Share

Power mad

accreditation
As Japan’s post-earthquake emergency action to contain damage at one of its nuclear power plants unfolded – and as world leaders re-evaluated nuclear power generating and elevated renewable energy to their priority lists – President Jacob Zuma’s Cabinet signed off on South Africa’s first 20-year energy plan. However, SA’s integrated resource plan (IRP) – arguably the most important policy document Zuma’s Government has dealt with to date – is strangely out of kilter with the direction the rest of the world is taking. While the Chinese and others are re-evaluating their plans for nuclear energy, SA doesn’t show a strong enough commitment to thoroughly re-examine the safety of its plans.

SA preserves significant expansion in nuclear and coal-fired power and, say some critics, looks set to incur huge future costs and penalties. The secrecy about the final document and fudged numbers has also started raising questions about how vested business and geopolitical interests have moulded SA’s plan.

Cabinet announced the IRP’s approval, saying the final “adjusted” plan, which will only be made public when promulgated next month, reflects the “need to diversify the energy mix” away from coal. Public utilities followed up with a public relations exercise, which emphasised how crucial nuclear power is if SA’s future energy demands are to be met and how renewable energy targets had been dramatically increased in the final plan.

The draft IRP (released for comment last year) copped severe criticism for its coal and nuclear expansion, for its flawed modelling and for its un-ambitious renewable energy and energy-efficiency targets. It was also criticised for failing to include critical cost calculations. Government estimated the draft would cost R856bn to implement – almost equivalent to Government’s R811bn revenue collection for 2011/2012.

Cabinet’s approval of the final IRP wasn’t followed up by cost estimations. Only specific but limited figures were released. Government said previous projections of new energy sources to be derived from renewable energy had now increased from 30% to 42%. New coal-powered generation had been reduced from 16% to 15% and nuclear from 25% to 23%.

But, critically, those percentages don’t speak to the final mix of energy output in 2030 at all. They refer specifically to “new” energy developments over the next 20 years. They also, say independent energy experts, speak of electricity “capacity” (potential power) and not actual power output. There’s a significant difference between the two.

Electricity output is always significantly lower than rated power generating capacity. In other words, Cabinet’s stated renewable energy figures don’t mean that 42% of all new power output in the next 20 years will be from renewable energy sources: in fact, energy from renewables is likely to be far lower, especially considering State budgets are likely to be usurped by coal and nuclear builds.

The 1% decrease on new coal-fired power stations Government emphasised after the IRP’s approval is also misleading. It masks what’s essentially an intended expansion for coal, as proposed in the draft IRP. Even if new coal-powered sources are reduced from 16% to 15% over the next two decades, that “new development” is likely to be over and above the new, already contracted, Medupi and Kusile coal-fired power stations. The draft IRP proposed at least one other additional Kusile-sized coal-fired power station for SA by 2030.

Finweek repeatedly asked for interviews with Energy Minister Dipuo Peters, as well as her deputy director-general in charge of electricity, nuclear and clean energy, Ompi Aphane. But after four days of putting in such requests, the minister and the DDG remained unavailable to comment or clarify questions about SA’s final energy mix and output year-on-year leading up to 2030.

“Government is trying to avoid close scrutiny of those figures. We have been asking for the energy mix year-on-year since October (release of the draft IRP) and still haven’t got it. Getting these figures doesn’t require extra work. They’re part of the dispatch regime used to model supply,” says WWF’s Richard Worthington, who says it’s clear Government, as it was in the draft IRP, is intent on maintaining and expanding coal-fired power generating while trying to exaggerate its renewable energy plans.

Worthington believes the ultimate effect of the IRP will be to consistently increase the carbon gas emissions SA has committed to reduce in binding international agreements. While SA’s per capita emissions are already higher than those of China and India, and exceed the global average, Idasa senior researcher and energy specialist Hilton Trollip questions Government’s secrecy and lack of clarity about the plan, especially figures detailing its final 2030 energy mix.

While SA could be in for some uncomfortable questions at the COP17 climate change conference it hosts in Durban later this year, the bottom line is that if Government makes the wrong energy choices and budget allocations now, it will mean that in 2030 SA’s citizens will look back and ask themselves how they chose such a different (energy generating) path to the rest of the world. Trollip says they’ll ask how they got into a situation where they have to pay such hefty carbon emission taxes and how they ended up with a “white elephant, uncompetitive, stranded economy”.

