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Clarity needed on why strong focus is being placed on nuclear

22nd August 2014

  

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By Tom Harris

While it is undeniable that the construction of additional baseload generation capacity is required to address the country’s energy security issues, one cannot help raising this question: Why is such a strong focus being repeatedly placed on nuclear energy despite several energy analysts holding a contradictory view?

The recent update to the Integrated Resource Plan (IRP) states that, at an overnight capital cost of more than $6 500/kWh, no new nuclear capacity will be procured, with the capacity being allocated to concentrated solar power (CSP), wind and combined-cycle gas turbines (CCGTs). This is critical, as the most recent nuclear power contracts in Europe suggest such a favourable cost scenario is unlikely to occur, with capital costs exceeding $7 000/kW.

In terms of implementation timelines, there is little evidence to support a case for nuclear generation capacity. Nuclear has exceptionally long build times, and construction is often subject to lengthy delays. Multiyear delays have been experienced even in developed countries with strong project management capabilities, such as France. Given the costly delays experienced in the implementation of Medupi and Kusile, can South Africa afford to bank on the assumption that a nuclear programme will not encounter similar issues to those encountered by recent nuclear builds in Europe?

The World Nuclear Industry Status Report states that “rating agencies consider nuclear investment risky” and reports that 67% of nuclear utilities assessed between 2008 and 2013 were downgraded. Therefore, one cannot but speculate that both Eskom and South Africa will suffer further credit downgrades, if an Eskom-driven nuclear capacity-addition programme is implemented. Such downgrades would raise Eskom’s debt servicing costs even higher and further deter investment away from South Africa’s already struggling economy, which has suffered 25% contraction since the beginning of 2014.

Are there no less-risky, cost-competitive technologies that can be rolled out in substantially less time than nuclear? The most notable such technologies would be renewables and gas. Already the storage cability of CSP somewhat counteracts the argument that renewables are unable to serve a baseload function. Solar technologies could also be combined with other renewables, such as wind, biogas and small hydro, to form diverse portfolios of renewable solutions, which could help address baseload requirements.

While such renewables offer attractive ‘clean’ energy solutions, one cannot ignore the generation potential of gas and coal. As the supply of natural gas has increased, the global economy has witnessed falling gas prices and a rise in the affordability of gas-generated power. South Africa’s ability to access the potential of gas power will require facilitative infrastructure. Consequently, South Africa has avidly awaited the release of the Department of Energy’s (DoE’s) Gas Utilisation Master Plan, which will determine the evolution of the industry. This will be vital to energy capacity planning, as the potential of ‘Big Gas’ could mitigate the need to establish nuclear. As long as an abundance of cheap coal is available in the country, coal-fired power stations are likely to be a cheaper and more viable solution to address baseload requirements than nuclear. However, project implementers will need to learn from the costly mistakes of Medupi and Kusile, and the best option may be to consider a build-operate-transfer methodology for such future projects instead of allowing another Eskom-facilitated build.

The DoE has indicated ‘front-footedness’ in aligning with the global trend towards the privatisation of the energy industry through the implementation of multiple independent power producer procurement programmes. However, the ‘World Nuclear Industry Status’ report indicates that, in a truly competitive electricity market, nuclear plants are likely to struggle to survive, highlighting that “all the nuclear plants on which construction has started in the past decade are in monopoly systems, usually State-owned, or . . . protected by a long-term power purchase agreement”. It is, therefore, likely that a South African nuclear build programme would need to be a public-supported project, which could slow the transition towards a competitive and privatised energy industry.

The most recent IRP update wisely advocates that “commitments to long-range, large-scale investment decisions should be avoided” to ensure “decisions of least regret”. Regardless of one’s stance on nuclear energy, the apparent disjuncture between recent statements by government and the IRP raises the question: What is going on in terms of energy policy development in South Africa, and how are important decisions regarding the evolution of the energy landscape being made?

If government has decided that nuclear is the best option to address South Africa’s baseload electricity requirements, the responsible policymakers would do well to ensure that they clearly communicate the reasons that led to this conclusion. This should involve identifying the key metrics and variables considered, highlighting how nuclear performed relative to gas, coal and renewable alternatives, along with the assumptions inherent in any such comparisons. While various industry participants may differ in opinion, this transparency would go a long way towards improving investor sentiment. It would convince industry that government is following a more consistent, logical and considered policy development process instead of one that is driven by the whims, fads and fancies of particular individuals.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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