The government is forging ahead with developing mini-reactor nuclear technology despite the fact that cost estimates have exploded, foreign and local investors have either quit or appear to be distancing themselves from the project and new investors are conspicuous by their absence.
Project developer, the Pebble Bed Modular Reactor (Pty) Ltd company, is asking for R14-billion to fund a test or development reactor, but says that only once the unit is built will it be able to say whether the project is technically and economically feasible.
The government, meanwhile, in the person of Minister of Public Enterprises Alec Erwin, wants Eskom to commit to buying 28 mini-reactors at a cost of R45-billion.
Eskom, observers believe, is distancing itself from the project and will only say that it will buy the mini-nukes if they are the best-priced option.
The home-grown, mini-nuclear pebble bed modular reactor (PBMR) technology finds itself in the eye of a storm because:
- Costs have jumped from R1-billion in 1998 to R16-billion at present;
- R1,4-billion of public money has been used to fund the feasibility study, which overran its R1-billion cost estimate by R1-billion;
- The first test or development reactor was originally scheduled to be in operation by 2003. This has moved to 2010 with commercial sales only to begin in 2013;
- A key foreign investor, the United States’s Exelon, which had committed to purchasing 10 reactors, has pulled out;
- Its remaining foreign investor, British Nuclear Fuels, is bankrupt, with liabilities of R350-billion;
- Despite claiming foreign shareholder interest over a period of several years, new foreign shareholders are yet to materialise;
- Eskom is reducing its equity stake in PBMR (Pty) Ltd;
- The market for mini-reactors has become competitive, with the US, France and China developing their own solutions;
- A key report, commissioned by the government, from an independent panel of experts into the viability of the PBMR project remains under wraps;
- One of the authors of this report has criticised the economics of the project and said the South African public could end up paying for a series of expensive white elephants;
- Former Eskom chairperson Reuel Khoza, a PBMR proponent, made a multimillion-rand profit when he sold his stake in IST Holdings, a company that received a PBMR contract worth R260-million. (See ‘The Khoza connection”.)
The government sees PBMR technology as central to the country’s energy future.
Public enterprises spokesperson Gaynor Kast told the Mail & Guardian ‘there is strong South African government support for the PBMR as reflected in the Integrated Strategic Energy Plan for South Africa’s new building programme.
‘The Department of Public Enterprises and Eskom have included the equivalent of 4 700MW of PBMR reactors, that is, between 20 and 30 reactors.”
The PBMR is designed to produce 165MW of electricity, meaning that it is intended that Eskom purchase 28 units at a cost of R1,6-billion each, a total of R44,8-billion.
Kast said the intention is for Eskom to reduce its 40% stake in PBMR to less than 10%.
‘This reduces any conflict of interest issues given Eskom’s role as shareholder and customer. PBMR is currently in discussions with other potential private and foreign shareholders.”
The Industrial Development Corporation is now taking over the leadership of the project from Eskom.
PBMR (Pty) Ltd employs 550 people, including 50 with PhDs. Its headquarters are in Centurion and academic input has come from North-West University. Its development reactor is planned for Koeberg in the Cape, with fuel to be supplied from Pelindaba near Pretoria.
A report by Steve Thomas of the University of Greenwich published in August says South Africa will have to spend R25-billion before the PBMR project is viable.
This includes R10-billion for the development reactor and R5-billion for decommissioning costs.
Thomas was a member of the international panel commissioned by the government to review the economic viability of the PBMR project. This report has not been made public.
His subsequent report was commissioned by the Legal Resources Centre, which has been acting for environmental group Earthlife, Africa, which is opposed to the PBMR for both economic and environmental reasons. Thomas’s report says:
- Since details of the project were made public in 1998, costs of the demonstration plant have escalated by a factor of at least five;
- The project lead-time has slipped so that it is now further away commercially than in 1998 when commercial orders were forecast to begin in 2003. Orders are now only forecast to begin in 2015;
- Decommissioning costs could be of the same magnitude as construction costs;
- Founding shareholder Eskom is suggesting the R14-billion demonstration phase of the project should not go ahead unless foreign investors can be found;
- Without new foreign investors, costs will fall on the South African public, through Eskom, the Industrial Development Corporation or direct government subsidies;
- PBMR’s analysis of the world market for mini-reactors is simplistic, taking no account of any of the commercial or political factors that would apply in key markets. ‘A particular concern is finance for export orders. This is an important issue for developing countries. Such countries frequently have difficulty financing large investments. The World Bank and most other international financial institutions do not finance nuclear investments”;
- The South African PBMR could face strong competition from other high-temperature reactors, notably a similar Chinese design and models offered by French company Areva and US company General Atomics.
