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Economics of going nuclear in SA

By Prof. Wikus van Niekerk on 15 March 2016
By Bjoern Schwarz (Flickr: Nuclear power plant "Isar" at night) [CC BY 2.0], via Wikimedia Commons

The Centre for Renewable and Sustainable Energy Studies hosted a very successful workshop on the Economics of Nuclear Energy with the WWF, the Heinrich Böll Foundation and the Goedgedacht Forum on 9 March 2016 in Johannesburg.

Mr Mycle Schneider an independent energy and nuclear analyst and lead-author of the annual The World Nuclear Industry Status Report introduced the topic by highlighting the current state of the nuclear industry globally.  He showed with empirical data that, when one excludes China, there has been no improvement in the status of the nuclear industry over the last ten years with only a few nuclear power stations under construction of which a number have been severely delayed and/or face significant cost overruns.  The impact of Fukushima is still felt worldwide, exactly five years after the nuclear disaster that displaced over 160 000 people from their homes and is still releasing nuclear active material into the environment.

During the workshop the panel discussing the costs of nuclear power for South Africa and the available financing options made some very interesting and clear points:

  • The South African Government is not able to fund the construction of the proposed nuclear build programme and if this is the preferred funding option the State will have to go to the market to find the capital to do so.
  • There is very little liquidity in the capital markets at this time and there will be no appetite from financiers to fund nuclear power stations where work stoppages by regulators and cost overruns are common putting the return on their investment at risk.
  • Currently the Minister of Finance is working very hard to prevent the rating agencies to downgrade South Africa’s credit rating to junk and any venture into building a nuclear power station will work directly against this campaign.
  • In a build, own and operate scenario it is expected that any nuclear vendor who will bring their own funding for the project will require a power purchase agreement in US Dollars or Euros placing a significant exchange rate risk on the electricity consumers in South Africa, and the South African Government who will have to underwrite such an agreement.

Based on these arguments there were consensus that it is highly unlikely that the building of a single nuclear power station in South Africa will go ahead at this time.  It was interesting to note that in the same week EDF’s Finance Director Thomas Piquemal resigned, reportedly over the plan of EDF/Areva to build the next Hinckley Point nuclear plant in England. 

So it seems that South Africa’s proposed 9,6 GW nuclear build programme may indeed not be able to go ahead.

During the workshop it was also pointed out that the demand for electricity has remained flat for nearly ten years indicating a decoupling between economic growth and electricity consumption.  Given the uncertainty of how the demand for electricity will increase in the coming years a more flexible power supply with smaller units are required.  This will probably consist out of combined cycle gas powered stations using imported liquid natural gas while domestic gas supplies are developed.  This flexible supply can easily be combined with low cost electricity from wind and solar plants to supply South Africa’s electricity demand.

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