BUSINESS DAY TV: Eskom mulls submissions from 27 companies for nuclear build
Eskom’s chief nuclear officer David Nicholls discusses the next step after 27 companies responded to its request for information for its nuclear build programme
BUSINESS DAY TV: It’s probably akin to dipping a bloody arm into a piranha-infested stream as 27 companies have indicated their readiness to submit responses to Eskom’s request for information (RFI) on its nuclear programme. The RFI was issued on 20 December and yesterday was the initial deadline — and joining us in the studio now is David Nicholls Eskom’s Chief Nuclear Officer.
David, so 27 companies have stated that they intend to provide a response to the request for information, put that number into perspective for us so we can get a sense of the level of competitive interest in SA’s nuclear build programme?
DAVID NICHOLLS: First of all, I’ll say that since then we’ve has some more come in, we’ve got 36 at the moment. The other question is that among that number of companies there were those that are asking to provide information on very specific issues, some project management companies and that kind of thing, and not really providing elements of the information we’re looking for.
But the really important ones to us are the ones that are the actual nuclear vendors, the people who actually offer nuclear power stations as their business and have done so in a number of places in the world. And that’s why the key thing to us is that of the present list, there are four particular companies which represent, in no particular order, the Chinese nuclear industry, the French nuclear industry, the Russian nuclear industry and the South Korean nuclear industry, and those are the big players.
BDTV: What about the Americans?
DN: The Americans haven’t, so far, put in a proposal and I can’t comment on whether or not they will, clearly they’re one of the big players of all the other ones there.
BDTV: And they have a history with Eskom, Westinghouse?
DN: Westinghouse was the original design authority for the Koeberg nuclear power station; Westinghouse was built by Framatome, which is the predecessor to Areva under licence from Westinghouse, so we well know Westinghouse over the years. But I can’t comment on why they have or haven’t decided to put in a bid. The RFI doesn’t stop them from later bidding on the main process, so it’s all about scheduling and timing and the RFI closes ... this was quite important to us, we wanted to make sure there was a response to our request for information and this response is very positive in our view. It is virtually everybody we can think of and our view is that we hope this will give us a very good basis to confirm our views on the way the commercial process will go forward.
BDTV: Share some of those views with us in terms of the kind of timing and affordability guidelines you have in place.
DN: There are a number of issues there. Clearly the IRP [integrated resource plan] process is going in parallel, particularly with the resource plan. We have a section 34 determination based on the previous IRP which is still the gazetted one. Our view is that the kind of questions that we’re trying to get detail out of is that if you build nuclear power stations — they’re quite expensive things to build. We all know that. They pay back to themselves, we think, quite nicely, but the question is how fast do you build them? Do you build them all in one year? And the simple answer is that if you build them at what I call the ideal pace, you get the lowest cost and the greater saving of the machines. If they’re too close together you end up having to have two teams building it. That will be simplistic — if you end up building too far apart then you almost demobilise the team between the machines.
So if you build them five years apart — you won’t keep any industry going for five years waiting for the next order. So the trick we’re asking for is, Okay what is the best way to approach this to maximise local content, to establish local industry and to get the cash flow for the country, in a sense that we actually have good payback on the machines? We don’t over invest in the beginning. But it is worth bearing in mind that these are 60 to100 year life-expectancy machines.
BDTV: So how quickly does it then move from a request for information to a request for proposals? What is the process there?
DN: The process then will be ... essentially, what we’re seeing now is that we’ve clearly done a large amount of homework on this issue. This is not new to us as an area. And clearly we have views on what the answers will be that we expect to get, but clearly they’re views that we have from reading open literature and surveys we’ve done. What we’ll now get, hopefully, is, at the end of April, we’ll get this information from these companies which we will then look at and essentially, depending on if it has any surprises in it — clearly somebody comes and says we think you do half the price, you’re thinking of them, might change some views. But it will confirm, hopefully, the views that we’ve got or may amend them. We’re then going to have to take the request or proposal we’ve now got, we’ll see if that’s still valid, and I believe it will be, but we’ll have to see. And then when we’ve got that, take that to the process to get the right approvals to issue the RFP (request for proposal). Which could be as early as the middle of the year.
BDTV: Do you have any ballpark figures as yet as to what it’s going to cost us to add that 9,600MW of nuclear power to the grid?
DN: Yes ... the classic international price at the moment being quoted for a new build nuclear plant is in the order of $4,000 to $4,500 a kilowatt. What’s worth bearing in mind is that domestic construction, that is, that when you look at the Chinese or Russians or the Koreans or the Indians with their domestic build programme, where they’ve got a structured build programme going, that price comes down from about $4,000 to $4,500 for the early machines down to about below $3,000 for the follow-on machines. That’s the key question is — how fast do we get down that line and how fast? But it’s essentially ... therefore, the ideal would be to assume that we going to get, if we say that it’s $4,000 a kilowatt then it will be about $40bn for the fleet of machines. I said to you a unit, and this is a quote ... the Russians quote that it’s about $5bn a reactor for the first couple of reactors.
BDTV: Would you consider a smaller build proposal or a smaller build programme depending on the costs that are then advanced by the companies tendering for this?
DN: The size of the build programme is a function of national policy at the moment.
BDTV: Although it does seem to be Eskom who wants to lead the process?
DN: Eskom is a utility which runs our current nuclear plant and that’s a national policy, so Eskom is the only operator, so therefore, logically, Eskom should be leading it. But the quantum is a function of the IRP and one of the things that is important to realise is that in all the IRP suggestions that have gone forward, whether it’s the one that we think is the most likely one which is the sort of 2027 start of the first machines coming online or whether it’s 10 years later, in each case the build programme that it looks at ... once you get into the build programme, it looks about one per year being built. It’s worth keeping in mind we have well over 30,000MW of old coal-fired power stations — and old being between 20 and 40 years old — which will need replacing at some point in the future. We can debate whether there are 50-year or 60-year life and there’s lots of debates in that area.
Essentially, in the window we’re looking for forward, the key thing is you don’t commit on day one to buy all the nine sets. So there’s never been a suggestion that we’re going to go out and sign a cheque for 9,500MW nuclear plant, please give us $50bn let’s move on. It doesn’t work that way. You almost certainly go out of the budget for the first two reactors with enabling agreements to allow us to link into the follow-on ones. And the reason that’s important is because if you don’t do that, then the danger you’ve got is that when you go back for the second two they say, Oh that’s nice, we’ve now got you captured, we’ll charge you more for the second two than the first two. So you’ve got to get some negotiation up front. That’s why you’ve got to think about the programme, but you order the first two and then you come along a year or two later and think how’s it going, we’ll order ... see how the load growth goes.