nuclear-news

Financial problems for South Africa in planned nuclear deal

Nuclear economist warns SA will ‘run into problems’http://www.bdlive.co.za/business/energy/2014/09/19/nuclear-economist-warns-sa-will-run-into-problems BY CAROL PATON, 19 SEPTEMBER 2014,  SA’s last tender to build nuclear power stations was canned in 2008 after credit rating agencies made it clear that they would downgrade Eskom to junk if it went ahead, Steve Thomas of the University of Greenwich said in a lecture on nuclear economics at the University of Cape Town on Thursday.

Details of Eskom’s nuclear tender in 2006 have not been fully disclosed, except that Eskom dropped it for being too expensive.

Eskom had expected a construction price of $2,500/kW but bids came in at $6,000/kW. It was also made clear, said Prof Thomas, that ratings agencies demanded “unconditional, timely guarantees” across all Eskom’s debt stock for it to maintain its credit rating.

Prof Thomas, visiting as guest of antinuclear lobby group EarthLife, said he expected SA’s nuclear endeavour to run into the same problems. Financing of nuclear projects had become highly risky and was regarded as credit-negative by ratings agencies.

“In the past, financing was not a problem. Utilities were blue-chip stock. They built plants and the costs were passed on to consumers. From a banking point of view this was ideal,” he said.

But accidents such as Chernobyl had led to increased costs in nuclear construction as additional safety measures must be included. Cost and time overruns had led banks to see nuclear power as too risky.

New regulatory approaches, in which prices are set by an independent regulator that assesses their fairness, have made it more difficult for utilities to pass on price increases to consumers.

“Of 70 nuclear power plants under construction, 50 are significantly late and the odds are against you to build to time and cost. So if banks won’t take the risk, then consumers must. But regulators are less likely to say consumers should sign a blank cheque. “For most countries that is not a viable option,” he said.

The remaining option was for taxpayers to provide the guarantees, should the nuclear vendor or utility go bankrupt.

n the UK, where a new plant is under construction at Hinkley Point, the British government has provided £10bn in loan guarantees, equal to 62% of the estimated cost.

“Unless SA consumers or taxpayers can guarantee the loan, a nuclear deal will not be financeable.”

September 20, 2014 - Posted by Christina Macpherson | business and costs, South Africa