Energy

Government receives feasibility study for second nuclear reactor (08/02/04)

NB 134

Feb. 4, 2008

SAINT JOHN (CNB) -- The Government of New Brunswick has received Team CANDU's feasibility study, which examined the market demand for a second nuclear facility in the province. The government will now undertake a thorough review of the study, which will lead to a decision on the next steps the Province may wish to pursue.

(Multimedia)

Premier Shawn Graham considers the delivery of the feasibility report as an important step towards building and growing a world class energy hub..

"I look forward to reading this report and to the possibilities of what this could mean to our province and towards reaching our goal of self sufficiency," Graham said. "When it comes to a growing energy hub that is truly making a major impact on the eastern seaboard, New Brunswick is the place to be."

The construction of a second nuclear reactor at Point Lepreau has the potential to create up to 4,000 jobs during construction and 500 permanent, high-paying jobs to operate the facility. As well, it presents an opportunity for New Brunswick to develop a nuclear cluster around research, training, manufacturing and design.

In August 2007, the province hired a third-party consultant, MZConsulting, to perform a viability study for a new nuclear facility in New Brunswick. This study was independent from the Team CANDU feasibility study. The viability study is high level study that addresses key issues around market potential, project viability and the criteria required for a successful business venture. It assesses potential business models as well as broader issues outside the scope of the Team CANDU study.

The study undertaken by MZ Consulting has been reviewed and examined by the government, and Energy Minister Jack Keir is pleased to report on its findings and recommendations.

"I couldn't be happier after reviewing the positive results brought forward by our third party consultants," Keir said. "A new nuclear reactor is viable under a certain set of conditions, and I look forward to reviewing the Team CANDU feasibility study to see if they have met those conditions. This is great news for the energy hub."

New Brunswick is the only province in Atlantic Canada licensed for operation of a nuclear power facility. The Point Lepreau nuclear generating station, which produces 630 megawatts of electrical power, is currently being refurbished at a cost of $1.4 billion.

08/02/04

EDITOR'S NOTE: Background information follows. MEDIA CONTACT: Bonnie Doyle, Energy, 506-658-2410.

Viability Study for New Nuclear Facilities in New Brunswick
Executive Summary

On August 1, 2007 the government of New Brunswick announced a feasibility study for a new nuclear plant in the province. The study is being performed by Team CANDU New Brunswick consisting of AECL, SNC Lavalin, GE Canada, B&W and Hitachi. The feasibility study is being funded by Team CANDU New Brunswick and is designed to evaluate the potential for an ACR-1000 to be constructed at Point Lepreau, and will examine the business case for private sector investment, identify prospective markets and the potential environmental and socio-economic impacts of this project.

The objectives of this Team CANDU New Brunswick study are to have the risk of the project taken by the private sector while providing a platform for the province of New Brunswick to develop an "energy cluster"-a long term sustainable energy industry. "If the study is favourable, the funding for the project will be organized by Team CANDU and by private investors and not by New Brunswick taxpayers," according to Patrick Lamarre, president of SNC-Lavalin Nuclear, "The New Brunswick government will have the ability to opt into as much risk as it believes it and NB Power can sustain".

In parallel to this study, the Department of Energy engaged MZConsulting Inc. to perform an independent viability study for new nuclear facilities in New Brunswick. This higher level study identifies key issues affecting project viability and provides findings and considerations for the government of New Brunswick on a workable business structure and path forward for success. To achieve this, MZConsulting Inc. has studied the market for electricity, both domestically and for export; looked at potential business structures and assessed the risks associated with various options; prepared a high level business case to determine if this can be an economically viable project; and finally, considered the economic benefits to the province.

MZConsulting finds that this project can be viable under a set of suitable conditions. Based on preliminary input from Team CANDU New Brunswick to the province, this study has considered a project based on a merchant model primarily for export with private financing. However, there are a number of issues associated with the implementation of the project on this model that can put the project at risk.

The key summary findings of this viability study are as follows:

Market

There is a potential market for the output of a single ACR-1000 plant, driven by cost and environmental considerations. This would displace oil in New Brunswick, coal in Nova Scotia, oil-fired exports to PEI, and be for export to New England.

LNG and natural gas generation, be it located in NB or NE, is the major competition for a second nuclear unit.

The Maritime market has the potential to take half the output of a new nuclear unit.

