What Kept the Holiday Lights Twinkling? Ontario’s Long-Term Energy Plan’s Impact on the Nuclear Industry

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In December, Heenan Blaikie published “Achieving Balance, Ontario’s New Long-Term Energy Plan: A Plan with Potential Sparks for the Future”, an overview of the Long-Term Energy Plan (“LTEP”) for Ontario’s energy generation and distribution over the next 20 years, released on December 2, 2013, by the Ontario Ministry of Energy. This article is the first in a series of follow-up articles discussing the LTEP from the perspective of Heenan Blaikie’s energy, infrastructure and procurement practices.

LTEP’s Key Points on Nuclear

Despite its recognition of nuclear energy as the backbone of Ontario’s electricity system, the LTEP reduces the role of nuclear energy in Ontario. At present, nuclear energy comprises 56% of Ontario’s energy production. By 2032, the government expects to decrease this amount to 39% and replace it with energy conservation and a renewable power.

Further, the government has cancelled its plans for nuclear new build projects, shifting its focus to the refurbishment of existing nuclear capacity. In 2016, Darlington and Bruce Generating Stations will each begin refurbishing one unit, with subsequent refurbishments dependent on the performance of that initial refurbishment. The Pickering nuclear station will be shut down by 2020 or earlier, depending on energy demand moving forward.

The LTEP advises that new nuclear capacity is not required due to the lack of growth in the demand for energy resulting from economic change and improvements in energy efficiency and conservation. While the LTEP claims that Ontario will continue to have the option to proceed with new build in the future if demand should grow, the government’s position does not appear to reflect the long lead-time required to license and build a new reactor.

Finally, the LTEP emphasizes the government’s commitment to the export of Canada’s nuclear industry expertise, services and products, but provides no indication of how such support will be realized.

Key issues with LTEP’s Nuclear Strategy

Ontario’s LTEP in effect delivers a long-term energy plan which is driven by the short-term forecast of a lower demand growth for energy. Despite its assertions of the criticality of nuclear energy, the plan does little to support Ontario’s nuclear sector, evidenced by the clear shift in focus from nuclear to other forms of renewable energy. There is concern that LTEP’s reduction in the nuclear share of generation would compromise Ontario’s future supply of energy, significantly affect the economics of Ontario’s energy market and erode the competitive advantage of the nuclear energy sector in Ontario.

Securing a Future Supply of Electricity

Nuclear energy comprises the main source of Ontario’s electricity. The long-term impact of transitioning from nuclear energy to other energy sources poses significant consequences to Ontario’s maintenance of a reliable future supply of electricity. Despite their positive qualities, other renewable energies, such as solar and wind, face reliability concerns stemming from the lack of storage capability. Thus, currently, they can only supplement more stable energy sources, such as nuclear energy or fossil fuels.

In the event that solar and wind suppliers cannot meet the targets set by the LTEP, or in the event that demand increases beyond that forecasted, another source will need to backstop the ensuing energy gap. Given that nuclear power cannot be built overnight, the likely source will be fossil fuels, increasing Ontario’s greenhouse emissions and thus reversing the current goals of the LTEP. The end result will be that the LTEP’s dismissal of future nuclear new builds will have an adverse effect on the Ontario government’s attempts to move away from fossil fuels towards renewable energy.

Prospects for the Ontario Economy

The LTEP does not address the significant economic impact that cancelling the planned new builds will have on Ontario’s economy. While the refurbishment phase will create 9,000 new jobs at the Darlington and Bruce Stations, according to the Conference Board of Canada’s 2005 Report, a Canadian nuclear new build project for two units would create more than 64,000 person-years of employment and contribute approximately C$9.8 billion to nominal GDP, while increasing the Federal government balances by approximately C$1.67 billion over the project’s implementation. These numbers would appear to offset the LTEP’s approximation that deferring the new builds will save the Ontario government about C$15 billion in capital investments. Further, nuclear energy, whether through refurbishment or new build, can be the most cost-effective energy generation strategy available relative to other sources discussed in LTEP, outside of efficiency measures which can only go so far.

Ontario has a vibrant and thriving nuclear energy sector, with approximately 45,000 people employed in various areas of nuclear operation, manufacturing, engineering and construction, as well as research and development. As government support for new build projects decreases, Ontario risks the loss of highly skilled jobs across the nuclear industry.

Loss of Canadian Nuclear Expertise

Ontario hosts the overwhelming majority of Canada’s nuclear vendors and recognized market leaders in the global nuclear industry, with more than 250 companies in the nuclear supply chain. The LTEP recognizes that the nuclear industry generates approximately C$2.5 billion in direct and secondary economic activity in Ontario and emphasizes the criticality of retaining such nuclear expertise. Despite this, the plan deals a severe blow to the future of Ontario’s nuclear energy sector. The reduction of domestic nuclear capacity will cause Ontario and Canada to lose its long established competitive advantage in the global marketplace.

Globally, despite the current decrease in demand, countries are increasing their reliance on nuclear energy and building strong nuclear programs. The most aggressive nuclear infrastructure is evident in China, Russia, India, and various emerging economies in Central and Eastern Europe.

In the Western world, developed countries such as France, with 78% of its total production of electricity coming from nuclear, and the United Kingdom, which is planning four new reactors, and the United States with five units currently under construction, are developing and expanding their nuclear capacity.

As developed and developing countries increasingly rely on nuclear energy to meet future energy demands, these countries will continue to invest in developing their nuclear expertise. Canada’s decreased reliance on nuclear energy will correspondingly risk a decrease in research and the development of nuclear expertise. This shift is likely to hinder Ontario’s ability to keep up with technology developments in the sector and thus remain competitive in the nuclear domestic and export markets.

Conclusion

Ontario is positioned to be a key competitor in the global nuclear energy sector. The government highlights Ontario’s science and innovation advantages through its research centres and its universities. However, the government’s decision to shift its focus to renewable energy sources will invariably dilute the investment the governments of Canada and Ontario have made in the nuclear industry.

The LTEP presents too short-term a focus in its planning horizon. While demand for energy may have been momentarily down around the world, long-term planning should not be driven by short-term demand. Furthermore, any long-term plan should increase (or at least maintain), rather than decrease, Ontario’s reliance on nuclear energy, given its reliability and cost-effectiveness. The LTEP seriously risks compromising Ontario’s nuclear industry at a time where the sector is struggling to regain its place as a global leader. It is important that Ontario realizes and respects the economic importance of its nuclear industry for the same reasons governments around the world support their nuclear vendors. The nuclear industry is a very large source of high tech and high paying jobs, which are not in plentiful supply.

More detailed commentary on the LTEP from the renewable energy perspective will be available from Heenan Blaikie in the coming weeks.