CEO Hugh MacDiarmid’s 2009 Speech

Containing Nuclear New Build Risk

World Nuclear Association Annual Symposium

Hugh MacDiarmid President and Chief Executive Officer

Atomic Energy of Canada Limited

September 11, 2009

[Thank for introduction].

Mr. Chairman, ladies and gentlemen, I am pleased and honoured to speak with you today.

[Extemporize here, if desired]

For more than 60 years, the fortunes of nuclear power have waxed and waned.

Today, they seem to be doing both at the same time!

At precisely the moment nations are looking to us to power their growth and provide clean, reliable and safe energy…

…We find the economic basis of our business being called into question.

The nuclear renaissance appears to be threatened not by fears of nuclear meltdown,

but of financial meltdown. [Pause] Confronting plant owners is the threat to their financial integrity…

…posed by the apparent risks and uncertainties of building new nuclear power plants.

While the operation of existing nuclear plants is considered a profitable, predictable business…

The announcement of a new build project is almost guaranteed to earn its owner an unsolicited ratings review.

Are these concerns valid?  Their mere existence means they cannot be ignored.

The important question is: Can we fix them?  And if yes, how? I don’t claim to have all the answers.

But the experience of Atomic Energy of Canada Limited may be useful in our collective search for answers.

I propose that we jointly promote those actions that can improve the ability of our industry to overcome this challenge…

Just as it overcame other, equally serious, challenges in the past.

2[Pause]

A number of nuclear projects appear to be stalled by fears of large cost uncertainties of constructing new nuclear power plants.

This concern has been reinforced by some of the early experience with third generation new build.

The most imposing factor is the large scale of investment, combined with long, often uncertain timelines from investment to payback.

They come with price tags approaching the financial capacity of many large utilities.

Firm pricing and the understandable reluctance of owners to absorb execution risk drives the cost up even more.

From design to decommissioning, our customers are essentially investing in a project with a life cycle of a century…

…this when no-one can predict the price of competing fuel sources even 100 days from now.

The risks are real and the biggest is project delay.

A two or three year delay in a project the size of a nuclear power plant could threaten the financial viability of many well-established utilities.

And lenders have responded predictably, insisting on heavy funding risk premiums.

This means that the market for constructing a nuclear power plant is unique, indeed.

• long timelines • stringent regulation • exacting standards • unwavering commitment to safety • and a focus on process

Our contracting goal with customers is to share both the risks and rewards on a practicable and balanced basis, matching authority with responsibility and aligning our goals with those of our customer.

Our contracts aim to establish a base upon which both we and our customer…

have a vested and over-riding interest in the success of our project.

[Pause] 3

So let me talk about our industry’s experience…

…what we see working today…

…and the things that we can do better together.

[Pause]

In the 1970s and 1980s our industry was faced with dire challenges.

Soaring costs and sagging capacity-factors resulted in cancelled construction plans and plant closures as utilities lost confidence in our industry’s ability to resolve these issues.

Public concern over the safety and reliability of nuclear power was reaching its height. We learned that despite this, the challenges could be overcome.  In fact, as an industry we achieved a remarkable turn-around. In the 1970s plant capacity factors globally averaged about 65 per cent.

Today? They average about 88 per cent. So what changed?

The dramatic improvement in our industry did not happen by accident: It came about through global and systematic cooperation.

Following Three Mile Island and Chernobyl, the Institute for Nuclear Power Operations in the US and the World Association of Nuclear Operators were formed in response.

They formalized the identification and dissemination of operational best practices. The link between enhancing safety and economic performance has become widely recognized and accepted.

As an industry we worked together to identify and develop our best-practices…

…to implement them.

…to exchange information…

…  About what works, so it could be shared. And about what doesn’t, so it could be discarded.

Can the same approach work in response to the challenge we face today?

A survey of the last few decades is encouraging.

In addressing the challenges of 30 years ago, we came to understand that the crucial difference in plant performance was not the vendor, it was not plant technology, and it was not national culture. Instead what mattered was the operator’s organizational culture.

We found that a weak organizational culture creates poor operations performance, at a huge financial cost.

And we found that a strong and focused organizational culture leads to reliability and safety. Our own experience underlines that reality. Of the nine Generation II CANDU units that we exported to four countries, six are in the top decile for lifetime capacity-factor worldwide.  They are powering nations across the planet: Romania, China, Argentina and South Korea.

All are top performers in their markets, operated by owners with demonstrated strong organizational cultures, notwithstanding their very distinct national cultures.

One of the keys to our success is the way we work with our customers.  In the first generation of nuclear power plants, vendors took a limited role in project implementation.

Essentially, utilities played the role of general contractor with vendors taking a limited design and supply role for the nuclear steam plant.

As our industry’s environment grew more complex, utilities focused on operations and looked to the vendor to take more responsibility for project implementation.

Working with nations new to nuclear power, we have more and more taken ownership of nuclear plant project management…

…And developed it into a core competence.

Long before we even talk to a new or potential customer, we integrate construction methodology into the design process…

…allowing us to deliver plants according to a predictable timeline.

