Friday, May 23, 2008

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Tuesday, May 20, 2008

Power up, ’topes down: Canadian government rolls the nuclear dice in Ontario
Last March, the Harper government finally threw some money at Atomic Energy of Canada Ltd. (AECL): $300 million to finally commercialize its new flagship, the ACR1000 power reactor.

AECL, a federal crown corporation, is in the fight of its life in Ontario, where, for the first time, it faces international competition in its bid to sell reactors to the province. The feds have made it known they want Ontario to buy Canadian. The $300 million was therefore as much a signal to Ontario as it was a response to the Auditor General, whose January report had confirmed AECL has long been under-funded.

The problem is, Harper runs his government on a budget. That means he won’t fund every AECL project. So last week AECL announced it will abandon its Maple isotope reactors, which were supposed to replace the company’s ageing NRU reactor and maintain Canada’s primacy in medical isotope production. The Maples are eight years over schedule and who-knows-how-many dollars over budget. AECL couldn’t say how long it might take to put things right, so the feds pulled the plug.

On the surface this looks like Harper may have contradicted himself. After all, hadn’t he blasted the former head of the nuclear regulatory commission for refusing to let AECL power the NRU back up after a maintenance outage late last year? If he’s so concerned about the supply of medical isotopes, why did he pull the plug on the Maple reactors? The Maples’ nearest likely competitor, a reactor in Missouri that uses low enriched uranium (the NRU uses high-enriched uranium), appears at least five years from commercial production.

Maybe the idea is to do everything to help AECL prevail in Ontario. Maybe killing the Maples was another signal to Ontario that AECL is fully focused on the ACR1000.

If so, that is one hell of a roll of the dice. If AECL loses in Ontario, Canada might be right out of the nuclear reactor business.

Thursday, May 15, 2008

Natural gas will drive power price hike: spirit of Enron lives in Ontario
When George W. Bush became U.S. president in January 2001, his friend Ken Lay, the CEO of Enron, tried hard to persuade him to adopt the carbon emission reductions required by the Kyoto Protocol. Enron, as you will remember, was a new giant in the U.S. energy business until its spectacular collapse in August 2001. Though it had acquired a fleet of power plants and was active in the newly deregulated California electricity business, Enron had begun as, and was primarily still, a natural gas company.

Lay’s support for carbon reductions was the result of simple arithmetic. Half of America’s electricity in 2000, nearly two trillion kilowatt-hours
, had come from coal-fired generating plants. Almost two billion tonnes of carbon emissions had accompanied this output. Because gas-fired power generation is less emission intensive than coal-fired, one obvious and fast way to chop power-sector emissions would have been to shift some of that coal-fired power to gas.

Lay knew that even a small overall shift toward gas would result in major sales for properly positioned gas companies. And no company was better positioned, or politically connected, than Lay’s Enron. So, unlike his colleagues in other energy companies, Lay supported the Kyoto Protocol and its requirement for emission reductions.

But Bush understood, well before Enron tanked in August, that trying to meet the Kyoto target through a shift to gas was a bad idea. First, it was a glaringly obvious political non-starter: U.S. senators, who have the final say on whether America adopts an international treaty, had made it plain they would never ratify Kyoto. Second, coal plays a role in America’s life and economy that extends far beyond its gargantuan power output. Shifting to gas, on the Kyoto timetable, would have caused an economic calamity.

Political capital is a president’s main source of power. There was simply no way Bush was going to lead off his presidency with a quixotic effort to force a disruptive transformation in American power generation.

Subsequent developments proved it was the right decision. Beginning in 2002, the price of natural gas on the North American market began trending upwards, reflecting tightening continental supply. Through 2003, the price of gas per unit of heat was three to four times that of coal. It has stayed at least in that range since then, sometimes spiking to over $10 per million Btu. Yesterday, May 14 2008, gas futures for 2012 were selling for over $8.90. Nobody should be surprised by news of the rising natural gas price.

Nor should anyone be surprised that this has caused dramatic electricity price increases. In the U.S. Northeast, where concern over emissions led to a rush of gas-fired generating plant construction in the late 1990s, retail residential electricity prices are now, on average, 15.85¢ per kWh, by far the highest in the continental U.S. In coal-fired Ohio, they are 8.19¢.

European governments, quick to support Kyoto and condemn Bush for abandoning it, are learning the hard way that they won’t meet their own Kyoto targets without a wholesale shift from coal to nuclear or gas in power generation. Germany, which will phase out nuclear by 2020 and has put a moritorium on new coal construction, has no alternative but gas.

