(October 11, 2016) Ontario Power Generation (OPG) is confident that its new megaproject will do the impossible: come in on time and on budget.
Ontario Power Generation (OPG), the provincially owned power generator, believes it can do what almost no other company has been able to do: complete a megaproject on time and on budget.
The project in question is the refurbishment of OPG’s 30-year-old Darlington nuclear plant. The megaproject is expected to cost the province’s ratepayers $12.8 billion, which according to the OPG’s application before the Ontario Energy Board (OEB), leads to at least 11 per cent annual rate hikes for the next decade and billions of dollars of deferred costs that will burden future ratepayers for decades thereafter.
But the ramifications from OPG’s nuclear project will be felt by megaproject supporters across the globe, as it will finally put to bed the question on whether megaprojects — even with nearly a decade of planning and billions of dollars of preparation — can ever meet their financial and scheduled estimates.
It’s hard to quibble with OPG and its confidence in its most recent megaproject given the mountain of evidence the company has submitted to the OEB for review.
Planning for the project is nearly a decade in the making, with OPG first examining refurbishment and the economics of the project as far back as 2007. By 2010, the company began piecing together the complex engineering plans and cost estimates needed to complete the refurbishment.
By 2014, the company had already constructed a full-scale replica of one of the reactors — a planning exercise OPG says has never been done before and is touted as the primary reason that refurbishment’s schedule and cost estimate won’t go off the rails once it begins later this month.
Over the last two years, the multiple engineering companies and their thousands of contractors that will be working on the refurbishment have been practicing their work on the full-scale replica in an effort to make them more efficient and knowledgeable once they start dealing with a real reactor. Every single tool that will be used in the project has been purchased and tested. Nearly all of the materials for the project have also been purchased in an effort to avoid supply chain delays.
Late in 2015 — nearly five years after the company began piecing together its estimate for the final price tag of refurbishment — it released a full estimate of what the project would cost. Like most megaprojects, due to the length of planning they entail, the economic environment has changed since the Darlington refurbishment was first discussed. In Ontario, demand for power has continued to fall while the province continued to contract for more power, creating a massive surplus that it dumps into neighbouring states and provinces at fire sale prices. The price consumers pay for power has nearly doubled since then.
In total, OPG will have spent more than $2 billion in preparation for the refurbishment. The company has paid multiple consulting companies to review its plans, set up a number of internal review panels and even constructed new roads and highway off-ramps from the 401 in an effort to make it easier for the workers to get into and out of the construction site. No corners have been cut in terms of preparation.
The level of detail on the refurbishment is overwhelming. OPG even set up “war room” exercises with some of the contractors involved to nail down the exact cost and the hours of work needed to get everything done on time and on budget.
OPG has done everything it can to avoid cost overruns because the company knows its track record with megaprojects is dismal. The price tag for the company’s last megaproject — the Niagara tunnel — was 50 per cent higher than its original estimate. Its track record on previous nuclear projects is even worse. When the company refurbished the Pickering units, the cost was triple the original estimate and two years behind schedule. Pickering remains one of the worst performing nuclear reactors in North America.
OPG is not alone. Research from Bent Flyvbjerg out of Oxford University, one of the world’s leading experts on megaprojects, shows that more than 90 per cent of all megaprojects go over budget.
So let’s take this opportunity from OPG as an example for future megaprojects: if this one can’t be done within its approved budget and schedule, it’s likely none of them can and we can end this charade once and for all. Taxpayers, which are often left footing the bill, will be better off.
Brady Yauch is the executive director and economist at the Consumer Policy Institute, a division of Energy Probe Research Foundation.