A recent report from Natural Resources Canada, released by Lisa Raitt, the Minister, nicely summarizes AECL’s plight. “Simply put,” says the report, “AECL does not have the critical mass or financial strength to establish a strong presence into the key markets that will ensure its success.” Funded by government and subject to political oversight, AECL’s core CANDU nuclear operation could never become a viable business. “The status quo is thus not a viable option.”
Lest anyone think this is a Conservative ideological plot to strangle another Canadian National Dream, initial words of doubt about AECL were delivered in 2002 by Herb Dhaliwal, then Liberal resources minister. He launched the AECL review with these words: “What is the future of our CANDU reactor and atomic energy? Because if we’re not making any sales and there’s no potential, should we continue to invest in those areas or not?”
The conclusion in the report is that there is no potential for CANDU under current market conditions or under AECL’s current structure. So the plan, while somewhat vague at this point, is to at least link AECL’s so-called “commercial” activities with private sector partners. The CANDU nuclear reactor division could form a “strategic alliance” with outside partners. Full privatization, or “divestiture”, is listed as an option but not endorsed in the report. AECL’s research and development operation would remain in government hands, while the Chalk River Laboratories, home of the isotope fiasco, would also “benefit from the contribution of a strong partner to drive innovation and renewal.”
All this is far too cautious, in that it preserves far too much of the unworkable status quo. If there is worldwide demand for isotopes, a life-saving product, surely it can be owned, operated, managed and developed by the private sector — unless, of course, Chalk River is a giant dysfunctional albatross that can never operate competitively. If that’s the case, then it should be shut down.
While it’s good to have this useful and realistic summary of AECL’s prospects, there is a possibility that all of the old industrial hype has not yet been wrung out of the system. The report says the company essentially has no future as a government corporation, but it also raises the possibility of a new nuclear power bonanza on the horizon, painting a rosy picture of a “revitalized global nuclear industry.”
As the report sees it, the nuclear renewal will be driven by climate policy and the global war on fossil fuels and the need for energy security. “After decades of stagnation, the nuclear industry is expanding.”
We’ve heard this talk before. The history of CANDU is the history of over-hyped visions of growth and success just around the corner. In 1996, scrambling for more federal cash, AECL said its CANDU industry “is on the threshold of its greatest success.” The sales pitch then was that China, India, Korea and other Asia-Pacific rim countries would be scrambling to CANDU’s door. It set up offices in Thailand, Indonesia and Vietnam.
That fantasy collapsed, as did the previous one, which was built on Ontario’s Darlington mega-billion dollar blowout and on dreams of CANDUs popping up in places like Communist Romania and Argentina. AECL’s main achievement then was to announce reactor sales with the help of billion-dollar backing from Export Development Corp.’s back door “Canada Account,” a slush fund run by the federal cabinet.
The cumulative losses at AECL between 1947 and 1994 were estimated at $19 billion by George Lermer, then dean of the Faculty of Management at the University of Lethbridge. Losses since 1994 have averaged about $200 million a year until 2006. Since 2006, Ottawa has paid in another $1.5 billion in subsidies. Cumulative losses, in todayÂ’s dollars, would amount to about $30 billion.
The Conservatives have set in motion a process that should end this ongoing industrial policy failure. The risk is that, even with a private partner, it will continue to underpin CANDU nuclear power on the grounds that climate change will make it the next big thing.
In the past decade, the nuclear industry has evolved through acquisitions, mergers and restructurings. These changes have been motivated in part by clientsÂ’ expectations for on-time and on-budget delivery of nuclear projects and in part by a need to acquire sufficient scale to accommodate risk and manage cash flow when project revenues are uneven.... A small number of large, well-capitalized and integrated companies have emerged in recent years in response to these needs, most notably AREVA, Westinghouse/Toshiba and GE/Hitachi. In general, the focus of these companies is threefold: ensuring access to major markets; securing highly specialized and scarce resources; and acquiring sufficient scale to win multiple contracts and deliver on multi-billion dollar projects.
Unlike its main competitors, AECL is not part of an integrated alliance. AECL has attempted to overcome this limitation by forming Team CANDU with SNC-Lavalin Nuclear, GE-Hitachi Nuclear Energy Canada, Hitachi Canada Ltd. and Babcock and Wilcox. This partnership has helped AECL to operate in Canada and enabled it to penetrate some international markets in emerging economies. It has not furthered however its ability to penetrate mature Western markets or to expand its operations beyond the supply of nuclear power generating stations.
In contrast, many of its competitors have vertically integrated operations with capabilities that span the nuclear fuel cycle (mining, enrichment, power generation, reprocessing and waste management). Whether it is born out by evidence, there is widespread expectation that such integrated companies will be the primary beneficiaries of the global nuclear resurgence.
Simply put, AECL does not have the critical mass or financial strength to establish a strong presence into the key markets that will ensure its success. Moreover, its reliance on government funding and approval processes in managing commercial projects valued in the billions of dollars places it at a further disadvantage. Remaining a niche player, however, will not generate sufficient demand for new reactor construction to make the CANDU Reactor Division a viable business. The likely result would be a withering of the commercial division, which would in turn put in jeopardy the broader nuclear industry in Canada. The status quo is thus not a viable option.