The Nuclear Industry Association of South Africa (Niasa) has highlighted a range of options for the financing of new nuclear power plants (NPPs) in South Africa. This followed the recent announcement to Parliament’s Portfolio Committee on Mineral Resources and Energy by Mineral Resources and Energy Minister Gwede Mantashe that his department would soon start a process to develop 2 500 MW of new nuclear power.
In his address, the Minister said he was willing to look at innovative funding options for the new NPPs. The association noted that the affordability of new NPPs had been a major concern among critics of a new nuclear build programme.
“It is a fact that nuclear power plants require large upfront investments, compared to other sources of energy,” confirmed Niasa. “It is therefore critical how these projects are financed as the cost of borrowing money can be prohibitively high. Given the very high proportion of the cost of energy that the capital repayment element makes up of the overall cost of power from a nuclear plant, the effective interest rate is fundamental to project viability.”
Thus, real interest rates on State debt could be in the range of 2% to 3%, while real interest rates on high risk equity finance could vary from 10% to 15%. This explained why some new NPP projects (for example, State-supported projects in China) could be very competitive while others (such as the private equity funded Hinkley Point C in the UK) could be expensive. (The association noted that private equity funded NPP projects tended to have some kind of State guarantee such as long-term power purchase agreements.)
Niasa identified six financing options that could be used to fund a new NPP programme. The first was simply and straightforwardly State funding for the entire project, such as with China’s Qinshan 1 and Qinshan 2 projects. Alternatively, the State provided sovereign loan guarantees and used reserves and cash flows from State-owned companies, as was the case with the United Arab Emirates’ Barakah NPP project.
A second option was an intergovernmental loan. Usually, in this case, the lending government partly or wholly-owned the company selling the NPP and the borrowing government partly or wholly-owned the utility buying the NPP. This model had been used in deals between China and Pakistan, and Russia and several other countries, such as Bangladesh, Belarus and India.
Another option was corporate financing. This was based on the strength of a company’s balance sheet (whether the company was public-sector or private-sector). The full risk of the project was born by the company concerned. This approach had been used in China, Finland, France, India, Japan, (South) Korea, Russia and the US.
The fourth option was the provision of financing by the company selling the NPP. It could be by loans or by an equity share. Usually the vendor had access to low interest loans and arranged such loans with export credit agencies and lending institutions. NPP vendors China National Nuclear Corporation, China General Nuclear Power Group, Electricité de France and Russia’s Rosatom had all arranged such funding structures.
The fifth option had not yet been used to fund a NPP but had been used for natural gas generation plants. It was project financing. Here, a ‘special project [investment] vehicle’ was set up solely to fund the specific project. This segregated the special project from other investments.
Finally, there was the ‘build, own, operate’ option. This was the basis of Turkey’s Akkuyu NPP programme. This was being funded, built and would be operated by Rosatom. The Russian group would initially own 100% of the project, but would subsequently sell stakes to Turkish investors. But Rosatom would always hold at least 51% of the project.