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Oilweek Magazine: The lesser of two evils

Energy Alberta is proposing a nuclear component to help Alberta meet its emission reduction goals

Jul 2007
By Leah Lawrence
 
Concerns about climate change and a shortage of natural gas for oilsands development has one project proponent predicting a nuclear renaissance in Alberta sometime in the next decade. Oilsands producers and regulators are skeptical, citing long project lead times, challenging regulatory processes, and Alberta’s deregulated energy marketplace as significant barriers. Can two plus two equal five for nuclear energy in Alberta?

Wayne Henuset and Hank Swartout founded Energy Alberta Corporation in 2005. The two have been preaching the gospel of fission ever since.

Henuset is a self-described “old school entrepreneur” who has invested in everything from oil and gas companies to car dealerships and wine retailing. Swartout is the founder and retiring executive chairman of Precision Drilling.

Despite knowing little about nuclear energy just two years ago, the pair are personally funding preliminary development of a facility proposed for either Whitecourt or Peace River.

“We are looking at two CANDU reactors, the ACR-1000, with 2,200 megawatts of power,” says Henuset.

In August 2006, Energy Alberta signed an exclusivity agreement with Atomic Energy of Canada Limited (AECL) to “market own and operate a CANDU reactor to support the expansion of oilsands development.” As part of the fixed-price, turnkey arrangement, AECL will provide two ACR-1000 reactors.

If built, the ACR-1000 will be a first-in-class installation and the largest in the family of CANDU reactors designed and built by AECL.

“We have reached a major milestone [in the design of the new ACR-1000] in the last month called ‘design freeze,’” says Ron Oberth, director of marketing operations. “That means that all the major design concepts and parameters have been defined. The next major milestone in Alberta is the application for a site licence and the start of an environmental assessment.”

A nuclear power plant has not been built in Canada in the last 25 years. In the best case scenario, securing required regulatory approvals will take four or more years, followed by five years for construction and commissioning. As a result, even if all went smoothly, it is unlikely that any nuclear facility will be brought online before 2016.

An environmental assessment is triggered when a company applies to the Canadian Nuclear Safety Commission for a licence to prepare a site for development. If a licence to prepare the site is granted, applications for a licence to construct and operate follow.

Henuset says the idea to bring nuclear energy to Alberta was born on the winds of a hurricane. He had just built his dream home on the Florida coast when Hurricane Charley struck in 2004. Hurricane Ivan followed one month later. His house was spared, but the experience resulted in an epiphany.

“The experience taught me that global warming is real,” he told a Canadian Nuclear Association seminar in Ottawa this past March. “We need to do something now about it.” Henuset decided that “something” was nuclear energy.

While climate change may have been an early motivator, so was money. Energy Alberta’s website says the corporate mission is to “provide clean, emission-free energy, utilizing advanced and proven nuclear technology to supply oilsands operators and the province of Alberta with a reliable flow of electricity, steam, and hydrogen at a competitive cost.”

While this was the initial plan, business strategies are evolving. “When we started out, we thought we would sell steam to SAGD [steam assisted gravity drainage] projects, but nuclear plants are so large, their output overwhelms the demand, so now we are focused on electricity, not heat,” says Henuset.

Energy Alberta has received a preliminary expression of interest from an unnamed oil and gas company for 70 per cent of plant output. “A potential buyer for electricity came to us in December of last year. I think we will go public with the arrangement in about six months when the electricity purchaser is ready to go public with their project.”
There has been significant speculation that the unnamed company is Royal Dutch Shell PLC, through its subsidiary Sure Northern Energy Ltd.

“The first strategy is using CANDU nuclear electricity generation to extract the oil from the carbonate triangle involving potentially 450 billion barrels of bitumen,” Henuset told the CNA seminar.

The so-called carbonate triangle is a large bitumen-bearing area in northeastern Alberta that the Petroleum Technology Alliance of Canada suggests could contain a bitumen resource of just under 450 billion barrels (71.1 billion cubic metres). In February 2006, Royal Dutch paid $465 million for rights in the Grosmont covering some 900 square kilometres of the carbonate triangle.

Henuset has denied that Royal Dutch is Energy Alberta’s potential buyer. “Our buyer of power isn’t concerned about location, but we will need transmission line approval. Nice thing is most of the power will be going north and its mostly Crown land. The grids are there, they just have to be upgraded.”

Royal Dutch has not commented in detail on its plans for the Grosmont leases, other than to say it sees “significant potential” in them. In October 2006, the company’s Houston-based subsidiary, Shell Oil Company Ltd., received a patent for a “thermal process for subsurface formations,” a combination electricheating and freeze-wall system that the company has been piloting in Colorado at its Mahogany Research Project.

Regardless of the potential buyer, Energy Alberta is likely to face stiff competition from carbon-based, renewable and other nuclear generators.

In its 20-Year Outlook, the Alberta Electric System Operator estimates peak electricity demand in Alberta will be 15,617 megawatts by 2024. Current generation capacity is 11,919 megawatts, with some facilities scheduled for retirement in upcoming years. The Alberta government cites 7,252 megawatts of proposed capacity, slated for development by 2015. The Energy Alberta proposal adds an additional 2,200 megawatts to this proposed capacity. If all plans were to go ahead, there could be significant surplus capacity.

Strict greenhouse gas controls could theoretically lead to the early retirement or cancellation of some of carbon-based generation capacity, but this would require strong political action, something Dr. Michal C. Moore, senior fellow at the University of Calgary-based Institute for Sustainable Energy, Environment and the Economy (ISEEE), believes is unlikely.

“Right now there is plenty of coal and there is no massive restriction on its use. The incentive to consider nuclear power as an alternative base-load source just isn’t there or is weakly embedded in the economy [in proposed federal and provincial greenhouse gas legislation]. Absent a clear need, it is going to be hard [for nuclear proponents] to get the public opinion turned around. If there is no perceived problem with the first source, why change.”

Moore says the permitting and construction of a nuclear facility in Canada could take 12 to 16 years. With this long entry time into the market, the competitive cost of nuclear energy is likely to be higher than the projected cost of alternatives, a significant liability for a project proponent in a deregulated market like Alberta.

“Other than a monopoly regulated market, it is pretty risky for merchant regulators to take that kind of leap,” he says. “So it depends whether the market is expanding enough and whether the alternatives are sufficiently competitive to push nuclear out. And that is putting aside all classic myths of risk [waste disposal and safety for example] that usually are associated with nuclear.”

Given the risks, Moore doesn’t believe it will be possible to privately finance a nuclear power plant in the absence of government subsidies and liability guarantees.
“The insurance risk is too high. The variable costs are too high. We don’t have the engineering product down pat enough in North America. There are too many competing designs and too many design changes mid-stream. Private financing looks for something that is high risk with immediate payoff or something where the risk is diminished but growth is assured. Most existing designs don’t lend themselves to this, if only because they encounter unexpected turns in the regulatory process.”

Chris Severson-Baker, director of Energy Watch at the Pembina Institute for Appropriate Development, is concerned that talk about speculative nuclear investments will distract industry and government from “real” action on climate change.

“We need to be going towards low-impact renewables, efficiency, and power conservation, maybe carbon capture and storage for coal,” he says. “There are better ways to meet society’s needs for electricity.”

http://www.oilweek.com/articles.asp?ID=421

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