Executive Summary

Context

A number of factors are combining to renew interest in nuclear energy around the world. Demand for electricity continues to grow, particularly in developing countries where urbanization and industrial growth are driving the increase in their need for power. Meanwhile, in many developed nations, the existing power generation fleet is nearing replacement age. At the same time, the options for generating power are changing dramatically. Many jurisdictions are shifting away from traditional fossil fuel sources guided by global concern over the impact of carbon dioxide emissions on climate and the long-term likelihood of a system that puts a price on carbon emissions. And emerging technologies - renewables such as wind, solar, geothermal, and biomass, as well as clean coal technology with carbon capture and storage - present new opportunities. But they also present technical and economic challenges.

As a result of these dynamics, nuclear power is emerging as an attractive potential part of the overall electricity supply mix in many parts of the world. Nuclear power generates very low carbon emissions, on par with the cleanest forms of renewable energy. And - although it has high upfront capital costs - over its full life cycle, nuclear energy has proven to be cost-competitive. The supply of uranium - the fuel source for nuclear power - is abundant and secure, with most of the world's known resources in economically and politically stable regions including Canada. Finally, over the past several decades, the industry has made significant strides in improving the reliability and safety of nuclear power.

Given this combination of factors, it is not surprising that the nuclear industry is enjoying a global renaissance. And it makes particular sense for the Province of Saskatchewan to assess its options for benefitting from this nuclear resurgence. The Province has a significant, growing need for power over the next several decades, and it is already a major participant in the first step of the overall uranium value chain.

The Province of Saskatchewan occupies the enviable position of being the world's largest producer of uranium. This vibrant sector attracts investment to the Province from global-scale players and junior companies. It employs approximately 3,000 people, about 80 percent of whom work at mine sites located in Northern Saskatchewan. This established presence creates significant direct and spin-off benefits for the local and provincial economies through wages, taxes, and local investment. Supporting this activity are mining-related programs at the Province's post-secondary educational institutions and selected Saskatchewan-based research facilities, such as the Slowpoke II reactor and the Canadian Light Source synchrotron.

Despite this strong platform and robust mining activity, Saskatchewan plays virtually no role in the rest of the uranium sector - and mining and milling represent only a limited portion of the economic value added in the overall chain. Beyond mining and milling, this value chain includes processing or upgrading uranium to convert it into fuel for reactors, generating power from nuclear energy, managing the reactors' used fuel, and associated research and development, including medical applications.

Exhibit 1

Saskatchewan does not participate in these additional stages, except for limited involvement in advanced research into new techniques to extract and process uranium and future technical applications.

Furthermore, even in Saskatchewan's traditional areas of strength, its global position is slipping. Forecasts indicate that Kazakhstan will overtake Saskatchewan as the world's largest producer of uranium this year - and that Australia could overtake it next year. Moreover, at current rates of extraction, Saskatchewan's discovered uranium resources would only last approximately 45 more years without additional discoveries through exploration and development,1 while Kazakhstan's and Australia's would last 110 to 160 years.

It is in this context that the Province of Saskatchewan established the Uranium Development Partnership to identify and explore opportunities for Saskatchewan to build on its current position and develop its uranium industry throughout the entire value chain.

In this report, Capturing the full potential of the uranium value chain in Saskatchewan, the UDP explains the approach it took, summarizes its findings, and recommends an integrated strategy to expand Saskatchewan's world-leading position in uranium exploration, mining, and milling into thriving broad-based uranium and nuclear power industries.

1      Uranium 2007: Resources, Production and Demand. Nuclear Energy Agency, 2008. Pages 16 and 39.

Approach

To evaluate Saskatchewan's opportunities across the uranium value chain, the UDP:

1.   Identified specific commercial opportunities at each step of the chain: examining both uranium's life cycle and its end-use applications, such as power generation, taking into account the key economic, technical, and environmental trends and forces at work around the world.

2.   Evaluated the business case for each opportunity: assessing each opportunity's commercial viability based on its market fundamentals (in terms of demand, supply, and growth) and Saskatchewan's competitive strengths and weaknesses relative to those of its global competitors. This assessment resulted in a financial evaluation of the full life cycle economics of each opportunity.

3.   Estimated the potential benefits accruing to Saskatchewan from each opportunity: calculating the GDP impact and job creation potential based on industry standard models of both the direct and the indirect economic impact.

4.   Created a strategy for pursuing the opportunities over time and developed clear recommendations to inform discussions and decision making.

Summary of key findings and recommendations

The UDP is making 20 specific recommendations for the Province to consider, which cover many activities: from maintaining and protecting existing strengths in the Saskatchewan market; to making strategic investments in the Province's capabilities and infrastructure; to working with other levels of government and private-sector players to achieve shared goals. These recommendations are supported by the UDP's key findings and organized into five sections according to the main components of the uranium value chain.

