940’s. However, it turned out that I was wrong being much too optimistic about NRC’s ability to navigate in the troubled waters of the current government’s attitudes towards science, and basic research in particular. I read that NRC has been ordered to be “open for business” and it should serve the needs of industry. This is a depressing mantra of knuckle draggers of all political stripes in response to the issue of basic research. I won’t expiate on this theme any further other to say that right now NRC isn’t a feasible refuge for CRL.

It seems inevitable that we will see a commercial company running CRL. I can’t help being reminded of the recent “sale” of the reactor operation of AECL in Mississauga by SNC-Lavalin. Is there anyone out there that thinks in retrospect that this was a good idea? I’ll just confine myself to this question since there are legal strictures that prevent my commenting on the various accusations made against SNC-Lavalin executives for alleged unlawful activities. These unfortunate developments also make off shore sales of CANDU even more unlikely that they were before.

My understanding is that a company is being sought to operate CRL rather than to buy it. I’m sure there is an ideological component in this decision. The political right, now in power in Canada, believes that only private enterprise can operate businesses correctly whereas the left, of course, believes that only governments can. It’s like assuming that more accountants can ensure accountability but they can only document how much is spent foolishly rather than preventing dumb expenditures.

This model of government ownership with commercial operation has been used at US national laboratories for decades. Most of the R&D funding for them still comes from US federal government departments and agencies. In Canada this should be even more the case than in the US. The source of CRL’s funds will overwhelmingly remain the government of Canada and it’s mainly the magnitude of the annual budget that’s in question. To a large extent (80% or more?) the CRL budget must be labour costs. I hope I’m wrong but the main task of the commercial company would likely be drastic staff reductions. The advantages of doing it this way would be that the government could claim that the reductions were done by arm’s length “experienced” business people rather than by the government itself.

Let’s face it, there’s not much R&D of primary importance going on at CRL through no fault of the employees. There will be even less in the future without a new research reactor after NRU closes for good. CRL is very vulnerable to personnel cuts. One thing that could be done is to find new tenants for some of the lab. Is there any other nuclear-related group that could be located at CRL?

Yes. How about moving a large part of the CNSC (Canadian Nuclear Safety Commission) operation to CRL? They are now mainly located in Ottawa office buildings and I can see no particular objection to them being at CRL. It might even give them more exposure to nuclear than they now have (couldn’t resist the pun).

There are good reasons for doing this. Governments in the past have decentralized federal activities by moving them out of Ottawa for example Revenue Canada to PEI and NRCan’s CANMET labs to Hamilton. Certainly there would be whining about inconvenience and more travel effort on the part of CNSC staff. On the other hand housing would be much cheaper and they wouldn’t be that far from Ottawa. Commission staff is located at Pickering, Bruce, Darlington and Pt Lepreau with as the CNSC claims no “regulatory capture” and they could even arrange to have a small independent group devoted to regulating CRL. With so many “cops” buzzing around the hive it might also improve the safety culture at CRL.

I don’t really see any serious objection to moving most of the 900 CNSC people to CRL. Some wouldn’t want to move and buying some of them out would be an added benefit in reducing the personnel bloat at the Commission.

Think about the CNSC idea and if you like it, contact Cheryl Gallant, the CRL area MP. If Hamilton MP David Sweet could swing the politics of moving CANMET to Hamilton then she would have a good chance of giving a badly needed boost to her constituency by moving the CNSC to Renfrew County. The two MPs should compare notes and I suspect the CNSC move to CRL could be done fairly easily if approved by the PMO.

It’s easy to forecast the response of bureaucrats to the idea. They will try hard to stall any CNSC move to CRL on the grounds that studies of the lab’s future are underway, nothing can be done for years and besides they didn’t come up with the idea. Personally, I doubt that they will come up with any better idea if they continue to deny the need for a new research reactor. The advantage politicians have is they can tell the bureaucrats what the results of the study should be and when it should be concluded. It will be interesting to see how this plays out.

