November 2007 Issue


The Return of Nuclear Generation


Back in the Lougheed years, it was easy to choose coal over nuclear power. Today, the dynamics are completely different, because of the massive power needs of the oilsands, because of policy and public concerns about climate change, and because of the need to conserve natural gas. What’s the Stelmach government to do?


A wild card in the nuclear-energy-in-the-oilsands game is the one that could, perhaps, be slapped down on the table by the Alberta Government. More remotely, there could be a financial role for the federal government, too.

Almost everybody assumes the province will have a fiscal hand in proceedings — one that goes beyond the mandatory hearings of both Alberta Environment and the Alberta Energy and Utilities Board.

But what will that hand look like?

Earlier this year, the provincial Progressive Conservative caucus struck a committee to investigate the pluses and minuses of using nuclear power in oilsands production. This stimulated a much-needed policy discussion within the provincial Department of Energy.

The provincial government’s perspective on nuclear energy is driven by the economics of the oilsands and its players. World oil prices are high, in the $80-per-barrel range, but natural gas prices are comparatively low, at $30 to $40 per barrel-of-oil-equivalent.

Such market factors have made it possible to earn big bucks in the oilsands without provincial help. Gas prices are effectively rendered even lower when many oilsands players produce it in prodigious quantities, eliminating an external markup.

A market discipline to avoid waste is thus missing. Companies can keep the spread high between the cost — to them — of gas and the price they get for their oil.

Generation Models

Let’s look at two ways to participate in nuclear power generation — the TOTAL model and the Energy Alberta model.

France’s TOTAL SA is a major player in the oilsands, so its model features equity participation in the plant by the oil company. The second model uses long-term electricity contracts purchased from Energy Alberta by oilsands companies. A legally enforceable long-term contract of supply by a reputable source is as good as money in the bank.

Until recently, there’s been a tendency to discuss in a policy vacuum the merits of building two, 1,100-MW CANDU reactors in Northern Alberta for the oilsands, as proposed by Calgary’s Energy Alberta Corporation.

The government will have to consider where it wants to go with sources of electrical energy generation in the province, beyond the present mantra of deregulation of electrical power generation.

It’s a review that is long overdue.

Policy Perspective

The Peter Lougheed government looked at electrical energy generation in the 1970s, way back when oilsands development was in its infancy. Alberta at that time examined the idea of nuclear energy as a contributor to the electrical power grid. But the idea was rejected as unnecessary.

Also discussed was a western Canadian electrical power grid subsidized and perhaps even owned by Alberta. That was rejected, too, as expensive and less than optimal.

In the end, the Lougheed brain trust decided that the basic source of electrical power generation in the province would come from power plants using Alberta’s own clean-burning, anthracite coal. After all, Alberta has 400-year reserves of the stuff. Besides, it’s doubtful that the phrase “greenhouse gas emissions” was even on anyone’s lips.

The situation is different for Premier Ed Stelmach. He has to deal with policy concern and, indeed, public concern, regarding greenhouse gas emissions.

The Lougheed policymakers were blessed with cheap, abundant and increasing oil and gas reserves, which present-day policymakers don’t enjoy either. As nuclear power proponents are wont to point out, the major plus of nuclear energy is that its generation produces negligible greenhouse gas emissions.

Today’s crop of politicians must constantly keep an ear to the ground for the electoral resonance of the green issue — perhaps less so in Alberta than in other jurisdictions but a reality nonetheless.

The Tradeoff

A second cluster of public policy issues enveloping nuclear power in the oilsands is the cost/reliability tradeoff: expensive reliable or cheap unreliable?

This has proven an Achilles heel for nuclear energy. Atomic Energy of Canada Ltd. estimates the cost of bringing on stream two, 1,100-MW, CANDU reactors at $6.6 billion, spread over eight to 10 years.
This is right up there with the cost of oilsands installations themselves.

The tradeoff doesn’t always work in a straightforward way, either. Witness an earlier generation of CANDU reactors, which very nearly bankrupted Ontario Hydro with costly retooling and engineering retrofits. The Bruce, Pickering and Darlington facilities delivered considerably less than their rated capacities for extended periods.

It seems that in the best-case scenario, nuclear-generated electricity will have to coexist with gas-fired technology as the new plants teethe. With the generation of CANDU reactors of the kind slated for the oilsands, we have experience only in Developing World conditions, in China and Romania.

No new nuclear generation facilities have been built in North America in 25 years. Long-term comparative historical cost data simply do not exist. This statistical shortcoming has not stopped a queue of energy companies from forming at the door of the Federal Energy Regulatory Commission, seeking approval for U.S. nuclear developments.

No one argues that the current gas-fired heat and hydrogenation processes in Fort McMurray are not cheap and reliable. Yet another cost issue is retooling the gas-fired facilities for nuclear-generated electricity — if this is even possible.

The cost/reliability tradeoff and the sudoku-like difficulty of plugging in any known values have to be major considerations for oilsands companies looking at the nuclear option.

