South Africa’s trillion-rand ”nuclear renaissance” hangs in the balance as funding problems and political indecision bite into the Mbeki administration’s grand design for a fleet of new nuclear power stations and a full-scale support industry.
Eskom has missed deadlines — most significantly during the week former president Thabo Mbeki was ousted — to decide on a preferred bidder for ”Nuclear 1”, a new-generation conventional nuclear power station. This was to be followed by the rapid roll-out of a fleet of such stations until 2025 or 2030, when Eskom envisages generating 30% of its power mix — up from about 5% now — from nuclear.
Government’s policy is to stimulate an extensive support industry, likely to include controversial uranium enrichment and fuel reprocessing. The Mbeki administration championed nuclear on grounds that it would advance energy security, boost growth and technology development and mitigate climate change.
But the nuclear renaissance would come with a price tag to dwarf all previous public sector spending. The contract price for Nuclear 1 alone has been guesstimated at R120-billion to R150-billion, although this is likely to increase.
The plan may see another five such stations rolled out. Add tens of billions of rands in government support for local industry — Nuclear Energy Corporation chief executive Rob Adam envisaged $5-billion (R50-billion) in a September presentation — and the final public-purse commitment nudges R1-trillion.
Local industry, which will benefit both from direct government support and high levels of mandatory local spending by the successful Nuclear 1 and fleet bidders, has welcomed the bonanza, but is worried.
One industry leader, who asked not to be named, said they are on tenterhooks. On Eskom’s previous schedule the preferred bidder for Nuclear 1 would have been selected in September and the contract finalised in February. Now he has heard that Eskom has asked the bidders to be patient until December. The bidders for Nuclear 1 are consortia led by France’s Areva — widely seen as the favourite, not least because of massive French government support — and US-based Westinghouse. The industry leader, energy experts and sources connected with the bidders, cited funding constraints and politics as reasons for Eskom’s failure to decide.
A source with access to Areva said they were told to expect the selection of a preferred bidder in February or March, and again in June or July. Finally, the week of September 15 — which concluded with Mbeki’s ousting — was given as a firm date.
The source said he understood that Eskom’s board met that week, but that no decision was taken because of ”the lack of a political stamp [of approval]” during the turmoil. He believed the new administration wanted to ”screen” investment decisions made under Mbeki.
He confirmed that Areva was impatient, saying it had already extended its quote ”to accommodate the local situation”. A second Areva-linked source said the company was pushing for an answer in 30 days. ”If you don’t come out now, there’ll be a price increase.”
Energy analyst Andrew Kenny said: ”As far as I know the number one reason it keeps being deferred is money.” A further factor was ”the new guys taking over from the old and not liking the decisions of the old”.
Kenny understood, however, that members of the new administration were ”as pro-nuclear as the old”. He and the local industry leader said that when Eskom received the bids in January there was surprise at the cost.
University of Cape Town energy expert Anton Eberhard said that all-in capital costs for coal-fired stations have escalated from $1 000 to $2 500 per kilowatt of installed capacity — and $7 000 for nuclear.
For a station the size of Nuclear 1, this translates to about $23-billion (R230-billion), considerably more than the R120-billion to R150-billion figure floated to date.
Compounding matters is access to finance. Before the recent depreciation of the rand, Eskom estimated its capital requirement until 2013 at R343-billion. Consulting firm Frost & Sullivan estimated this week that the weaker rand would inflate this to R420-billion. Taking into account government’s R60-billion loan to Eskom and Eskom’s own cash flows and local borrowing capacity, a funding gap of R150-billion to be raised internationally remained, the consulting firm said.
Eskom is saddled with downgraded credit ratings — essentially a warning that Eskom poses a greater risk to creditors — make borrowing more expensive. Eskom has formally applied to the treasury to guarantee its debts. If treasury complies, creditors will lend more cheaply and Eskom may be able to close the funding gap.
In a September press release discussing the application for treasury guarantees, Eskom all but threatened not to fulfil promises to build new power plants if government did not come to the table. It said: ”Eskom manages its business to ensure sufficient liquidity and would like to emphasise the fact that the Eskom board will not commit to any expansions the company cannot finance.”
Eskom did not respond to questions.