Exploration and mining

Key findings

a.    Saskatchewan's leadership position in uranium mining is threatened by emerging players, such as Kazakhstan and Australia, that are rapidly ramping up their production.

b.    World demand for primary uranium will grow substantially over the next 10 years, creating an opportunity for Saskatchewan to rapidly expand its mining sector and to maintain its position as a leader in uranium mining.

c.    To achieve this goal, Saskatchewan will need to renew its discovered resource base by maintaining the level of private exploration investment reached in recent years and investing in mine development.

d.    Exploration activity is cyclical. When the spot price of uranium is high, companies increase their exploration activities substantially. This trend is facilitated by the claim-staking system that creates an environment with low entry barriers.

e.    The process to fulfill the duty to consult with First Nations and Métis communities is not sufficiently defined. The lack of a clear process may create an impediment to further exploration and/or development in the Province. 

f.     The basic royalty system in Saskatchewan appears competitive but, when the price of uranium is high, the tiered royalty structure creates a higher burden for mining operations based in Saskatchewan than for those in other jurisdictions.

g.    This tiered royalty structure risks impeding the competitiveness of newer mines given that: 1) mine operating costs have increased more rapidly than the inflation index used to adjust the royalty structure; and 2) the next generation of deposits to be mined may be of lower quality and, therefore, have higher operating costs. 

h.    A strong and effective licensing and environmental assessment process is paramount to ensure the safety of workers and the public, as well as to protect the environment. However, the public is not well-served by lengthy delays in environmental assessment approvals.

i.     The lack of basic infrastructure in the North, particularly roads and power, is likely to impede further mine developments.

j.     Federal restrictions on foreign ownership may limit the ability of the Province to attract capital for exploration and mining; the Competition Policy Review Panel formed by the Federal Government recommended in June 2008 that these restrictions be selectively removed on a bilateral basis.

k.    Sustaining Saskatchewan's leadership position in exploration and mining would have a significant impact on the Province's economy, contributing a total estimated GDP impact of $4.2 billion over 15 years.

Recommendations

Saskatchewan should

1.    Maintain its current claim-staking system to provide a favourable environment for exploration.

2.    Work with the Federal Government to establish clear parameters and accountabilities for the duty to consult with First Nations and Metis communities. 

3.    Examine the possibility of expanding its program incentives for exploration (eg., flow-through shares, tax credits, and matching grants) to drive through-cycle investment decisions based on long-term uranium forecasts rather than spot prices.

4.    Undertake a review of the competitiveness of the royalty system in relation to other jurisdictions, with a focus on whether:

-    The capital recovery bank correctly reflects the current cost of developing new projects in Saskatchewan.

-    The royalty rate is sufficiently competitive and reflects the cost of extracting the resources.

5.    Work with the Federal Government to establish clearer timelines and guidelines for a thorough, consistent, and predictable review of license applications.

6.    Work with the Federal Government to ensure the recommendations of the Competition Policy Review Panel are implemented.

7.    Work with industry to prioritize and facilitate the development of key infrastructure to create an environment favourable to new mine development.

Upgrading

Key findings

l.     Anticipated growth in global demand for conversion will likely be met by expansions to existing facilities, most notably in the United States and France, with additional potential capacity planned in Kazakhstan.

m.   The projected supply and demand balance in the enrichment sector indicates the need for additional capacity by 2020.

n.    Entering the enrichment sector would present significant challenges for Saskatchewan: 1) a new facility in Saskatchewan would require significant capital expenditure but would compete against lower-cost and more flexible expansions of existing facilities; and 2) Canada would need the consent of the Nuclear Suppliers Group to obtain a transfer of enrichment technology.     

o.    Over a longer time horizon, Saskatchewan may have an opportunity to enter the enrichment sector by partnering with a developer of the emerging laser enrichment technology and then, should the technology prove successful, setting up an early commercial-scale project in the Province.   

p.    Anticipated growth in global demand for fuel fabrication will likely be met by increasing utilization of existing plants and potential capacity addition in countries aggressive about nuclear power development.           

Recommendations

Saskatchewan should

8.    Work with the Federal Government to clarify the framework under which an enrichment facility could be established in the Province in accordance with all international non-proliferation agreements and obligations.

9.    Target the next generation of enrichment technology (laser isotope separation) and enter into discussions with current technology developers to determine the conditions under which a commercial-scale facility could be attracted to the Province within 10 to 15 years.