Thomas says that since last year costs have escalated by a further 50%.
In March last year the PBMR estimated the cost of the demonstration plant would be R10-billion.
‘However, a June 2005 press report appears to suggest that the cost of the demo phase may have increased again from between R14-billion to R15-billion.
‘If this increase of about 50% in a little over a year is confirmed, this would add to the evidence that costs are seriously out of control.”
US company Exelon left the project in April 2002, with CEO John Rowe saying that the project was three years behind schedule and ‘too speculative”.
PBMR’s other foreign shareholder, British Nuclear Fuels, is in severe financial difficulty, posting losses of R25-billion in 2002 and R12-billion in 2003. It has liabilities of R350-billion and few assets, says Thomas.
A mooted investor is France’s Areva. ‘However, it has its own technology which differs significantly from the PBMR which Areva claims is superior.”
China is the PBMR’s main expected export market, but despite several years of discussions, China is yet to commit.
Thomas says Tsinghua University has the only operating PBMR in the world, a 10MW unit that went critical in 2000. Tsinghua University is collaborating with US interests.
In October last year chief executive Jaco Kriek said the PBMR’s business plan envisages Eskom committing up front to some 4 000MW of PBMR capacity in South Africa.
Thomas says that Eskom is being asked to commit to an investment of at least R25-billion before the technology is economically or technologically proven.
‘Eskom appears, rightly, to be holding to its position of only buying it if the PBMR is the cheapest option available, something that will not be known until the demonstration plant is in service and has operated for some time.”
He suggests Eskom may be distancing itself from the project in part because PBMR will only be a commercial option after 2015 and as such is of little relevance to its immediate need for new capacity.
Eskom did not respond to e-mail questions about the PBMR.
PBMR responds
The information memorandum, accepted by the PBMR board in October 2004, reflects the total net funding requirement as R15,9-billion, which includes the R2-billion spent to date.
No international orders can be expected — or accepted — until the project is approved and has progressed to the demonstration phase. There has been no drive to sell any plants overseas or get firm orders. It will not make sense to embark on such a drive as the regulatory processes, such as the environmental impact assessment and licensing applications, have not been concluded.
The demonstration reactor will prove the technology’s technical and commercial viability. The sales drive will follow the success, or otherwise, of the demonstration plant. Whether the development phase will go ahead is for the PBMR (Pty) Ltd investors to decide.
Discussions between Eskom and PBMR ( Pty) Ltd are based on commercial principles, taking account of the cost of the next best alternative electricity generating technology.
The PBMR technology is based on designs developed during an extensive programme in Germany that ran for more than 21 years.
The South African power conversion system includes unique and patented innovations to improve its competitive position.
A test rig was built by the engineering faculty of North-West University, which has been started up successfully many times. The test rig, or micro-turbine model, is the first closed-cycle, multi-shaft gas turbine in the world.
Building a demonstration reactor is the final step to remove any doubt about the technical and commercial feasibility of the technology.
None of the global players can offer PBMR’s product. The technology is internationally regarded as the leader in high-temperature reactors.
Through British Nuclear Fuel’s subsidiary Westinghouse, PBMR (Pty) Ltd is linked to one of the leading players in the field without competing head-on with it.
The world market for new power stations is more than $100-billion a year. A 3% share equates to R2-billion a year, which will make the PBMR project highly profitable.
Can we give an absolute assurance that a substantial market for the PBMR will materialise when the technology is ready? No. But we do believe, based on the trends in energy demands and the need to cut carbon emissions from power plants, that there is a high enough probability of success. The potential rewards are so great that the risk of failure is far outweighed by the potential long- term benefits. — Tom Ferreira, PR manager PBMR (Pty) Ltd