“In 2030 we would’ve spent another R140bn on Kusile and R140bn on Medupi, as well as others (the draft IRP2 planned for new coal generating the size of at least one more coal-fired plant equivalent to Kusile by 2030) but we don’t know how many because they won’t say. The new power stations will each still have at least a 30-year lifespan left in 2030 and will spew carbon dioxide. SA will get taxed. But we’ll have paid for it and so we’ll use what the rest of the world considers by then to be a dinosaur… Renewable energy and energy efficiency have to be put in the mainstream,” says Trollip, who believes SA’s current choices are going to carry “gobsmacking and mindboggling” future costs, even when it comes to coal-fired power stations.

While the Energy Department has argued coal is an abundant resource SA must make use of to contain costs and keep the lights on, coal also has cost risks that haven’t been factored in.

Says Trollip: “Until recently, SA has been relatively sheltered from international coal prices. But those days have drawn to a close. That’s led to recent attempts by Eskom to get Government to regulate SA’s coal market so that Eskom can prevent demand for export coal impacting on domestic coal availability and prices. Nevertheless, it’s a fact Eskom has experienced recent coal price shocks and it could well be facing much more severe shocks in the future: the costing of that risk is not factored into the IRP.”

Government has been insistent the IRP is a “living document” and not cast in stone: it will and can be changed as and when new technologies develop. However, the reality is that once an energy plan such as the IRP is approved – and once the State is locked into huge fleet contracts for the relevant new coal or nuclear power stations – it will be difficult, if not impossible, to get out of them. Furthermore, if funding is committed to those power stations, that spending will hinder any potential for investment in renewable or cleaner energy technologies as and when they come on line.

Questions of final costs are particularly difficult when it comes to the complex fleet procurement contracts necessary to expand nuclear power generating. One of Government’s motivations for rushing the IRP process has been the “urgent” need to order the nuclear fleet in time for it to become operational in 2023.

Minister Peters – who confirmed to delegates at a conference on electricity in Cape Town that the Japanese crisis hadn’t affected Government’s plans – says the objective is to expand SA’s nuclear energy supply from 6,5% to 14% of the country’s energy mix by 2030. That’s exactly the same percentage for nuclear power proposed in the draft IRP. Achieving that 14% in output would mean providing an additional 9 600MW of nuclear power over the next 20 years. That’s equivalent to five or six new power stations the size of the current Koeberg.

Eskom and pro-nuclear energy analysts caution against knee-jerk reactions against nuclear power: it argues that this is a clean, consistent source of power that’s going to be an essential part of any economy’s future energy mix. It’s a case of getting the balance of costs and different technologies right. Costing different energy technologies, says the Electric Power Research Institute, is part art, part science. There are a myriad of variables involved in measuring costs and each technology has markedly different capital, operational and maintenance costs. For example, coal has relatively low capital costs but the fuel, maintenance and operating costs are high. An open cycle gas turbine is very cheap to set up but its running costs are prohibitive.

Independent Democrat MP Lance Greyling says the cost of building nuclear power stations is more unpredictable than most. While he argues that the potential for disaster cannot be costed, he says the capital and running costs of nuclear are likely to escalate rapidly in the near future as pressure to improve nuclear safety increases.

Before Japan’s earthquake and subsequent tsunami-induced nuclear problem occurred, energy analyst Rod Gurzynski estimated the total cost of a 1 600MW nuclear power plant would come to around R100bn “all-in”. He’s warned the Energy Department’s cost estimations for its IRP don’t seem to consider the significant nuclear decommissioning costs or long-term, high-level waste management and storage costs. He reckoned the draft IRP paints an entirely unrealistic economic picture.

Greenpeace nuclear expert Rianne Teule says the timing of SA’s approval of an IRP with significant nuclear expansion is “bizarre” – given Japan’s problem at its Fukushima nuclear plant and given how the subsequent nuclear debate had prompted Switzerland, China, Britain and the United States to announce nuclear reviews and suspensions.

She says nuclear energy in SA “makes no sense”. The country should use the time and money to exploit its huge potential for renewable energy. For example, it has one of the highest solar densities in the world.

Teule says Greenpeace modelling has already shown renewables and efficiency could sustain SA’s demand, including industrial demand.

“In the light of the Japanese nuclear crisis, governments and people worldwide are asking themselves if nuclear power is worth the risk and human suffering. On the contrary, Zuma’s Government is asking the nuclear industry where to sign – while South Africans aren’t being consulted at all.”

She rejects Eskom’s arguments that SA will employ safer nuclear technology, saying the basic reality of nuclear power is that it’s inherently unsafe and difficult to control, especially when unexpected events require engineers to cool the very hot nuclear reactor core and spent fuel with power that’s unavailable.

