Disquiet over nuclear ‘deal’

Is it a done deal that we will procure 9 600MW of nuclear capacity from the Russians? They seem to think it is, says the writer. File photo: Francois Lenoir

Is it a done deal that we will procure 9 600MW of nuclear capacity from the Russians? They seem to think it is, says the writer. File photo: Francois Lenoir

Published Sep 27, 2014


A flurry of meetings between President Jacob Zuma and Russian President Vladimir Putin have contributed to growing unease over a nuclear co-operation pact, writes Craig Dodds.

Cape Town - NEWS of a nuclear co-operation agreement between South Africa and Russia has been accompanied by much wheeling out of mirrors and blowing of smoke.

Is it a done deal that we will procure 9 600MW of nuclear capacity from the Russians? They seem to think it is.

Or is this just a standard framework agreement that will facilitate the business of trying to match what Russia has to offer to our needs and circumstances? This is the word from the South African side.

A flurry of meetings between President Jacob Zuma and his Russian counterpart Vladimir Putin and the lack of detail on the nature of their discussions have contributed to a growing sense of disquiet over the deal. All of this comes amid warnings that it is too early to commit to nuclear and that, in any case, we can’t afford it.

Since the government’s initial planning framework for electricity supply, the Integrated Resource Plan (IRP), was concluded in 2010 the ground has shifted, calling into question its provision for 9 600MW of nuclear power by 2030.

First, economic growth has significantly undershot expectations, meaning the economy will reach the size where it may require this much nuclear power only years after 2030.

An updated IRP, published in November, says at least 6 600MW less reliable generating capacity will be required by 2030 as a result of weaker economic growth.

Second, the costs of alternative sources of energy, particularly renewables, have fallen dramatically as the government’s renewable energy procurement programme has turned out to be hugely successful.

Renewable energy can’t replace the base-load capacity of coal, gas or nuclear, but it can reduce the requirement.

Third, gas has made a dramatic entry as a potential “game changer”, in Zuma’s words in his State of the Nation address, which in one scenario outlined in the revised IRP – where shale gas becomes a significant viable resource – could eliminate the need for nuclear power altogether by 2030.

Starting a massive build programme now, in other words, could see the country saddled with a R1 trillion white elephant and the financial headache to go with it – think Cape Town Stadium on steroids.

A miscalculation on such a scale could set the country back decades in lost opportunities and saddle future generations not only with the burden of paying off nuclear power the country doesn’t need, but retarded economic development and the social ills that go with it.

On the other hand, the National Development Plan sets an aspirational growth target of 5.4 percent a year and, if this is achieved, the updated IRP foresees the need for 6 660MW (almost 3 000MW less than the previous IRP) of nuclear power by 2030, before taking into account other variables like the possibility of a major contribution from gas or exorbitant costs for nuclear.

Failure to build the necessary capacity in time could result in a repeat of our current dilemma, where constrained supply holds back economic growth.

But the plan warns that 5.4 percent is the “aspirational” target and the reality may turn out to be quite different, as low as 2.9 percent annual GDP growth, in what the updated IRP terms the “weathering the storm” scenario.

The requirement for nuclear in this case would be 1 860MW, before factoring in other variables. Given all this uncertainty, the plan urges caution. Flexibility in decision-making should be paramount to achieve a path of “least regret”.

“This would suggest commitments to long range large-scale investment decisions should be avoided,” the updated IRP says.

And it specifically outlines a “decision tree” to determine in what circumstances nuclear procurement should proceed, on what scale and when this should be done.

The first “fork” in the tree has already arrived: a decision on whether or not to pursue the Grand Inga hydroelectric project which, if completed, will outstrip China’s famous Three Gorges project to become the world’s largest such electricity supply. South Africa ratified a treaty with the Democratic Republic of Congo to co-operate on the project last month.

According to the revised IRP, this means “the nuclear decision” can be delayed until 2018.

If this had not been the case, the decision to proceed should have been taken next year if, “and only if”, net electricity sent out exceeds 265 terawatt hours this year – considered extremely unlikely – “and there is no expectation of large-scale gas development”.

Even then, if nuclear capital costs cannot be pegged below $6 500/kW, “then the procurement should be abandoned as the additional cost would suggest an alternative technology instead”. Capital costs for nuclear vary widely by region, but range between $1 600/kW and $7 200/kW at the moment.

Given that the government’s own most up-to-date research (though a completely revised IRP is expected soon) waves a large red flag over nuclear, it is unclear why it is so determined to forge ahead.

This is especially so against the realisation that we have reached the limit of what we can borrow, even as a floundering Eskom is set to receive further government support and permission to hike prices yet again.

Russia’s overtures begin to seem more alluring in this light, but the devil would be in the detail.

Its nuclear company, Rosatom, already has an agreement with Turkey to build a nuclear plant financed on the build, own, operate model after legislation was passed specifically making provision for it.

The agreement was struck after the tender process for a nuclear facility at Turkey’s Akkuyu site was dropped in favour of direct bilateral negotiations between the countries, with Putin playing a lead role in facilitating the deal.

According to independent journalism website P24, Turkey’s electricity distributor is committed to buying 70 percent of power generated by the first two units of the plant for 15 years, at 12.35 US cents per kilowatt-hour (kWh) and 30 percent of the power from the remaining two units, also for 15 years, in order for Rosatom to recover the costs of funding construction.

Rosatom also has agreements to build nuclear power stations in Finland, Jordan and Hungary.

The advantages of the build, own, operate model are obvious for developing countries with limited capacity to raise capital for such mega-projects. But risks remain huge for the client nation.

The vendor has an overwhelming incentive to finish on time.

A strong, independent regulator – immune from undue influence – is needed to ensure no corners are cut in safety and construction standards in order to meet the deadline.

Another risk is that electricity price projections may be well off target and the nuclear generated power exorbitantly expensive relative to other sources.

Political Bureau

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