10.  Not proactively pursue the development of a conversion facility given current market conditions.

11.  Not proactively pursue the development of a fuel fabrication facility given current market conditions.

Power generation

Key findings

q.    The growing demand for electricity and the planned decommissioning of existing generation facilities indicate that Saskatchewan will require 1,200 to 1,750 MW of new power generation capacity for its domestic use by 2020, growing to 2,200 to 3,000 MW by 2030.

r.     At a regional level, significant potential exists for exports - for example, Alberta could need between 4,000 and 5,000 MW of new power generation by 2020. Saskatchewan is well-positioned to provide low-carbon emission power to fill this looming supply gap.

s.    Given consensus estimates of long-term CO2e (equivalent carbon dioxide) and natural gas pricing, nuclear is a cost-competitive and low-emission power generation option.

t.     Initial examination suggests that up to approximately 3,000 MW of nuclear capacity could be constructed to meet Saskatchewan's power needs and capture export opportunities.

u.    Given that a nuclear power plant has not been previously built in Saskatchewan, further work needs to be done to understand the social, environmental, and grid feasibility of adding nuclear power in the Province.

v.    Capital cost overruns and schedule delays are key risks in any nuclear new build project, and they would need to be carefully mitigated in the project development process. To date, the cumulative risks of nuclear new build have been too large for the private sector to bear alone and governments have played some form of facilitation in the implementation of nuclear power projects in all jurisdictions.

w.    Saskatchewan could reduce licensing and first-of-a-kind risks by drawing on the recent experiences of other Canadian provinces that have developed nuclear generation capacity.

x.    Transmission infrastructure, reserves, and intertie investments would be required to support larger power generation units on the Saskatchewan grid, as well as to provide the capability to export additional power to Alberta. The detailed nature and cost of this infrastructure has yet to be determined.

y.    A new power plant would have a significant impact on Saskatchewan's economy, contributing approximately $12 billion in discounted GDP to the Province over its life ($1.2 billion during construction and $10.6 billion during operation), as well as employing 3,000 people during construction and providing between 400 and 700 direct jobs during operation for every unit built.

Recommendations

Saskatchewan should

12.  Include nuclear as part of the Province's long-range energy mix given its cost-competitiveness as a baseload power alternative and the economic value it would generate within the Province.

13.  Begin this long-range planning process by:

- Laying out an overall process and timeline for new generation implementation.

- Considering the development, in coordination with Alberta, of a common power generation solution for the two Provinces by pooling their power needs and building stronger interties between the two provincial grids.

- Defining the role that the Provincial Government would play and developing a strategy to optimize the balance between expected power pricing and Saskatchewan ratepayers' exposure to cost overruns.

- Evaluating the type of grid, reserve, and intertie upgrades required under both a  domestic and an export power generation scenario to meet growing electricity demand, independent of supply mix. Consider the implications of nuclear power generation on these infrastructure upgrades.

Used fuel management

Key findings

z.    Reprocessing CANDU fuel based on current technology is commercially unattractive for private investment, given the high capital and operating costs that offset potential economic benefits from recycling plutonium and reducing the volume of high-level waste for disposal.

aa.  In the longer term, if reprocessing becomes viable in Canada because of a step-change in reprocessing economics or, more likely, a change in Federal policy, a Saskatchewan-based reprocessing facility may have substantial local and regional economic benefits given the magnitude of expenditure and employment associated with the facility.

bb.  Federal legislation ensures that the costs of long-term used fuel management will be fully funded by the industry.

cc.  The Government of Canada has approved the Nuclear Waste Management Organization's Adaptive Phased Management approach incorporating the development of a centralized deep geological repository in Canada for the long-term management of used fuel.

 

dd.  The NWMO will be initiating a site selection process after 2009.

ee.  Given its favourable geology and current participation in the nuclear fuel cycle, Saskatchewan is one of the four provinces the NWMO has identified as a potential host of the Canadian long-term repository.

ff.   Past experience in other jurisdictions has shown that acceptance of a local host community is the most important factor for the successful siting of such a repository in a geologically suitable location.

gg.  The potential benefits to that community and to the Province of hosting the facility would be significant, including early benefits from research and development, peak employment (4,000 to 6,000 direct and indirect jobs) during construction, sustained employment (~900 jobs) during operations and monitoring, and approximately $2.4 billion in discounted cumulative GDP impact.

Recommendations

Saskatchewan should

14.  Not proactively pursue the development of PUREX (plutonium and uranium recovery extraction) and MOX (mixed oxide fuel containing plutonium) reprocessing facilities in the short term. This position should be revisited if there is a significant change in Federal policy regarding long-term fuel storage or the full cycle economics of reprocessing.

15.  Support the NWMO consultation and siting process, given the potential benefits of a geological repository, while maintaining flexibility with regard to its ultimate participation.

