SA still in the dark over nuke money
The government appears intent on hitching its star to a big nuclear wagon, despite serious misgivings within its own ranks over whether the need for nuclear power is as urgent as once believed, the possibility of emerging alternatives and the continued opposition from business and civil society.
Chief among the reasons for a rethink of South Africa’s nuclear ambitions is the ability to pay for it, according to energy experts and economists, although there are international financing models.
The state has so far refused to pronounce on the cost, but it is estimated that it will be between R400-billion and R1-trillion.
The integrated resource plan of 2010 (IRP2010) that governs electricity policy prescribes a nuclear build of 9 600 megawatts or six power stations.
The cost will depend on whether the government will propose different, and potentially smaller, provisions for nuclear power when it releases an anticipated revision of the policy later this year.
Although Eskom has been named the owner and operator of any future nuclear power stations, the utility has no way to pay for them without steep electricity tariff hikes, an extremely unpopular prospect.
Talk to back contracts and debt
Anton Eberhard, a professor at the University of Cape Town’s graduate school of business, said the government could also not fund it directly through the treasury.
He said there might be talk of further guarantees to back contracts and debt but, given the scale of the proposed nuclear investment and the existing and growing guarantees backing other programmes, “the space for taking on further contingent liabilities is constrained”.
Other programmes include the country’s procurement of renewable energy from independent producers.
The government has also granted extensive guarantees to many of its state-owned enterprises, including Eskom, the South African National Roads Agency and SAA, amounting to R471-billion this year.
“The national treasury has warned government that we are in a challenging fiscal and budget space, debt levels are uncomfortably high and immediate economic growth prospects poor,” said Eberhard.
Eberhard believed the only way more nuclear plants could be built is if a significant part of the financing were to come from the nuclear vendor and overseas partners.
He said there is a range of financing options, including the “build, own and operate” model such as the Russian nuclear company Rosatom’s Akkuyu plant in Turkey.
“These kinds of investments … need government-guaranteed, long-term contracts,” he said.
Other options include the “build, own, operate and transfer” model, in which ownership would be transferred at a specified time; a joint venture with part of the equity held by the nuclear vendor or a third party; or ownership by a national utility such as Eskom, but with the financing arranged by the vendor and other parties.
All vendors would come with a level of government agency backing, such as export-import bank financing, and could facilitate finance from other sources, Eberhard said.
But these arrangements raised the question of affordability. International financiers would want to see long-term off-take agreements in place and they “won’t be cheap”, he said.
“This is the ultimate hurdle that a nuclear programme will face. “Can they demonstrate transparently that the contracted price from a new nuclear power plant will be cheaper than alternatives?”
The government policy poses further complications, particularly its aims to drive localisation on the nuclear programme.
South Africa needs to be “realistic about what’s possible”, Eberhard said.
French nuclear vendor Areva has already warned that expectations of localisation levels were too high.
International experience also suggests there are likely to be delays on a nuclear programme, which could prejudice security of supply, he said. A re-examination of nuclear power has been called for by both business and civil society.
The Cape Chamber of Commerce, a past proponent of nuclear power, said this week that changes in the energy landscape, particularly in the gas sector, make “a complete rethink” of nuclear necessary.
The nature of nuclear power — notably its predominantly imported technology and the large initial capital cost — means money would have to be borrowed on the international market, bringing with it major foreign exchange risk, according to the chamber’s industrial focus portfolio committee chairperson, Peter Haylett.
The potential of gas-fired electricity should be considered. It would mean lower capital costs and gas power stations could be built faster.
But nuclear power should not be ruled out altogether if the industry could find ways to become more competitive, Haylett said.
Economist Dawie Roodt, a supporter of nuclear power, said the technology, despite initial capital costs, remains cheaper to run over the lifetime of a nuclear power station.
However, at the upper cost estimates of R1-trillion, the proposed nuclear programme could double the government’s debt levels overnight to an estimated 80% of gross domestic product, Roodt said. That raises questions about whether the current plans are viable.
Tristan Taylor of Earthlife Africa, a vocal critic of nuclear power, said the country cannot afford the proposed nuclear programme, particularly in the light of other energy infrastructure commitments.
Regardless of how the financing will be structured it is clear that most of the money will come from debt, which South Africans will ultimately pay for through higher electricity tariffs or increased taxes. The details of these financing structures are also unlikely to be transparent.
Given the funding constraints and the other challenges, he said, it is unlikely that the government could make any commitments on nuclear power “any time soon”.
The department of energy did not respond to requests for comment.