nuclear-news

South Africa’s murky and uneconomic nuclear deal

A nuclear deal as clear as mud October 7 2014  Cape Argus, By Jasson Urbach The decision to “go nuclear” in SA has more to do with politics than economics, writes Jasson Urbach.

South Africa is “going the nuclear route”, according to the Department of Energy’s acting director-general, Dr Wolsey Barnard. But given Eskom’s dire financial predicament, the government is opting for a “vendor-financed” option.

We should applaud the fact that Eskom, probably, will not be building South Africa’s next power station.

The delays and cost overruns associated with Medupi and Kusile demonstrate it’s not competent as a project manager for the building of such large plants.

However, the decision to “go nuclear” has more to do with politics than economics. Nuclear is costly – given the dramatic fall in gas prices, a private enterprise would not build a nuclear plant in the current operating environment. And nuclear will take too long to deliver – South Africa needs power sooner rather than later.

Proponents of nuclear over other energy sources argue it is cheaper. Indeed, nuclear fuel costs are low, as are variable running costs, but who can predict what the “relative cost” of suitable nuclear fuel will be in 10 to 20 years’ time, let alone 50 to 60 years?

Compared to, say, gas or coal-fired plants, nuclear power plants are more expensive to build. Especially when the significant expenses involved with decommissioning a nuclear plant are factored into the overall cost.

Proponents of nuclear power may point out that the government securing a vendor-financed agreement means “build now, pay later”.

Under such an arrangement, Eskom is likely to enter into a power purchase agreement with the owner of the nuclear plant and be committed to purchasing power at a predetermined tariff……….

South Africa’s outdated power model, where a single entity is responsible for all of the generation, transmission and a large part of the distribution, has been abandoned in every commercially competitive country worldwide.

Independent power producers are eagerly awaiting the opportunity to build, own and operate power stations. They will not start supplying electricity to customers, though, if Eskom retains the power to be referee and player in the market.

The government should create a policy environment that provides the right economic incentives to attract companies to use and develop resources.

It needs to establish an independent transmission system and market operator so that energy companies can have unconstrained access to the grid.

With the right economic environment a multitude of independent power producers will compete to deliver sufficient and affordable energy to our growing economy.

* Jasson Urbach is an economist and director of the Free Market Foundation. http://www.iol.co.za/capeargus/a-nuclear-deal-as-clear-as-mud-1.1761151#.VDWvAmddUnk

October 8, 2014 - Posted by Christina Macpherson | politics, South Africa