BUSINESS

HIGH-VOLTAGE HOPES

Atomic Energy of Canada is banking on a global surge in nuclear demand

BRENDA DALGLISH December 5 1994
BUSINESS

HIGH-VOLTAGE HOPES

Atomic Energy of Canada is banking on a global surge in nuclear demand

BRENDA DALGLISH December 5 1994

HIGH-VOLTAGE HOPES

Atomic Energy of Canada is banking on a global surge in nuclear demand

BUSINESS

Forty years ago, using ingenuity and parts from a Bofers anti-aircraft gun left over from the Second World War, Bertram Brockhouse oversaw the construction of a neutron triple axis spectrometer at Atomic Energy of Canada Ltd.’s Chalk River, Ont., nuclear research station. Atomic Energy (AECL) carefully unpacked and reassembled the historic machine for a celebration last week to honor Brockhouse, co-winner of this year’s Nobel Prize for physics. During the past 40 years, while AECL developed and sold nuclear power reactors, Brockhouse investigated more abstract theories about the behavior of atoms. But the 76-year-old retired physicist does not share his former employer’s commercial enthusiasm for the nuclear technology that he helped to develop. “If I was given the power to wave a wand and make nuclear energy and nuclear weapons not exist, I’d

have to think very hard about it, but I might wave the wand,” Brockhouse told Maclean’s last week. “It is not an altogether happy gift to humanity.”

Despite Brockhouse’s reservations, his prestigious award for nuclear research was the icing on the cake for AECL in 1994. After 40 years of performance that has never quite

lived up to early expectations, the Crown corporation has finally begun enjoying something of a turnaround. Following the sale of the last of four nuclear reactors to South Korea in 1992, AECL managers are confident that they have a firm foot in the door for more sales to the rapidly developing, energyhungry Asian market. AECL played a starring role in Prime Minister Jean Chrétien’s visit to China in mid-November, and it now appears to be close to signing a contract that could be worth as much as $3 billion to sell two CANDU reactors to China. Indeed, prospects are so promising that AECL’s new president, Reid Morden, told a gathering of CANDU suppliers last week that he sees signs of a “nuclear renaissance.”

That optimism, however, is strongly matched by a vocal antinuclear lobby that advocates dismantling AECL and the government’s funding of the Crown corporation. Opponents of Canada’s nuclear power program have made great strides with their argument that other forms of electrical generation are cheaper, safer and more flexible, by pointing to Ontario Hydro’s costly problems with some of its 22 CANDU nuclear reactors. At the same time, the federal government, which is under growing pressure to cut its deficit, is being forced to consider reducing its annual subsidy to AECL. Last year, despite the government’s $170-million contribution— primarily for research—AECL lost $139 million, largely because of one-time restructuring and write-off costs. But if the Chernobyl nuclear accident and a lengthy global recession cast a pall over reactor sales in the 1980s, Morden claims that to date the 1990s are showing exactly opposite trends. He noted that there are 50 new reactors under construction around the world and he cited energy demand forecasts for several countries that suggest the need for the construction of dozens of new nuclear plants in the develop-

ing world over the next few years. “Nuclear power,” said Morden, “can help to provide solutions to some difficult global problems such as environmental degradation and the need for reliable energy supplies to fuel the world economy.”

That was the founding vision for AECL, created in 1952 from the remnants of Canada’s involvement in the U.S. and British military’s Manhattan Project, which produced the atom bomb during the Second World War. AECL de-

veloped the heavy-water CANDU power reactor at a new research laboratory built to hide the project from enemy detection during the war at Chalk River, a town 200 km northwest of Ottawa. It also experimented with a variety of other medical and industrial uses of nuclear technology. Since then, AECL has sold 35 reactors, including 20 to Ontario—where nuclear reactors now provide two-thirds of all the electricity used in the province—one each to Quebec and New Brunswick, and the remaining 13 to Romania, South Korea, India, Pakistan and Argentina. Next spring, the newest CANDU reactor is slated to begin operating in Romania. Korea’s last three will start up later in the decade.

Despite AECL’s status as a Crown corporation and its reliance on federal research funding, the domestic financial benefits of selling a reactor are difficult to pinpoint. AECL designs and oversees construction of CANDU re-

actors, but it does not manufacture any of the components. Those are provided by privatesector suppliers. Many of those suppliers are Canadian because of the unique design of the reactor, which, unlike other models, can be refuelled while it operates.

The basic model is the CANDU6, which produces about 600 megawatts of electricity. While each unit costs about $1.6 billion, Don Lawson, president of AECL’s CANDU division, says the company collects only one-tenth of that price. Suppliers get whatever contracts they can win from the buyer. The buyer controls how contracts are awarded, and most government buyers seek to award as many contracts as possible to suppliers of goods and services within their own country. Morden notes that the sale of the last three reactors to Korea, which cost Korea more than $3 billion to build, produced about $1 billion in revenue for Canada. Lawson says that as Korea’s experience with the CANDU technology grows, it is beginning to compete for and win

some contracts in other countries involving CANDU reactors. As a result, Canadian suppliers face increasing competition from nonCanadian equipment and service suppliers.