16.  Support any willing host community that comes forward through this process and, as appropriate, support the development of the deep geological repository in the context of a broader nuclear development strategy.

Research, development, and training

Key findings

hh.  There is a shortage of specialists in the earth, environmental, and engineering sciences to support the activities of the uranium exploration and mining industry.

ii.    If a nuclear power generation facility is built, Saskatchewan would also require that existing academic nuclear engineering and physics programs be expanded to support the training of nuclear specialists and operators.

jj.    An academic centre of excellence should involve the social sciences and environmental disciplines to assist communities in assessing nuclear opportunities.

kk.  Saskatchewan could play a role in a number of R&D opportunities with longer-term commercialization prospects, including small reactors and advanced fuel cycle technologies. A research reactor could serve as a catalyst for these activities.

ll.     A research reactor is synergistic with existing research infrastructure and would provide Saskatchewan with significantly enhanced research capabilities, supporting innovation, competitiveness, and the Province's participation in the development of emerging technologies.

mm. A research reactor may also be used to produce medical isotopes to address the anticipated global deficit in isotope supply, providing an additional stream of revenue to partly offset the cost of developing and operating the reactor.

nn.   Although medical isotope production provides an attractive source of revenue for a research reactor, the economics of a stand-alone isotope reactor are not attractive.

Recommendations

Saskatchewan should

17. Create and support a centre of excellence for nuclear research and training with a dual mission of: 1) supporting the existing nuclear industry in Saskatchewan; and 2) developing a nuclear R&D program to support emerging opportunities, with a few focused areas of research on longer-term commercialization prospects.

18. Under the first part of this mission, expand existing:

- Mining and exploration programs at universities, colleges, and training schools to train engineers, geoscientists, and other mining specialists and to develop innovation through research in the earth, environmental, engineering, and social sciences relevant to the exploration and mining sectors.

- Nuclear engineering and physics programs at universities and establish training facilities to help prepare students for the CNSC (Canadian Nuclear Safety Commission) nuclear operator examination.

19. Under the second part of this mission, form a group of experts to determine investment priorities in a few targeted areas of nuclear research. This group should review the most promising areas of research based on the type of skills and infrastructure required, the investment necessary to be competitive, the potential for private funding, and the prospect for commercialization. Areas to be considered by this group include, but are not limited to, small reactors and advanced fuel cycle technologies.

20. Partner with the Federal Government to pursue the construction of a research reactor in the Province as a complement to synergies with existing research infrastructure and capabilities, and to better position the Province to participate in multiple areas of study. Pursue medical isotope production as part of the reactor's mandate.

Proposed Strategy

In developing a detailed business case and economic analysis for each opportunity across the value chain, the UDP found that the opportunities fell into three broad categories (Exhibit 2):

1.   Actively pursue: Saskatchewan is well-positioned to play a leading role in the industry, and market dynamics are favourable. This applies to the segments where Saskatchewan participates today (mining and exploration) and also to power generation.

2.   Selectively invest: the business case is slightly less clear, either because the market is uncertain or in a state of significant transition (as it is for a long-term used fuel repository) or because Saskatchewan's ultimate ability to be competitive remains unclear (in the enrichment segment, for example). 

3.   Retain options and monitor: current market conditions are

unfavourable (e.g., conversion and fuel fabrication) and/or Saskatchewan is not well-positioned at this time to capitalize on those opportunities (e.g., reprocessing).

Having identified and evaluated these opportunities, the UDP developed an integrated strategy to capture the most promising opportunities. This strategy's goals are to maximize the uranium industry's contribution to Saskatchewan's economy today and lay the foundation for longer-term growth. Therefore, the UDP has integrated its recommendations into a four-pronged strategy for the Province:

1.   Grow today's core position in the value chain: focus on ensuring that Saskatchewan remains an attractive jurisdiction for private sector investment in its areas of historical strength.

2.   Attract emerging commercial opportunities: actively support the pursuit of new opportunities in the areas of the value chain that are commercially viable and could provide significant economic benefit to the Province.

Exhibit 2

3.   Maintain options for future growth: build the basic capabilities and infrastructure to capitalize on longer-term opportunities as they become more economically and technically feasible; avoid making major investments or commitments in the shorter term.

 4.   Build a centre of excellence to drive research, development, and training: create a concentration of skills and infrastructure within the uranium value chain to support research, development, and training.

Following this strategy would allow the Province to incrementally increase its participation in the uranium value chain, moving from its core position of mining and exploration today toward a vibrant, nearly end-to-end role by 2025. We believe this strategy allows the Province to build on its strength and develop the capability to be a global leader on a sustained basis, bringing significant economic, technological, and environmental benefits in the process.

Exhibit 3