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South Africa Nuclear Expansion to Face Significant Hurdles

Proshare

Friday, July 07, 2017 11:45 AM/BMI Research

BMI View: South Africa’s nuclear agenda will face headwinds over the coming years stemming from legal obstacles, public opposition, financial constraints at Eskom and construction delays typically associated with nuclear power plants. We believe that the government will remain committed to its nuclear expansion; however, we do not expect any new nuclear capacity to come online over our 10-year forecast period.

We maintain our view that progress with South Africa's nuclear agenda will be slow over the coming decade, despite strong government commitment to expanding the country's domestic nuclear industry.

The government has highlighted its intention to push on with its nuclear agenda on numerous occasions, most recently in April when it was reported that the head of South Africa's nuclear company, Necsa, would request proposals for the development of new nuclear reactors as early as June (see 'Quick View: Government Mixed Messages To Prolong Power & Renewables Uncertainty', April 12).


South Africa currently has 1,830MW of nuclear capacity online (the Koeberg 1 and 2 reactors) and state-utility Eskom aims to bring an additional 9.6GW online.


Despite these lofty ambitions, we expect the role of nuclear power in the South African power sector to remain limited as thermal power sources, namely coal, dominate the power mix.


We do not forecast any new nuclear capacity to be commissioned over our 10-year forecast period due to a number of factors.


Legal obstacles and public opposition will remain a key risk to the government's plan to contract new projects, and we believe that Necsa's timeframe to procure projects as early as June 2017 is unlikely, particularly given the recent court ruling.


In late April, the Western Cape High Court declared the government's procurement process – in relation to the nuclear agreements reached with Russia, the US and South Korea – unlawful.


The case was brought against the government by Earthlife Africa Johannesburg and the Southern African Faith Communities' Environment Institute (SAFCEI), which stated that the government's nuclear agenda has to be debated in Parliament and there needs to be public participation before a decision can be made.


We do not believe that this setback will deter the government's plan to push on with its nuclear agenda; instead, the government is likely to argue that it does not need public or parliament backing until a formal procurement contract is in place, rather than just a cooperation agreement.


Even if South Africa does secure contracts for new nuclear capacity over the coming year, we expect the development of projects to be hindered by the inhibitive costs of the technology, delays to construction and cost overruns, which
are commonplace with nuclear projects across the world.

The significantly higher costs associated with nuclear technology compared to coal-fired or renewable electricity generation mean that the financial headwinds facing Eskom, and the government's weakening ability to provide support to the company, will place significant financial strain on the country if the nuclear power plants are pursued.




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