Reactor Costs – Checking out a bad analogy

The Canadian Nuclear Association has come up with an analogy to address the high capital costs of nuclear plants. It goes something like this:

We could live in a hotel with no upfront capital costs but most of us choose to pay a high initial capital cost to live in a house.

OK so it sounds cute but in my opinion comparing housing options has nothing with do with building nuclear plants. However, it does inspire me to pursue this capital cost argument a bit further.

Consider that a nuclear plant is built for $10 billion overnight cost. The latter means that not only the labour and material costs but also the cost of the funds borrowed during the time it takes to build the plant are all rolled into one overnight cost. The reactor cost quoted is not unreasonable and is probably a good guess for an Enhanced CANDU 6 (EC-6), the most likely candidate for Ontario’s new reactors.

Since we are talking about the housing analogy let’s go to amortization tables and find that the monthly mortgage payment at a 5% discount rate is about $5.34 per $1,000 borrowed in order to pay off the principle and interest in uniform payments over 30 years which was is the amortization period normally used for Ontario reactors. Applying this to the overnight cost we obtain an annual mortgage payment of $641 million.

Let’s assume that the plant is rated at 700 MWe (an EC-6) and it operates at 90% capacity factor. That gives an average annual electricity production of 5.52 billion kWh and thus, to cover the capital cost alone would require a little less than $0.116 per kWh. To this we would have to add O&M, fuel costs, decommissioning and used fuel management allowances and, since we are talking about a CANDU, a provision for refurbishment after 25-30 years.

The wholesale price of electricity in Ontario at periods of normal demand is around $0.02 to $0.04 per kWh. Roughly speaking Ontario Power Generation gets about $0.04 and Bruce Power about $0.06 per kWh wholesale for their generation. The consumer pays about $0.12 per kWh after transmission and distribution costs are added plus subsidies for renewables and debt repayment charges for past reactor construction. The foregoing numbers are a great oversimplification of a complex market structure superimposed over a lot of generally dumb political decisions but they do give us a basis for a rough comparison.

What jumps out at us immediately is that a $10 billion EC-6 doesn’t fit in the current economic framework for electricity in Ontario. Just paying the mortgage means the electricity produced is more than two to three times current wholesale prices before any add-on costs. Of course, there are many ways to play with the assumptions and juggle the numbers. Project finance and accounting experts know a myriad of dodges and tricks to come up with any cost of electricity one might desire. Low balling the initial cost to get the project approved is almost standard in the industry but can be counteracted to some extent by Blackett’s observation that the announced project cost should be multiplied by π to estimate the final project cost.

I like the following quote by David Fessler writing about investing in uranium (Jan 29, 2013)

“With regard to plant construction costs, natural gas is to nuclear as Wal-Mart is to Saks Fifth Avenue.”

This observation is proved yet again in Ontario. To fit current economics it looks like the new reactor capital cost should be in the range of $3-5 billion which won’t happen. (The capital cost of a comparable natural gas plant would be in the order of $1 billion but after that the economics depends on gas prices.) The usual way of getting around paying realistic amortization on the high capital costs of reactors is to have a government as your banker/guarantor which historically has proven to be the only feasible way of building them.

This also explains why refurbishing existing reactors to extend their useful lives is a much more attractive proposition economically than building new ones. In Ontario we’ve already paid for many of the older reactors but I hasten to add that we are still paying on our monthly electricity bills the construction debt for the four Darlington reactors, completed some 20 years ago.

Maybe the “hotel” in the CNA analogy is natural gas although there are comparatively lower capital costs? Strong reasons for building nuclear plants include mitigating climate change and reducing harmful pollution from fossil fuels but attractive economics isn’t one of them. However, in my opinion government subsidizing of nuclear power, as is done for wind and solar energy, is completely justified and necessary.

The house/hotel analogy just draws attention to this reality and in my opinion should shelved by advocates of nuclear power.