More Energy Baskets

A third issue is diversity of energy sources. The public-policy gut, if there is such a thing, suggests that it makes sense to diversify power sources rather than place all our eggs in one basket. Coal-fired electrical generating plants have been that basket in Alberta.

Wind and solar are well and good, but they cannot hope to produce enough power for the extraction processes in the oilsands. It is estimated that left to themselves, the oilsands in 2015 will consume as much gas as is produced for all domestic purposes in Alberta in 2007.

Do I hear anyone suggesting we wheel in electricity from Manitoba as an alternative to gas and nuclear? Good for the Manitoba economy — not so good for Alberta. Perhaps it would be good for Canada, to help the provinces develop less insular economies.

Conservation Impact

A fourth issue is conservation. Nuclear energy to the tune of 2,200 MW per year would save an equivalent stock of natural gas. Granted, the gas freed up will be burned by paying customers, but reserves would be depleted less — by the equivalent of the gas not burned at the oilsands.

Clearly the conservation argument requires some conceptual refinement. But the plain fact is that the saved gas will be burned by end-users at a higher price than many big players would enjoy, because of the lack of markup noted earlier.

It is also under this rubric that one must consider the nuclear waste disposal issue. Not to minimize the problem, but authorities at the Nuclear Waste Management Organization, the federal body charged with planning disposal of spent nuclear fuels, came up with this analogy: the amount of uranium pellets currently in use in Canada is about a soccer field’s worth, filled to the depth of one metre.

Evidently that sets the parameters for the sheer volume of nuclear waste we are talking about. The organization, formed in 2002, has consulted far and wide in the industry, among stakeholders and the concerned public, about alternatives for disposing spent fuel.

In November 2005 the Nuclear Waste Management Organization filed an action plan with Ottawa. It still awaits a response.

One of the main policy arguments in favour of nuclear energy in the oilsands is the dearth of attractive alternatives. It is difficult to see how else the government will attain its own greenhouse gas targets.

High Stakes

It is conceivable that the Conservative committee will adopt a hands-off approach, but I think not. The public policy stakes are too high to leave the issue purely to the market.

In situations like this one, it is often a role of government to act as the catalyst. It can be the bridge for long-range planning decisions, when the private sector lacks the deep pockets and long-term outlook for long-range decisions based on imperfect information.

There is also the matter of what the hearing of the Alberta Energy and Utilities Board will look like, should the Energy Alberta plans unfold to that degree. The EUB will consider as part of the public interest some of the factors we have discussed here — conservation of gas and coal, the reliability/cost tradeoff, and the desirability of having diversified sources of large amounts of electrical power in the province.

The EUB will have to look at whether to integrate the nuclear power generating plant into the provincial power grid or keep it apart. There is currently no high-load transmission line between Grande Prairie and Edmonton. Does the average Alberta utility bill payer really want brownouts and a home heating bill linked to the power shortfalls of, say, the Grande Prairie-2 nuclear generator?

Energy Alberta itself had its first taste of the tough-mindedness of the federal nuclear regulatory process in August 2007, when the Canadian Nuclear Safety Commission politely but firmly handed back — as a mere draft — its initial site licensing application.

Support Options

The Alberta Department of Energy has several options, if its political masters can convince themselves that some form of nuclear power for the oilsands is desirable and inevitable. Suffice it to say that the province has tried a number of modes of participation in the private sector in the past. My shortlist is

  • Equity in the facility. There is still, however, a caucus memory of the Magcan fiasco from the Getty era.

  • Loans and loan guarantees. Players in the oilsands are among the best capitalized companies in the oilpatch, with liquidity in some cases rivaling that of the provincial government itself.

  • Royalty incentives. A clean, nuclear-generated barrel of oil could for public policy reasons garner less in the way of provincial royalties than a gas-generated barrel, creating an incentive to use the new technology. The recent debate about royalties, however, could taint this as an option.

Of course, the province could temporize for now until Energy Alberta can demonstrate that it has a stable of paying clients and TOTAL’s musings have risen from the drawing board. While from one viewpoint this represents commendable prudence, from another it represents a lack of leadership and vision. For better or worse, it appears to be the course the Alberta Department of Energy is staying for now.

Ottawa can lend a helping hand, too, albeit from a distance. Ottawa’s subsidies of course have been instrumental in enabling Atomic Energy of Canada Ltd. to devise and upgrade the CANDU technology, and a bit of a subsidy is embedded in the CANDU sticker price.

A Harper government might find it expedient to provide fast writeoffs of construction expenses to the players. Ottawa could also help by responding to the Nuclear Waste Management Organization report on nuclear waste.

Nuclear power in the oilsands has significant, if guarded, public interest factors going for it. This is not to mention the coming squeeze of oilsands oil profits pressured by increased prices of ever-scarcer natural gas.

A well-timed thrust in this direction from the province would impart a significant impetus to the one that already exists.

Arthur G. Milne is a graduate of the University of Toronto law school and was educated at Magdalen College, Oxford. A Calgary commercial lawyer with an interest in energy issues, his last contribution to The PEGG was Exploration Just Isn’t What it Used to Be, in April 2004, which you can find in The PEGG Online at www.apegga.org.