Report: Ontario Nuclear Refurbishment Good Way to Supply Low- Emission Power

A decision by the Canadian province of Ontario to refurbish 10 units at the Bruce and Darlington nuclear generating stations (BNGS and DNGS) and extend the life of the Pickering Nuclear Generating Station (PNGS) will likely provide a low-risk means of supplying residents low-emission, low-cost electricity, according to a November 21 report published by the province’s Financial Accountability Office (FAO).

“The FAO estimates that the Plan will result in nuclear generation supplying a significant proportion of Ontario electricity demand from 2016 to 2064 at an average price of $80.7/MWh in 2017 dollars,” the report says. The 2017 nuclear price is $69/MWh, the report notes, while the current price of electricity for most residential and small business ratepayers is $114.9/ MWh.

That price will fluctuate throughout that period. The Nuclear Refurbishment Plan is estimated to cost $25 billion (CAD) not accounting for inflation. Work on the reactors is scheduled to take place through 2033. Unfortunately, while the refurbishments are underway, ratepayers will likely pay for a higher-than-average nuclear price. After the refurbishments, and through the end of the report’s timeframe of 2064, the FAO suspects that ratepayers will benefit from a lower-than-average nuclear price.

“Overall, despite near-term Nuclear Price increases, the Plan is projected to provide ratepayers with a long-term supply of relatively low-cost, low emissions electricity,” the report says.

The Darlington and Pickering stations are operated by Ontario Power Generation, which is owned by the province, and as such, any return on the investment made in those plants would benefit the province’s fiscal situation. The Bruce generating station, however, is operated by Bruce Power, which is private sector, so a return on the investment made in those reactors would not significantly benefit the province fiscally.

There are several risks associated with the refurbishments that the FAO sought to consider, including that the cost of the refurbishments may be higher than planned. In the case of the Bruce station, ratepayers would bear the burden of any cost increases until one year before each reactor refurbishment begins. “At that time, the risk of cost increases is transferred to Bruce Power,” the report explains.

Alternatively, all the risk for cost increases “prudently incurred” at the Ontario Power Generation sites would fall on ratepayers. The Ontario Energy Board is in charge of determining if a cost is “prudently incurred” and if it is not, the province is on the hook for the additional cost.

As expected, increases in the cost of the refurbishments would, in turn, increase the nuclear price. “The FAO estimates that a 30% increase in refurbishment costs on all BNGS and DNGS reactors would increase the average Nuclear Price by 5.4%, and a 50% increase in refurbishment costs would increase the average Nuclear Price by 8.9%.”

Another risk considered by the FAO is  that the operating costs of the reactors will be higher or lower than planned. In the case of BNGS, most of the risk falls on Bruce Power, though ratepayers would receive 50% of operating cost savings.

The OPG stations operate differently with potential station performance risks and benefits shared by the province and the ratepayers. “The primary method of protection to ratepayers from increases in OPG operating costs is Ontario Energy Board (OEB) oversight. The OPG Nuclear Price is set by the OEB every five years after a public regulatory proceeding. Once the OPG Nuclear Price is set, most station performance risk is transferred to the Province,” the report explains.

Market risks related to the plan, such as reduced demand for electricity, would be felt across the board. Ratepayers and the province would feel the effects of reactor shutdowns due to low electricity demand. In such a case, the nuclear price is likely to increase, and the province will lose out on OPG income.

It’s also possible that committing to invest heavily in nuclear could stop the province from investing in alternative low-emission generation options that could offer electricity at a lower cost. According to the report, no such alternatives that could provide the same amount of low-emission baseload power exist at a comparable price. However, just in case, the province would be protected somewhat as it has the option to terminate the refurbishments.

Abby L. Harvey is a POWER reporter.

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