Economic and Finance Working Group Smr Roadmap
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ECONOMIC AND FINANCE WORKING GROUP SMR ROADMAP The information provided herein is for general information purposes only. The information within this report is provided in good faith, however no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information within this report is made. Under no circumstances shall any party have any liability for any loss or damage of any kind as result of the use of any material within this report or reliance of any information contained therein. Any use of this report and reliance of any information is solely at the risk of the reader. The views and opinions expressed in this report are those of the authors and do not necessarily reflect the official policy or position of any associated organizations or companies. EFWG Membership: Chair: Nicolle Butcher (OPG) Co-Chairs: Chris Ciaravino (OPG); Stephen Healey (Natural Resources Canada) Members: Zobair Anam (Ontario Ministry of Energy), Milt Caplan (MZConsulting), Iain Harry (SaskPower), Alberto Mendoza (Canadian Nuclear Laboratories), Megan Moore (Canadian Nuclear Laboratories), Babatunde Olateju (Alberta Innovates), Ramesh Sadhankar (Canadian Nuclear Laboratories). Contents Summary for Policymakers ........................................................................................................................... 3 1. INTRODUCTION ..................................................................................................................................... 5 2. WHY SMALL MODULAR REACTORS? ..................................................................................................... 8 3. KEY ECONOMIC DRIVERS OF SMRs: .................................................................................................... 10 3.1 Capital Costs ...................................................................................................................................... 10 3.1.1 Factors Potentially Increasing SMRs Capital Cost relative to a Large Reactor ........................... 10 3.1.2 Factors Potentially Decreasing SMRs Capital Cost relative to a Large Reactor ......................... 10 3.2 Operations & Maintenance (O&M) and Fuel Cost Considerations ................................................... 11 3.3 Remote Location Considerations ...................................................................................................... 12 3.4 Capital Structure & Ownership Model .............................................................................................. 12 3.5 Regulatory and Legal framework ...................................................................................................... 13 3.6 Literature Review .............................................................................................................................. 14 4. LEVELIZED COST OF ELECTRICITY ASSESSMENT .................................................................................. 15 4.1 Economic Assessment: PART I- BENCHMARKING ............................................................................. 15 4.1.1 Choice of Benchmarks and Benchmark Scenarios ..................................................................... 15 4.1.2 On-Grid ....................................................................................................................................... 18 4.1.3 Off-Grid – Communities and Mines ........................................................................................... 21 4.1.4 High quality steam and heat for industrial processes (i.e. oilsands and bitumen refining) ...... 24 4.2 Economic Assessment: PART II- ECONOMIC & POLICY ROADMAP ................................................... 25 4.2.1 Drivers of levelized cost of energy (LCOE) for SMRs .................................................................. 25 4.2.2 Policy Roadmap for SMRs-On Grid Market ................................................................................ 27 4.2.3 Policy Roadmap for SMRs- Other Markets ................................................................................. 30 4.2.4 Policy Roadmap for SMRs- Cross-Cutting Considerations .......................................................... 33 5. WHY CANADA? .................................................................................................................................... 36 6. MACROECONOMIC BENEFITS ............................................................................................................. 39 6.1 Domestic Market............................................................................................................................... 39 6.2 Export Market ................................................................................................................................... 40 6.3 Other Potential Applications ............................................................................................................. 41 7. Conclusions/Recommendations ......................................................................................................... 42 8. References .......................................................................................................................................... 45 Appendix A: LITERATURE REVIEW SUMMARY ........................................................................................... 52 Appendix B: DESCRIPTION OF METHODS................................................................................................... 55 1 B.1 Capital Costs ...................................................................................................................................... 55 B.1.1 On-Grid ...................................................................................................................................... 55 B.1.2 Off-Grid ...................................................................................................................................... 58 B.2 Non-Fuel O&M costs ......................................................................................................................... 60 B.3 Fuel Costs .......................................................................................................................................... 63 B.4 Carbon Costs ..................................................................................................................................... 65 Appendix C: ASSUMPTIONS SUMMARY ON-GRID LCOE COST ESTIMATE ................................................ 69 Appendix D: ASSUMPTIONS SUMMARY OFF-GRID LCOE COST ESTIMATE ............................................... 74 Appendix E: SUMMARY OF ASSUMPTIONS & ECONOMIC POLICY FOR DIFFERENT FOAK MARKETS ...... 79 Appendix F: SUMMARY OF ASSUMPTIONS- MARKET SIZE CALCULATIONS ............................................. 82 2 Summary for Policymakers Small Modular Reactors (SMRs) have the potential to radically alter the nuclear sector, being a game- changer for nuclear’s business case by expanding the market for nuclear plants well beyond that previously considered for larger unit deployment. SMRs achieve their economic advantages based on economies of series, modularity and standardization for commercial deployment. This could allow the nuclear industry to be more like the airline or shipbuilding industry in terms of deployment model. Analysis conducted by this working group found that, once mature, SMR technologies would have a levelized cost of energy (LCOE) that is competitive to alternatives for meeting the energy needs of grid- connected customers as well as “off-grid” remote communities and industrial applications. Furthermore, lower capital costs, shorter construction times, and modular construction, would make SMRs easier to finance relative to conventional large reactors. For Canada to be a leader in this burgeoning market, a Pan-Canadian effort must emerge. That is, all interested stakeholders, users and government entities should participate in SMR development, incentivized through cost-sharing and collaboration. This is to ensure that a Canadian SMR strategy represents parties with an economic interest in SMRs. Specifically: • Government, together with private industry should make the necessary Research, Development, and Demonstration (RD&D) investments for SMRs to achieve commercial maturity. Given how such investments create spillovers, with broader economic benefits accruing beyond the firm making the investment, there is a disincentive to invest by market actors. The government, in partnership with industry, should support activities related to RD&D and building markets that benefit the broader economy more than individual firms. These will be necessary stepping-stones for SMRs to succeed, and will attract the talent and interest to develop these technologies. • The federal government, provincial governments and industry should focus on reducing the cost of capital when financing SMRs. The cost of capital is the single greatest impact to the LCOE of a SMR. Such risk-sharing mechanisms may include loan guarantees, preferred interest rates, bi- lateral agreements or regulating the return of the first SMR. Industry and customers will also have a part to play in risk-sharing between the different markets for SMRs. • Finally, and crucially, SMR development based on ‘fleet economics’ would optimize their potential. A fleet approach would see favourable SMR designs build in series, promoting