The Credit Crunch and a Nuclear Renaissance: Is S. Africa the First of Many?

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South Africa just dropped its plan to build 2 or 3 new nuclear plants. The state-owned firm Eskom was looking to borrow roughly $15 billion USD (150 bil. SA Rand), and, having faced a recent cut in its credit rating, was unable to proceed. Areva and Westinghouse were competing to build 3,300MW(e) or 3,420 MW(e) of new capacity,respectively, to meet South Africa’s thirst for more electricity.

It will be interesting to see whether this is an event entirely idiosyncratic to South Africa, or whether global credit woes will put the kaibosh on other countries’ plans to expand or create their nuclear power infrastructures. Nuclear power plants come with huge price tags, and are financed in a number of ways from bond issues to bank loans to combinations of the above that all rely on willing lenders with available cash. (Taxation is often another possibility for state-owned utilities, but not one without difficulties.) The $1,500 – $2,000 per kilowatt estimate (translating to $1.5 – $2 billion [USD] on a  typical 1000MW(e) plant) that is often quoted doesn’t account for the costs of financing the plant or the all-to-common costs or for going over schedule, let alone other substantial incidental costs incurred before the plant starts making any money.

It should be noted that, while South Africa is postponing its nuclear expansion, others are simultaneously going forward. Turkey said that it will make a decision by the latter half of this month on a bid from a Russo-Turkish joint venture to build that country’s first plant. Even Singapore announced that it was interested in the possibility of nuclear power, though it would probably have to wait for some of the autonomous underground plants that are being developed- given a high population density and no ground to spare.

Lest one think that the stories mentioned in the proceeding paragraph indicate that the nuclear renaissance is alive-and-well, there are some counterpoints that should be considered. First, it is not the first time that Turkey has gotten well into the acquisition process. Daniel Poneman, in a book published in 1982 called Nuclear Power in the Developing World, wrote about how a Turkish deal for a nuclear power plant fell through in the late 1970’s as they were in negotiations to sign a contract. Second, the Singaporean case is typical of many countries that see all the benefits of nuclear power, but have trouble fathoming all the difficulties until they get into the meat of the process. This is not to say that nascent nuclear power states’ intentions should be discounted. While countries like Turkey, Indonesia, and Bangladesh may have a long history of talking up nuclear power reactors without actually obtaining them, that does not mean that things will not be different now. After all, while  Santayana might have been correct that “those who cannot remember the past are condemned to repeat it”, it is also true that ‘he who makes judgements solely on history is bound to suffer great surprises on occasion.’ The world is a different place both in that there is a great deal of concern about carbon emissions and some of the emerging market countries with big populations are developing into huge economies. Having said that, a history of not following through constitutes risk, and, while lenders may like the rewards that accompany risk, these risks are of a company-killing scale.

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Tags: Areva, Bangladesh, Economics, economy, Electricity, Energy, energy security, Eskom, Nuclear, Nuclear Power, Nuclear Renaissance, Singapore, South Africa, Turkey, Westinghouse