Why nuclear power would be a bad option for South Africa

It would be sensible to acknowledge that a nuclear programme is not viable for resolving South Africa’s energy crisis. Rather, the country should be focusing its attention on how to end electricity blackouts and speed up energy efficiency and renewable energy programmes.

Building new nuclear energy capability will cost the country billions of US dollars. It is doubtful that South Africa can afford this.

In addition, nuclear power entails a different but also serious set of risks to climate change. These include the risk of reactor accidents, the danger of weapons proliferation and the hazards of radioactive waste.

The case for nuclear

Nuclear power generation does present a number of advantages. It is far more carbon neutral than fossil fuels.

Compared to coal, for example, it produces less greenhouse gas emissions. Given the threat of global warming this is an important consideration.

But is the reduction in greenhouse gas emissions sufficient to justify taking the risks that nuclear energy generation represents?

Price of nuclear

Debate around nuclear economics centres on the construction of a nuclear power plant. It covers around 70% of the costs of nuclear. The rest is made up of fuel costs, operating costs, waste disposal and decommissioning. However, for the consumer, it is the cost per kWh that counts.

The other element in the upfront costs is the cost of finance, which will vary widely according to who is borrowing and what the terms of the sale of electricity are.

For the UK’s Hinkley Point project, finance was only possible because all the power produced will be sold at a fixed real price for 35 years to a government agency. The borrowing will be backed by UK government loan guarantees.

Basically, banks financing Hinkley will be lending to the UK government, which has a AAA credit rating. Despite this huge government backing, power will be bought at £92.5/MWh, which is about double the prevailing wholesale electricity price.

Eskom’s credit rating is BB+, falling into what is commonly called junk. Even the South African government’s rating is only BBB-, one notch above junk.

It’s likely that South Africa will have to rely on the reactor vendor’s home country to supply the finance. Whether any of the candidates will be able to do this and what the cost of finance will be remains to be seen. But the arrangements for South Africa are unlikely to be more favourable than those on offer for Hinkley – so £92.5/MWh is probably the absolute minimum South African consumers would have to pay.

To get to the consumer price for electricity, you have to add the network costs of high-voltage transmission to centres of demand and low-voltage distribution to consumers’ premises plus the cost of metering and billing. These might be of the same order as the generation cost.

Within the next month or two, South Africa is planning to open a call for tenders for the six-to-eight reactors it wants built. The most recent construction cost estimate is now four-years-old and is equivalent to $6bn-8bn per reactor depending on the size of the reactor. The total programme cost is about $50bn.

South Africa leads the way on the continent

South Africa is the only African country to operate a nuclear power plant. There are two main reasons that no other African country has developed nuclear power capability: electricity grids are often too small or weak to accommodate the output from a nuclear power plant and countries battle to raise the kind of finance needed for a nuclear programme.

Egypt has repeatedly attempted to order nuclear power plants over a 35-year period only to find finance was not available.

But finance is a problem for even the richest countries in the world. Even Britain’s attempt to build two nuclear reactors could yet prove unfinanceable.

South Africa has been down this road

The assumption that nuclear power is an option for South Africa must be questioned given the failure of its two previous attempts. The Pebble Bed Modular Reactor was pursued for 12 years before being abandoned in 2010. A call for tenders for two new nuclear power plants in 2008 had to be stopped when it became clear that the bids received could not be financed.

Costs have skyrocketed since then. Estimated construction costs for a kW of nuclear capacity have gone up by about 60%. Additionally, South Africa is seeking to order three times as much capacity as in 2008. It is hard to see how the tender could be financed this time.

South Africa has committed to choosing a design that meets the latest international nuclear power plant facility standards. Vendors of all six of the front-running designs have been invited to parade their offerings, including Hitachi and Toshiba from Japan, Areva of France, Rosatom from Russia, SNPTC from China and Doosan from South Korea. South Africa has signed a nuclear agreement with Russia and expects to do the same with the US, South Korea, France, Japan, Canada and China.

Unknowns

Even if South Africa can find the funds to finance the orders it wants to place, the costs are likely to turn out substantially higher than what is agreed at the time the contract is awarded. Delays in construction are also highly likely. Even if all goes to plan, the first plant will not produce power until 2023.

The lead time for a nuclear power plant includes the period to obtain all relevant consents, for example from the safety authorities and the planning bodies, build up the skills and capabilities needed and order long lead-time components.

For a country like China, which is building several nuclear plants per year, the process could take up to two years. But it could take four years or more for a country like South Africa to build its first reactor. Construction itself is usually expected to take four to six years. Although in practice, more often than not, this period is exceeded.

The South African government has said it will not go ahead with nuclear power if the expected construction cost is more than $6500/kW, equivalent to about R130bn per reactor. However, the latest cost estimates are about 25% higher than this. This means that if the South African government sticks to its promise, the tender will fail.

This article is published in collaboration with The Conversation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Steve Thomas is a professor of energy policy at University of Greenwich.

Image: Valves are seen inside the decommissioned Unit Six of the Greifswald nuclear power station outside the north-eastern town of Lubmin August 5, 2014. REUTERS/Thomas Peter.