Milton Caplan Dr. Terry Thompson PBNC Vancouver, August, 2014 NEW NUCLEAR PLANT DEVELOPMENT - BALANCING LOCALIZATION WITH COMPETITIVENESS

Outline Program and Project objectives Developing a localization strategy Maximizing vs optimizing Localization in a changing nuclear world Globalization of supply Role of Government Localization in a global industry 2

Nuclear Program Objectives There can be many different objectives when undertaking a nuclear power program Critical Basic Requirement in all cases –Base load electricity on a firm schedule Beyond that, there are Project and Program Objectives –These must be balanced to ensure success 3

Project vs Program Objectives Project objectives –Economic electricity –Manageable risk –Supply chain that can deliver –On time, on budget project that provides reliable electricity for 60 years or more Policy objectives –Jobs –Local supply capabilities –Prestige –Long term program with local capability and skills 4

Importance of successful alignment 5 Too much emphasis on policy elements without proper consideration of project requirements will result in program failure

Developing a localization strategy Function of the size of the program –Larger program will enable more local participation –Consideration of the development of localized design –Standardization of the technology and design to reduce risk Risk trade-offs –Increased local content can increase risk of delivery –Need to understand who is responsible for delivering local content Requirements for financing 6

Issues for potential local suppliers Suppliers need incentive to invest in plant and quality systems for nuclear –Will there be ongoing work locally? –How many plants will be built over what timeframe? –Is there opportunity to support operations? –Will there be opportunity to export? Will there be government money to support investment? 7

Maximizing vs optimizing Localization occurs across a broad spectrum No tier 1 nuclear country can produce 100% domestically and no project has 0% local content As a minimum most operations are local as is most construction labour Many countries want to achieve the high prestige of heavy equipment and the know how of engineering Using existing capabilities imposes least risk New sources of supply increase risk so optimizing is about risk management Balance is essential 8

Localization in a changing nuclear world Successful localization (South Korea, China, Japan) followed a plan to domesticate a design –Large program over many years –Develop a local design through partnering with a foreign vendor –Strong government support Market is changing (Malaysia, Vietnam, UK) –Today programs may be smaller or there may be a desire to buy designs from multiple vendors –No desire for indigenous design –Global standardized designs reduce project risk –Still looking to maximize local content that best fit strengths 9

Globalization of supply Need to control costs for nuclear industry success Strong global supply chain to meet needs of current projects Better to localize less but participate in more projects 10

Role of government Nuclear projects are large and complex requiring a high level of skills and capabilities to succeed Adding industrialization objectives to the project and introducing new institutions only adds to this complexity Different countries have had success with different models Only those with long term government support for the institutions have succeeded Extensive planning and up front decision making is highly recommended 11

Localization in a global industry Today industrialization strategy must develop benefits to the local economy in a changing global reality –No longer is the goal to develop an indigenous design but rather to develop a local industry capable of thriving in a global context A new strategy is needed –Focus on specific capabilities to provide goods and services to more than one design –More sector specialization –More knowledge of the global industry and how local industry can play a meaningful role Global competition will reduce the cost of nuclear power and increase quality while reducing risk 12

Thank You Milton Caplan MZConsulting Inc. - President