The export market has potential but issues associated with the inability of the market to enter into long term supply contracts and limitations with transmission will add difficulty.

Land transmission should be sufficient for first new unit.

Taking the output of two units would require a large commitment from the export market, require large new transmission projects to proceed that would add risk, and is less likely in the shorter term.

Project Structure

A nuclear project has never been implemented on a merchant plant basis although there are some plans to do so in the US and the UK.

Success with this model will require long term commitments from the market and a strong project proponent who can take the project risk including completion risk.

Financing costs will be higher for a private sector merchant model. Parent company or government guarantees may be required.

The project cannot take First of a Kind ACR-1000 risk. This risk must be both managed and borne by the members of Team CANDU New Brunswick.

A public model where NB Power is the project proponent is a lower cost alternative structure. However, this would result in additional risk to the province and an increase in the provincial debt.

Business Case

The economics of the project show that under a suitable set of conditions the project can be viable. The outcome depends strongly on the final cost of the plant and the price of electricity in the market. This electricity price is generally related to the price of gas.

The viability of the project is dependent upon the structure. The project IRR in the base case is higher than would be required in a public sector project but may be insufficient for a private sector merchant model.

Environmental issues are becoming more prominent in both the domestic and export markets. There is likelihood that carbon will be traded by the time this plant would be complete. A cost of carbon will improve the project economics.

Economic Benefits to New Brunswick

This project can provide an impetus to the province's goal of creating an "energy cluster".

The province should receive demonstrable benefits from the project in return for hosting the First of a Kind ACR-1000.

Sustainability of the jobs related directly to the implementation of the ACR-1000 will be directly related to the success of the ACR-1000 in the global market. The output of the McKinsey study currently underway in Ontario will be important for understanding the potential for the ACR.

Emphasis should be on knowledge-based infrastructure more than on fabrication.

While it is the stated intention of the province that the project has no risk to both rate payers and tax payers, there is role for the province to play, either directly or through NB Power. The province is contributing important inputs to the project including an experienced world class nuclear operator in NB Power, a licensed nuclear site, general community support and the support of government for a First of a Kind design. Therefore, it is essential that New Brunswick receive fair and adequate compensation for these factors in the structure of any proposed project.

NB Power, as operator, would be the license holder of the plant. As such, Team CANDU New Brunswick is asking NB Power to make application to the CNSC for a license. This will commit NB Power to a process requiring significant effort. The feasibility study should clearly elaborate on the support to be provided to NB Power for this work from Team CANDU New Brunswick. Therefore, the government of New Brunswick should do a thorough assessment of the Team CANDU New Brunswick feasibility study prior to taking a decision on submitting this application.

The province may also decide to invest directly in the project. This will depend upon the outcome of the Team CANDU New Brunswick feasibility study and the business case made, as well as the project structure proposed.

In reviewing the Team CANDU New Brunswick feasibility study, it is recommended that the government of New Brunswick consider the following:

Market Consideration: Fundamental to the viability of the project is the market. There must be a demonstrated market need in a defined timeframe. This should include potential customers, the contractual basis and the transmission capability to deliver.

Technology Consideration: Team CANDU New Brunswick is proposing to build the first ACR-1000 in New Brunswick. They should demonstrate that the program in place to manage the first of kind risks is adequate and that New Brunswick is receiving suitable and adequate consideration for hosting the First of a Kind project.

Project Structure Consideration: This is critical to the success of the project. Team CANDU New Brunswick must demonstrate to the satisfaction of the government of New Brunswick that it has a workable project structure in place. To demonstrate that the model is workable, Team CANDU New Brunswick must identify:

a credible project proponent/owner;
the contract structure for the market;
the project delivery model from the vendor; e.g. what is meant by fixed price?
the financial structure;
the source of funds including identifying specific lenders and investors; and
who will take on the completion risk.

Business Case Consideration: The viability of this project is subject to a number of conditions. Team CANDU New Brunswick should include in their study a business analysis showing its assumptions and demonstrating the viability of the project to government.

Economic Benefits Consideration: One of the critical drivers for this project is to support the development of an "Energy Cluster" in the province. Team CANDU New Brunswick should clearly elaborate to what it is committing in this area. As some benefits would likely only be sustainable in the event that the ACR-1000 is a success in the global market and that many follow on units are built, Team CANDU New Brunswick should make its case as to why it thinks that the ACR-1000 will be a success and offer some preliminary projections.

08/02/04