In the middle of all this, Ontario sticks to its plan to phase out coal by 2014 and hold the line on nuclear capacity. Everybody knows that this province cannot double renewable capacity by 2014, as planned—unless the plan includes annexing hydro-rich Quebec or Manitoba.

How, then, will we plug the 6,000 megawatt electricity supply gap when coal exits in 2014? With gas. The Ontario residential price of electricity is around 12¢ per kWh. Two weeks ago, over 500 megawatts of gas-fired capacity entered service. In which direction will retail power prices go?

The spirit of Enron lives in Ontario.

Monday, May 12, 2008

Ontario nuclear competition: which Team Canada will show up?
Atomic Energy Canada Limited (AECL) is, for the first time in its history, in a competitive process to sell nuclear reactors in Ontario. It is competing against two deep-pocketed giants of the international nuclear industry, Areva and Westinghouse.

As the incumbent vendor—all power reactors in Canada are CANDUs—does AECL have the inside track? Yes and no. Yes, in that its machines provide roughly half of Ontario’s electricity on any given day. Without them, we would be powering most of the province with coal. If you think power-sector emissions are high now, consider the alternative.

And no, for the exact same reason. Every glitch in the performance of Ontario’s reactors reflects on AECL. And there have been many glitches.

I don’t envy the bid evaluators, or the provincial Energy Minister who will have to explain the results of their evaluation. This is because there are really two AECLs to consider. There is the Bruce/Pickering AECL—the original sixteen-reactor fleet whose construction began in the 1970s. The Ontario government yanked eight of them out of service in the mid-1990s, well before they were scheduled for decommissioning. The day-to-day performance of the still-operating units in this part of the fleet is a bit spotty, to say the least. Tracking their operation—and their impact on Ontario’s power system and its total emissions—is like watching a young fireball closer throwing heat in the bottom of the ninth. You hope he does well but he makes you nervous.

And then there’s the post-Pickering AECL. This consists of fourteen units in five countries. These include the four at Darlington on Lake Ontario just east of Oshawa.

The performance of this part of the AECL fleet has been good. AECL likes to point to Nuclear Engineering International’s yearly Power Plant Performance rankings, which regularly put three of South Korea’s Wolsong CANDUs in the top ten global performers. Not bad for a technology that represents about seven percent of the world power reactor fleet. Neither Areva nor Westinghouse has a unit on the top-ten list, though the South Korea–developed PWRs at Yonggwang and Ulchin were based in part on Westinghouse technology.

The question for the Ontario bid evaluators, then, is which AECL will show up?

This question becomes positively fascinating when you delve into the reasons for the layups at Bruce and Pickering in the mid-90s. I recently sat down with Steve Paikin, host of The Agenda, to discuss the Ontario nuclear competition. He asked me how our province’s experience with the construction of the Darlington station, which saw cost overruns of around $10 billion, might affect the bid evaluators’ perception of AECL.

Not an easy question to answer. I tried to explain that this wasn’t strictly AECL’s fault, that the huge overrun was a function of the convergence of many factors, including high cost of borrowing, the shifting in regulatory requirements in the wake of Three Mile Island and Chernobyl, etc. By the time I finished my answer, I felt like a political science professor. There are reasons, and there are excuses. The fact remains that AECL was the reactor vendor.

All of which is to say, incumbency is a double-edge sword.

Thursday, May 01, 2008

Ontario power output, emissions drop in April: what will summer bring?
Last winter’s massive snowfalls, as I mentioned on April 22, did Ontario a big favour by melting—thereby adding to the province’s hydroelectric output. Hydro provided around a third of our electricity in the month of April; it usually provides about 25 percent.

According to Electric Power Statistics, while overall provincial power output was down by 11 percent from March, power-sector emissions were down by nearly 30 percent. We should all thank Old Man Winter.

While all that hydro provided a major benefit, in the form of 24/7 power from a completely emission-free source, we can’t count on hydro spikes of that magnitude every year. Nor can we count on massive hydro output during the critical months in mid-summer when every air conditioner in the province is running at capacity full time.

Luckily, we are the authors of our own destiny. We can control the amount of emission-free baseload power, by bringing more nuclear power online.

Mainstream environmentalists will dispute this, claiming that renewable energy like wind and solar generation together with conservation measures can replace both coal and nuclear.

Easy for them to say; they’re not the ones who will have to deal with an enraged public when the lights go out.