Walt Patterson, of the London-based foreign affairs think tank Chatham House, says there’s no reason why any government should need to build nuclear power plants given other sources of energy generation. He says nuclear power is the slowest, most expensive, the narrowest, the most inflexible and the riskiest in financial terms.

Independent energy expert Brad Smith highlights how global leaders are also beginning to see the job creation merits of renewable energy. A global switch from coal to renewable electricity generating won’t only avoid 10bn t of CO2 emissions it will also create 2,7m more jobs by 2030. That dovetails with Greenpeace modelling, which shows that for every job lost in the coal industry, three can be created in the renewable power industry. SA’s draft IRP2 didn’t mention job creation.

Greyling says SA will be left behind unless it pays more than lip service to the energy generating and efficiency methods the rest of the world is now fast-tracking. SA’s competitors and fellow BRICS member states – Brazil, India and China – are already rapidly expanding their industries linked to renewable energy and efficiency.

For example, Brazil’s energy plan features a 290 TeraWatt saving through an efficiency drive. India is crafting an ambitious National Mission on Energy Efficiency strategy that will avoid 19 598MW (almost 20GW) of new investment in electricity supply.

By comparison, SA’s draft IRP demanded a mere 3 400MW of savings through energy efficiency. If that was raised to 10 000MW the new R140bn Kusile power station planned for Mpumalanga wouldn’t be necessary. Eskom figures confirm the 10 000MW target would be possible to reach. In fact, the IRP draft estimated 12,8GW in savings could be made.

In a February presentation to Parliament, deputy director-general for electricity, nuclear and clean energy, Ompi Aphane, defended the draft’s conservative targets, saying: “If we assume we achieve energy efficiency to one level and that doesn’t happen, we then risk no supply to meet demand. The premise is that it’s cheaper to build more than not to have. We’d rather have that capacity sitting there than not.”

While Cabinet assures its critics the adjusted and approved version of the IRP has more ambitious efficiency targets, Greyling says even if that’s so more than nebulous targets are required. Government must enforce efficiency targets with legislation, especially when the 500 biggest companies in SA use 50% of its electricity. Greyling says plans to introduce a private members Bill aimed at enforcing energy efficiency.

However, Trollip says the main problem with the IRP – and its inability to move away from technology that’s essentially going to be considered archaic by 2030 – is it “impacts on vested interests”. “The IRP has been captured by traditional energy companies that have a large influence in SA. In order to overcome that regulatory capture, the State has to step in,” says Trollip.

Providing power isn’t just about lucrative business interests, procurement contracts and expanding electricity supply. It’s also underpinned by geopolitics. That’s especially true for nuclear power. For example, France is very keen to help SA expand its nuclear power output. MPs on Parliament’s energy committee have just returned from a trip visiting French nuclear company Areva. While Government says no deals have been signed with the French – and while it placates critics with promises of a task team to investigate the best nuclear options for SA – it’s difficult not to notice how hard French President Nicolas Sarkozy is campaigning to get SA a permanent seat on the United Nations Security Council.

URANIUM MINERS

Get ’em while they’re hot

Japan earthquake must be viewed as a buying opportunity

JUST WHEN YOU thought it safe to buy Uranium One shares, the stock has once again slumped 50% from its 12-month high of 5155c in early February this year. That’s a major setback – although nowhere near as bad as the devastating 90% collapse that hit its share price between March 2007 and December 2008.

This time around Uranium One [JSE:UUU] is a very different operation from the one put together by former CEO Neal Froneman and sidekick Jean Nortier, both of whom have now moved on. Uranium One [JSE:UUU] is now controlled by Russian state uranium company ARMZ and produces around 10,5m pounds of uranium a year from low-cost mines in Kazakhstan.

As such it’s by far the better choice of the two focused uranium companies South African investors have access to on the JSE, the other being problem-plagued First Uranium. But that’s assuming investors want to buy uranium shares at current melted-down prices caused by the fallout from Japan’s earthquake and tsunami and the resulting crisis at its Fukushima nuclear reactor complex.

The knee-jerk reaction from investors worried this crisis could set back the entire nuclear renaissance worldwide has clobbered uranium stocks across the board, ranging from blue chips such as TSX-listed Cameco through to explorers Australian Securities Exchange (ASX) listed A-Cap Resources. The uranium spot market price tumbled from around US$73/lb immediately ahead of the tsunami to $60/lb at the time of writing.

But uranium supplies are sold overwhelmingly on long-term contracts, as security of supply is crucial for the nuclear-generating industry. That makes the contract or “term” price for uranium the key indicator of market conditions and that’s held up – so far – above $70/lb.

