Nuclear shifts into gear despite coronavirus slump - can SA afford it?

  • A request for information has been published for a 2500MW nuclear build programme. 
  • But experts warn that nuclear programmes in other countries deliver power over 20 years after their build phase - at a much higher cost. 
  • In light of SA's much weaker economic position, it's unclear where nuclear will fit in. 

The government’s longstanding plan for the development of a nuclear power station is back in motion.

Despite the current economic crisis sparked by the coronavirus pandemic, which is set to further erode domestic and global growth prospects, officials have published a request for information for the 2 500 MW plant, pushing the controversial nuclear build back on government's infrastructure development agenda.

Nuclear power generation forms part of government’s Integrated Energy Resource Plan, but the government’s capacity to finance the project is unclear, particularly following the devastating impact of Covid-19 on an already weak economy.

The project is likely to be a major infrastructure development, and the Department of Mineral Resources and Energy published a document to test the market. It said it hopes to gain insight into the cost of the programme, possible ownership structures, cost recovery, the end user cost and sustainability of the programme.

'Same debate coming up'

"It is very surprising to see the same debate coming up every few years," said Mycle Schneider, Energy Nuclear Policy Analyst at Paris-based Mycle Schneider Consulting.

He said the South African economy does not have the financial capacity to implement a nuclear project, and that its position has been worsened by credit rating agency Moody's decision to relegate the country’s sovereign debt status to junk. 

With the economy expected to slow even further post the Covid-19 pandemic, government will be have to strike a balance between the financing of major infrastructure and providing support for social programmes, he said.

He also warned that nuclear was a substantial investment, but that it would be some time before there it bore fruit.

"Each nuclear investment is binding very large amounts of capital for a very long time without any production and thus any return," said Schneider, adding that nuclear reactors under construction in Finland, France and the UK will deliver power more than 20 years after their first planning phase - at a cost that has skyrocketed.

Countries around the world are currently scaling down on nuclear plans, as cleaner energy solutions take precedence amid financial challenges faced by global nuclear firms.

Koeberg power station will reach the end of its life by 2024, and government is in talks with Eskom, which owns the power station, to extend its design life by 20 years. At the same time, a number of aging coal power stations are also nearing the end of their lifespan, increasing the need for government to come up with alternative energy solutions.

Weak economy

Mineral Resources and Energy Minister Gwede Mantashe previously told Parliament that the country would procure 2 500 MW of nuclear power by 2024.

While the economy is on a downward trajectory, state-driven infrastructure development is seen as a critical factor in jump-starting economic activity and boosting investor confidence. Lumkile Mondi, an economist at the Wits School of Economics and Business Science, believes that the timing of issuing the document to the market is not right, as the country's energy needs have changed in the wake of the Covid-19 pandemic.

His sentiments were shared by Peter Attard Montalto, head of capital markets research at Intellidex, who said the RFI will finally expose the impossibility of rolling out nuclear "at a pace that SA can afford".

"There is no space for the fiscus to carry cost overrun and corruption risk from such a project," he said.

Late in June, Finance Minister Tito Mboweni is set to table an emergency budget which he has said will "refocus government’s attention" on what is feasible to cushion the population against the Covid-19 pandemic and support growth. 

It remains to be seen how the nuclear build will feature in government's infrastructure development programme, given the weak economic climate. In a worst-case scenario, National Treasury has said SA's economy could contract by as much as 16% this year. 

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