There are six nuclear reactor vendors in the world, of which AECL, with 13 reactors sold outside the country, is in third spot. The largest vendors are both American: Westinghouse Electric Corp., which has sold 32 reactors to other countries, followed by General Electric Co., which has sold 20. Framatome of France is in fourth spot, with eight reactors sold to other countries, followed by Siemens AG of Germany, which has sold seven, and ABB Asea Brown Boveri Ltd. of Switzerland with four.

The growing debate over AECL’s contribu-

tion to Canada’s gross domestic product is controversial. A study prepared for AECL by the accounting firm Ernst & Young last year stated that the federal government has spent $4.7 billion on AECL since the company was formed 42 years ago. That study also estimated that from 1962 to 1992 the nuclear industry contributed $23 billion to the Canadian economy based on estimates of the value of electricity generated by nuclear sources and the value of the Canadian content of exported CANDU reactors. An estimated 30,000 people work in the Canadian nuclear industry— 4,300 of them at AECL itself.

But critics dispute that generous assessment of AECL’s financial returns. Norm Rubin, nuclear spokesman for Energy Probe in Toronto, says that the federal government’s own study in 1988 pegged Ottawa’s contribution to AECL at closer to $7 billion. And he says that he is unimpressed by the economic spinoff benefits that AECL claims to generate. “Anytime the government puts $7 billion into

anything,” said Rubin, “you’d expect lots of spinoffs.” He also blames AECL for encouraging Ontario Hydro’s massive investment in nuclear reactors, which he says has turned out to be an extremely costly way to generate power. Ontario Hydro is now $35 billion in debt at a time when the demand for electricity is falling. As well, new types of small power-generation projects at industrial sites are producing significant amounts of power at considerably lower prices than the electricity produced by the megaprojects.

Furthermore, Rubin says that if the cost of eventually cleaning up and decommissioning the country’s nuclear plants when they go out of service and of safely disposing of their hazardous waste was properly accounted for, the costs of nuclear power would far outweigh

the benefits. Earlier this year, Canada’s Auditor General Denis Desautels, in his annual audit of AECL’s financial position, formally censured the Crown corporation for excluding its decommissioning costs in its financial statements.

Rubin notes that it is the bottomless pockets of government that keep nuclear power artificially alive. Without the government to backstop all the costs and the potential for almost infinite liabilities, he says that no private-sector company could risk entering the field. “This is a technology that only a government can love,” said Rubin. “Look at research alone. Name one other high-tech company in the private sector that can’t afford to do its own research?” But Morden insists that AECL is not different from its competitors in relying on government financial support. “In an ideal world, this industry would be self-sufficient,” said Morden. “But there isn’t anyone in the world in this business that doesn’t get help from their national governments.”

AECL will have a need for even more mon-

ey in the future because of several new projects that are currently in the works. It is developing the next generation of CANDU reactors, which will be capable of producing 900 megawatts or more of power—one and a half times the output of the current model.

The bigger size is in demand especially in South Korea and other countries in Asia because of their rapidly growing power demands and the limited land area upon which to build generating plants.

Another expense looming on the horizon is related to the disposal of the spent fuel bundles from reactors. There are now about 20,000 tons of highly radioactive nuclear waste stockpiled at reactors in Ontario, Quebec and New Brunswick. AECL estimates that the cost of building and operating a disposal facility could amount to as much as $13 billion in total. Although the costs will largely be borne by the provincial power utilities whose reactors are producing waste, AECL will also bear some of the cost.

In addition, Chalk River’s research reactor is nearing the end of its life and will soon have to be replaced. Morden says that AECL’s research must be continued because, without adequate ongoing research to ensure that the technology keeps improving, potential buyers will not be interested in CANDU reactors. A new research reactor is likely to cost about $400 million, he says, but some of that cost may be shared with universities and other organizations that make use of the facility.

For his part, Robert Nixon, the former Ontario Liberal cabinet minister who was appointed as AECL’s part-time chairman earlier this year, says that regardless of what

the federal government does with the level of AECL’s funding, it must continue to fund scientific research of some type. Said Nixon: “Our problem in Canada is that we do too little research, not too much.” Don Anderson, general manager of Ontario Hydro’s nuclear division, says that given Ontario Hydro’s current overcapacity he does not expect that another nuclear reactor will be

`This is a technology that only a government can love'

built in Ontario for several decades. Morden, too, concedes that most future sales will come from off-shore markets.

Ultimately, that means that the federal government will have to decide if the rewards of selling reactors strictly for export to other countries are great enough to justify AECL’s research subsidies. Nixon and Morden say that they are pursuing their mandate to improve the efficiency of the corporation. And Nixon says that “it is not impossible” that the corporation might eventually be privatized. Said Nixon: “It may be that there are efficiencies that could be gained through competition.”

In the private sector, Brockhouse says that he might use some of the $500,000 prize money that accompanied his Nobel award for energy conservation. Reducing energy consumption, he says, provides a double benefit. “Other things being equal,” says Brockhouse, “the amount of pollution that you produce is roughly proportional to the amount of energy that you use.” That may not sound as exciting as the promise of splitting atoms to create energy, but, in the long run, it will undoubtedly be cheaper.

BRENDA DALGLISH