With a six-month deadline to award contracts, Russia seems to be in the lead to win the right to build South African nuclear power plants that may be worth as much as $100bn.
Price-tag estimates for as many as eight reactors generating 9,600MW, which the government wants to begin operating from 2023 and complete by 2029, range from $37bn to $100bn. Bids are due to start this quarter, with Russia’s state-owned Rosatom Corp. seen as a leader. Areva SA, EDF SA, Toshiba Corp.’s Westinghouse Electric Corp., China Guangdong Nuclear Power Holding Corp. and Korea Electric Power Corp. have also shown interest.
The planned investment comes as the government battles to fend off a junk-grade credit rating and the National Treasury seeks to rein in the budget deficit. Proceeding with the nuclear plants could result in a large increase in public debt, the International Monetary Fund warned in a June 24 report.
“There appears to be a simple-minded assumption that countries like China or Russia will provide cheap plants and offer finance,” Steve Thomas, professor of energy policy at the University of Greenwich in the U.K., who has monitored South Africa’s nuclear plans since 1997, said in a June 24 phone interview. “That’s an illusion.”
Analysts including IHS Country Risk’s Robert Besseling and Teneo Intelligence’s Anne Fruhauf see Rosatom as the most likely bidder to win the contract.
The new reactors could cost as much as $100bn over 15 years, according to Des Muller, head of Johannesburg-based building company Group Five Ltd.’s nuclear construction division. That’s more than five times what Eskom is spending on two coal-fired plants that will generate a similar amount of power.
A study published in 2013 by the University of Cape Town’s Energy Research Centre found nuclear plants weren’t needed and wouldn’t be cost-effective for 15 to 25 years, based on a projected cost of $7,000 per kilowatt installed.
The Department of Energy’s 2013 master-plan -- which the government rejected -- suggested deferring a decision on whether to build atomic power facilities until at least 2025, and scrapping the option if the cost exceeded $6,500 per kilowatt of capacity. Thomas estimates current costs at about $8,000 per kilowatt installed.
The nuclear program will benefit the country for the next 80 years and promote industrialization, said Zizamele Mbambo, a deputy director-general at the Department of Energy.
“The return on investment will far exceed the investment,” he told reporters.
While the new plants will go ahead, the cost and funding arrangements still have to be worked out, according to the energy minister.
“The government will battle to finance the plants even if it gets cheap loans, and off-take agreements are the only viable nuclear option if power-tariff increases can be contained,” said Nazmeera Moola, an economist at Investec Asset Management.
“If the build costs a reasonable amount of money and it ends up being that the tariff required to fund it is viable, great,” she said by phone from Cape Town. “It all depends on how much it costs.”
Detailed financial analysis should precede any decision to invest in additional nuclear capacity, said Harald Winkler, the Energy Research Centre’s director.
“There are serious questions that need to be answered as to whether South Africa is able to finance this program and how any investment would have to be repaid,” he said by phone on June 26. “It’s very unclear.”