Downsizing: A Small Modular Reactor Opportunity in Canada?
September 5, 2019
Focus Area — Energy & Environment
Canada’s nuclear energy industry has a storied history. From the 1940s to the early 1990s it involved the domestic deployment and international export of its flagship technology the Canada Deuterium Uranium (CANDU) reactor. The last three decades have been sobering for the industry. During this time, no new CANDU plants were built in Canada and China was the last country to procure a CANDU reactor in 1996.
Times have changed, again. Nuclear innovation and climate change have rekindled industry activity and are providing a window of opportunity. In this new era, the challenges and opportunities remain formidable. What’s required is a critical mass of provincial and territorial actors to provide solutions.
The nuclear innovation renaissance is being led by the resurgence of small modular nuclear reactors (SMRs). SMRs are the industry’s effort to address the high capital cost, prolonged construction lead times, safety, and radioactive waste management concerns associated with large reactors (including CANDUs).
A global nuclear energy innovation race to position SMRs for commercial deployment in the 2020s has started.
Russia has completed the construction of a first-of-kind (FOAK) commercial SMR plant. China has constructed a demonstration SMR and is in the start-up phase. Private-sector entities supported by the Canadian Nuclear Laboratories are expected to demonstrate SMRs in Canada by 2026. Even with the fervor and activity regarding SMRs, demonstration doesn’t guarantee commercialization. Financing and bankability, international competitiveness, and climate change legitimacy, remain crucial in determining the industry’s fate.
Industry consolidation is expected in the pre-commercial phase. Currently, over 50 different SMR vendors with proposed designs are seeking multi-billion-dollar investments in research, development, and demonstration. Only a handful will survive in the quest for capital. In the post-commercial phase, the SMR litmus test will be its success in broadening its financing base beyond state entities to include private-sector financiers like banks and institutional investors. The ability to demonstrate cost-competitiveness relative to renewable energy sources and gas will be key. Given its zero-emissions attributes and innovations that address safety and waste, the industry should also challenge barriers to environmental, social and governance (ESG) finance. And finally, insurability of SMRs will be important for the industry’s long-term future.
From a value chain perspective, we still have some hard questions to resolve in Canada. Why doesn’t Canada have a uranium enrichment facility to capture greater economic value domestically?
As the second largest producer of uranium (nuclear fuel) we export 85% of our output, all of which is enriched elsewhere. Nuclear energy produced 10% of global electricity in 2018 (greater than wind, solar and other non-hydro renewables, combined) and 80% of the global nuclear fleet consumed enriched uranium. The majority of SMR designs will also require enriched uranium.
Who will build the plants to manufacture SMR components and fuel assembles? How competitive is Canada’s regulatory environment in the global context? Can our private-sector entities compete with state-owned actors abroad? Can Canada capture the international market without domestic buy-in into SMRs? What is the future of ‘Brand Canada’ in the nuclear arena beyond CANDU? Since South Korea, China, and Russia have been capturing new international markets and building nuclear reactors more cheaply, answers are needed soon.
Canada’s emissions must fall from 716 million tonnes of CO2e in 2017 to 511 million tonnes by 2030, to uphold its Paris commitments. SMRs could replace carbon-intensive coal, natural gas or diesel power with zero-emissions, non-intermittent electricity. They could also produce zero-emissions steam and hydrogen for industrial applications. And yet, climate change policies in Canada largely exclude nuclear energy, except in Ontario and New Brunswick. Clearly, ability is not legitimacy. Perceptions and social factors that currently impede nuclear energy’s growth in Canada need to be unpacked and thoroughly addressed.
A Canadian SMR industry doesn’t necessarily need pan-Canadian consensus. It does need a Canadian coalition determining what’s required to move forward. There are some green shoots in this regard. Natural Resources Canada and interested provincial and territorial stakeholders produced an SMR Roadmap in 2018. While this is a good start, a critical mass of willing and committed actors for the long-haul is yet to emerge.
Nuclear energy is a complex but important consideration as Canada pursues a clean energy growth economy. Platforms for constructive and action-oriented dialogue are needed now. A diverse contingent of leaders informed by evidence-based research, is needed now. Otherwise, echo-chambers will only get louder while Canada’s nuclear industry grinds to a silent halt.
Dr. Babatunde Olateju
Senior Research Associate, Energy & Environment.