Avoiding credit downgrade is vital to financing any nuclear project
SA could probably afford to build large-scale nuclear power, but it depended on a number of different factors, speakers at an Africa Energy Indaba panel on financing the nuclear programme said on Tuesday.
But they agreed that attracting financing at a reasonable interest cost depended on the country’s avoiding a credit downgrade and reducing its political and economic risks.
Delegates were discussing the government’s determination to build 9,600MW of new nuclear power, despite criticisms and legal challenges on the grounds of its affordability, transparency and whether there was a real need for it.
Mike Peo, head of infrastructure, energy and telecommunications finance at Nedbank, said pricing a loan for a small rooftop solar installation or a five-year energy project required very different assumptions from financing a nuclear plant that took 10 years to build and had a 70 year operating life. The longer the period for which demands and costs had to be projected, the more likely it was that those projections would be wrong.
During the 10-year construction of a nuclear plant, capital repayments and interest on funding had to accumulate as no revenue was generated so the tariff charged for that power had to be relatively high at the outset.
There was also a risk of currency depreciation when funding was in a hard currency like dollars while tariffs were charged in domestic currency, Peo said.
Prof Dawid Serfontein of the University of the NorthWest said whether the nuclear power plant would be priced in dollars would only emerge from the tender documents, which he had not yet seen. If the vendors were South Korea or Russia, whose currencies had depreciated against the dollar by as much as, if not more than, the rand in the past five years, they might price their offering in their own currencies.
Peo said the burden of financing nuclear power was no longer borne solely by governments as it had been in the 1960s. There were numerous other options, including financing by a private-sector consortium paid in electricity for its own use or re-sale in a liberalised energy market. The cost of nuclear power could also be justified by its effect on job creation and economic growth.
Knox Msebenzi, MD of the Nuclear Industry Association of SA (Niasa), said the figure of R1-trillion for 9,600MW of nuclear power being cited in media reports was not based on any official data. Some of the public’s aversion to the nuclear programme was based on mistrust of President Jacob Zuma or ignorance about nuclear safety but it was couched as an argument about affordability.
Mark Tetley, MD of insurer Price Forbes’s marine, energy and natural resources international division, said a major problem for nuclear build programmes was their delays, arising from the massive scale of the projects, and the fact that plants tended to be over-regulated and overdesigned for safety. Much of this arose from mistaken public perceptions about the dangers of nuclear radiation.
Insurance could cover some of the construction and operational risks, making these plants easier to finance, but some delays were not insurable. For SA. smaller, more modular nuclear plants could be a far less risky and complex option from a regulatory, financing and operating perspective than a large-scale nuclear build programme, Tetley said.
Rob Jeffrey, an economic risk consultant, said SA had to take a long-term view on nuclear energy.
Three solar plants with a 20-year life would be needed to deliver the same solution as a nuclear plant with a 60-year life. Because of issues such as dispatchability (not being able to deliver power when needed), more renewable energy capacity had to be built than nuclear capacity to deliver the same amount of power, which made nuclear far cheaper.