Reality check for nuke power trip

The closing months of 2016 delivered a burst of momentum to the country’s contentious nuclear build. In November, the Cabinet resolved that Eskom would join the South African Nuclear Energy Corporation (Necsa) in taking charge of it.

This was swiftly followed by the gazetting of the minister of energy’s determination on December 14, which named the two as the procurers of the nuclear programme and mandated them to deliver 9 600 megawatts (MW) of nuclear power by 2030.

But the year ultimately ended with Eskom’s nuclear ambitions amounting to more of a fizzle than a bang.

The government might have been turning on the green lights but, for the ultimate go-ahead, the process has to go through multiple hoops in the treasury, which has frequently said it will not agree to something the country cannot afford.

The energy minister’s determination to put Eskom in charge was also swiftly challenged by Earthlife Africa and the Southern African Faith Communities’ Environment Institute, which are taking the government to court over what it claims are unlawful decisions.

The two organisations say the determination is yet another unlawful decision taken in secret and without the public’s required input.

Because the treasury had not given the go-ahead by the end of the year, the two procurers instead published a request for information (RFI) on December 20.

An RFI is largely an information-seeking exercise for a potential procurement process. An RFP invites vendors to submit bids for the tender in question.

“It was meant to be a full RFP,” said an industry insider. “That got held back but they had to do something to keep the vendors happy so they did an RFI.”

Another industry source said: “Treasury is balking. Eskom is very frustrated.”

Those who wish to participate in the RFI process must apply to do so by the end of this month.

Eskom said vendors do not need to participate in the RFI to participate in the RFP. But the chairperson of Necsa, Kelvin Kemm, said all potential vendors are expected to participate in the RFI process. “The RFI is the formal beginning. It is the starting gun,” he said.

“The RFP was jointly completed by Eskom and Necsa in November. But treasury at the time said: ‘Don’t go drop a boulder in the pond’,” Kemm said, noting it probably had to do with timing because the global ratings agencies were reassessing South Africa’s rating.

“The RFP is in two halves. It needs sanction from the treasury. Both boards [Eskom and Necsa] have passed resolution. Treasury have to give their okay. What we ask for and how we ask for it entirely depends on treasury.”

The treasury said it was premature to comment on the matter. “The office of the chief procurement officer has not yet met Eskom to discuss any details relating to the procurement of nuclear and thus there have been no financial applications or state guarantees to that effect.”

Critics of the nuclear build programme say the plan will be too costly and subject to cost overruns, and Eskom is said to lack the expertise to manage such a project. Concerns also abound about corruption being linked to the political push for the project.

Phansi nuclear phansi
Unpopular: Security restrains a Greenpeace member protesting against the proposed nuclear build. (Alon Skuy/The Times/Gallo)

David Nicholls, Eskom’s chief nuclear officer, said the RFI shows “we are clearly intending to go through the motions here, to make sure we are being totally transparent”.

The RFP must go through the treasury several times, Nicholls said. The utility has written to the treasury and expects its full co-operation and involvement.

The Preferential Procurement Policy Framework Act, for example, requires that for such a large and expensive project a waiver must be obtained from the treasury. Certain guidelines also require that projects above a certain size must go through the treasury.

Cost conundrum
Kemm said he expects the process to now proceed rapidly.

In October, Finance Minister Pravin Gordhan said the government would support the nuclear build led by Eskom. The treasury would work with the department of public enterprises and Eskom he said, to “ensure that the scale and phasing of the programme are in South Africa’s best interests and that the procurement arrangements are transparent and compliant with the law”.

There are widely varying costs estimates for the nuclear build ranging up to R1-trillion.

Kemm said the figures are largely incorrect. “The estimates are way too high and the argument that it is expensive isn’t correct,” he said, estimating the 9 600MW build would cost closer to R650-billion.

Independent energy analyst Chris Yelland said one potential vendor, Rosatom, has already publicly said the overnight capital cost of 9 600MW could be between $40-billion and $50-billion.

“The reality, of course, is that over time rates change and the construction time is a significant amount of time,” Yelland said. “Then there are the financing costs. The interest during construction can typically add another 25% to the overnight costs.”

Added to this are owner development costs, such as the cost of building road and other infrastructure, connecting the project to the national grid and the administrative costs, including those related to obtaining environmental impact assessments, Yelland said. “As a rough guide that adds 10% to the overnight cost.”

Yelland estimates that, at an exchange rate of R14 to the dollar, South Africa would be in for roughly R850-billion. “That is without considering that cost overruns in this environment are notorious.”

Kemm argued it is not a question of whether South Africa can afford nuclear but one of “we can’t afford not to. We need to put the power in place and the most economically sensible way to do it is nuclear”.

He said a nuclear build should be viewed positively by investors. “It shows South Africa is far-sighted enough to ensure power is in place. It should be a stimulant for the economy.”

Like renewable energy, a nuclear build should be seen as infrastructural development and not an expense, Kemm said, but added: “No nuclear person ever advocated to go faster than we can afford or to do something financially stupid.”

Dawie Roodt, an economist and a supporter of nuclear power, said the government cannot afford to spend on anything, much less a nuclear build. “As things stand at the moment, there is no fiscal space. Nothing. We are absolutely on the edge. There is no room for fiscal spending. That also includes guarantees.”

Nicholls said experience dictates that interested vendors could be expected to provide a financing package. But, according to Doug Kuni, an independent power consultant, even if an arrangement can be made so that the costs are borne by the vendor, “the state would have to guarantee it will be an offtaker of the power. International financing rules are that, if any vendor builds a power station for you, it sits on your balance sheet as a contingent liability.”

The draft IRP
Eskom and Necsa are forging ahead with the nuclear build despite the recent publication of a new draft Intergrated Resource Plan (IRP), South Africa’s energy blueprint, in which the base case calls for very different requirements to the 2010 version. It rules much of nuclear out, even though the modelling put constraints on how much renewable energy can be commissioned and has used out-dated prices for green technology.

Yelland said the draft plan will have to be updated and is unlikely to be gazetted before mid-2017, “which is optimistic given previous delays”.

“So how can you issue anything before you know what do we need, how much do we need and when do we need it by?

“I’m not going to say I’m pro or against nuclear,” said Yelland. “I’m going to say: follow proper process. The IRP must use the right prices and use realistic constraints and make sure they are rational … Follow the process then the stakeholders will buy into the outcomes.”

But Eskom and Necsa are determined to carry out the current policy.

“The draft IRP is the beginning of a new thought process,” said Kemm. “There is no way you can reassess the country’s whole energy provision in three months. The 2010 one is the current one.”

The IRP 2010 shows that the nuclear build is justified, said Nicholls. “The 2016 IRP may take up to two years to be finalised, at which point the IRP will be up for renewal again,” he said.

It is only natural that power requirements will change over time, he said. “One of the biggest mistakes in long-term planning is to think that any plan is true.” In retrospect, 9 600MW of nuclear might be viewed as too little, he said.

But an overriding concern in the public debate is that the process must be free of corruption.

“I’m not aware of any corruption behind this and I am intimately involved,” said Kemm. “But I agree entirely: there must be no corruption.”

He said, if anything, the project will be subject to close scrutiny but ultimately it is only nuclear experts who can decide on what will be procured and from whom.

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