AECL’s plant construction experience over the last two decades has been positive.

All five new build CANDU units were either on or ahead of schedule…

…and came in on or under budget.

We also managed to completion two other suspended units in accordance with contracted commitments.

Some of the key success factors? Working with customers as partners…

…integrating subcontractors into the partnership. In contrast to the adversarial relationship between contractor and owner that is all too common in the construction industry, we have established our project management structures as collaborative teams…

…with a high degree of owner involvement…

…and a measure of fluidity in individual roles.

This requires a high degree of cultural sensitivity and accommodation in order to work well, but it pays off handsomely by minimizing conflict and focusing energies on getting results while contributing to the development of customer skills

[Pause]

At AECL, we’ve invested heavily in developing, implementing and proving specialized project management tools.

These systems feature an integrated database that allows every project participant to access in real time the information they need to do their job.

We’re pleased to say that we have achieved “paperless projects”.

We’ve proven these systems in Asia and Europe, successfully integrating the activities of contractors operating in five countries and four time zones.  They were key factors in recent budget and schedule performances. In fact, the latest project came in four months early and 10 per cent under the owner’s budget.

AECL’s most recent projects have benefited from a high degree of design completion and we’ve taken vigorous measures to ensure we can do the same for future projects.

Our Advanced CANDU Reactor, the ACR-1000, is right on schedule in the Canadian regulatory review process.  I am pleased to tell you that the Canadian Nuclear Safety Commission announced this week the findings of its pre-project design review of the ACR-1000, concluding that there are no fundamental barriers from a design viewpoint to licensing this reactor in Canada.

AECL’s use of advanced design tools was recognized by Intergraph’s 2009 “Icon Award” for our advanced application on the ACR of their SmartPlant® 3-D design software.

This work reflects a highly sophisticated integration of advanced design tools to achieve higher quality and productivity.

It contributes significantly to our confidence in our designs and our ability to deliver them on schedule. Look at our Qinshan 3 Project in China, for example.

Even with an existing design, we introduced limited modularization and open top construction with outstanding results.

In some cases we were able to complete in days what would have taken months. Another crucial finding from our Qinshan experience was the value of parallel construction flexibility.

Our ability to work around setbacks was enormously enhanced by having multiple parallel critical paths coupled with the accessibility offered by open top construction. But it is not enough that lessons be identified.  Lessons have to be learned.

After we finished construction of Qinshan 3, we reviewed our project experience with all of the major partners, and asked what we had learned.

We made sure that every issue was assigned an “owner” who was responsible for making any changes that needed to happen.

We’ve been very fortunate to have been continuously engaged in new build and life extension projects worldwide over the last two decades.

In fact almost one in five of the reactors entering service in the world since 1996 have been CANDUs.

Every time we engage in a project we learn new lessons – and, every time, we get better. Since 2005, the AECL organization has grown by 50 percent and, at the same time, lowered its average work force age significantly.

We’re committed to fostering a culture of innovation and learning where mentoring and succession planning are priorities.

Our continuing new build and life extension projects have kept our supply chain active and well qualified.

And our localization programs have helped establish new and competitive international suppliers of CANDU components.

The most important lesson that we have learned in any project is that planning can never be overdone.

So where does this leave us as we move forward as an industry?

We know that there is much we can learn from each other.

One thing is certain: Our customers cannot afford for any of us to learn at their expense.

Already the World Association of Nuclear Operators has launched a “Safe Nuclear Power Plant Ownership” program that assists owners to implement bestpractices for preparing for new build.

AECL is supporting this program as well as the International Atomic Energy Agency’s extensive work in developing guides, including an upcoming guide on project management.

Additionally, the Multinational Design Evaluation Program is bringing together national regulators from around the world.

They are promoting, within existing regulatory frameworks, convergence of codes, standards and regulations from around the world towards best international practices.

We can also benefit from common approaches to education, with initiatives such as university networks, the WNA’s World Nuclear University, national skills academies, skills accreditation rationalization and harmonization.

[Pause]

AECL and other vendors all value our competitive advantages.

While this presents a potential obstacle to collaboration, it’s one that I believe should not prevent us from joining together with utilities and others to look for improvements that can ultimately benefit us all.

WNA plays a key role in facilitating the exchange of views that we are enjoying this week and in sponsoring working groups that address topics of concern to the industry.  I believe that WNA’s working groups may present an ideal forum for developing such an initiative.

I commend this idea to the WNA board.  You can be sure of AECL’s support.

Our objective should be to achieve for project implementation what has been achieved for plant operations.

Who would have believed in 1979 that we would achieve a paradigm shift in nuclear power plant performance so dramatic in its scope, inclusiveness and accomplishment as the one we have witnessed over the last three decades?

Today, we don’t have 30 years to get it right. So, let’s pick up the ball – all of us—and get running now.

Thank you for your attention and the opportunity to share my views.

One comment

  • thoriumMSR
    February 4, 2011 - 2:23 am | Permalink

    Note that this speech mentions the Institute for Nuclear Power Operations in the US and the World Association of Nuclear Operators so it seems not all credit goes to NRC for improvements in safety and other design improvements.

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