All of which raises the $64 000 question: Is now the time to dive into uranium stocks that have been driven back to price levels that ruled around August/September last year? That was when some investors began buying in on the belief that the long-awaited recovery had finally arrived and a number of uranium stocks jumped between 50% and 100% in a matter of months.

The short answer would appear to be yes. One Australian commentator referred to the situation this way: “Uranium stocks? Get ’em while they’re hot!”

The underlying reality is the world has to have nuclear energy to meet surging power demand from growing economies. Only nuclear power can deliver the quantities needed without the greenhouse gas emissions associated with similar sized coal-fired power stations.

All the alternative clean power technologies being developed – solar, wind, geothermal – can’t deliver the sheer volume of electricity that will be needed.

One of the favourite expressions of the “pro nuke” club is that people who oppose nuclear power can “go and freeze in the dark”. That’s why, as of November 2010, according to Australian firm Resource Capital Research, there were 479 new nuclear reactors planned or proposed globally compared with 435 in December 2009. Currently, there are 441 nuclear power reactors in operation and 58 under construction, while 84 new reactors are scheduled to be commissioned by 2017.

China currently has 159 new nuclear power stations either planned or proposed, followed by India (60), Russia (44), the United States (31) and Ukraine (22).

The worry is that the Fukushima incident could have a wider impact than merely delaying new reactor construction in Japan. The nuclear industry newsletter Ux Weekly reports: “Other countries that could be affected by the development are those susceptible to tsunamis that are currently considering nuclear, such as Indonesia or the Philippines. Other reactors planned in coastal areas, including those in China, may have to be re-evaluated or built with additional safeguards.

“It’s also possible other reactors will be temporarily shut down for inspection or retrofitting as a result of the incident. It’s likely the rate of global nuclear growth will be slowed, resulting in a slower growth of uranium demand.”

But the newsletter adds: “It should still be pointed out that nuclear power is too important a part of the world’s energy mix to be abandoned to any appreciable degree. Oil prices are rising and recent political developments underscore the undesirability of a long-term dependence on foreign oil. Concerns about climate change raise issues with other fossil fuels and highlight nuclear’s advantage in that area.”

Paladin [JSE:PLD] Energy CEO John Borshoff told an investment conference call he also believed any setback from Fukushima would be temporary. Paladin – an Australian company listed on the ASX as well as the Toronto and Namibian Stock Exchanges – is one of the great uranium success stories of the past decade, having developed operating mines in Namibia and Malawi.

Borshoff is known as the “prophet of boom” in Australia for the way he correctly predicted the recovery in uranium prices that took place towards year-end 2010. He commented: “Nuclear power isn’t there because it’s loved but because there’s no credible replacement. Nuclear is a must have.”

Borshoff predicted current uranium spot prices would be “short lived” and would return to their previous levels over the next quarter. He pointed out there had been no impact on the long-term market and blamed much of the drop in spot prices on speculative investors selling physical stockpiles into the market.

So far there’s only been one corporate casualty – ASX-listed junior Mantra Resources, which is developing the Mkuju project in southern Tanzania.

ARMZ has modified the terms of its takeover bid for Mantra after declaring that the “condition precedent to a material adverse change” could not be met given the impact of Fukushima on Mantra.

ARMZ has negotiated its offer down from $8 cash per Mantra share to $7,02/share and modified the option terms with Uranium One.

That’s something Borshoff warned about on his conference call. He said uranium supply was in a state of “fundamental shortage” that the crisis could actually make worse if financial support for junior uranium companies were to dry up, meaning they couldn’t continue with their projects.

In the firing line must be SA’s unlisted Rand Uranium project, in which Harmony owns a 40% stake because it’s currently looking to fund the R2,8bn capital cost. Rand Uranium CEO John Munro said on 4 February he hoped to finalise funding within three to six months “now the uranium market has turned around decisively”.

First Uranium [JSE:FUM] dodged a bullet over Fukushima, as it completed a $52m bought deal financing exercise at $1/share on 1 March. The price dropped to 70c following Fukushima but has since recovered to around 91c. First Uranium has been plagued by operational problems that have caused repeated shortfalls in the revenues management had been counting on to get its two operations – Ezulwini and Mine Waste Solutions – into a sustainable financial situation. It raised $150m in April 2010, which was supposed to see First Uranium through but didn’t, due to further production problems at Ezulwini.

Hopefully, this really is the last call on shareholders, but First Uranium [JSE:FUM] won’t be helped by on-going safety issues, such as the incident on 12 March in which a mineworker died. The mine was shut by the Department of Mineral Resources for five days.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
19.05
-0.7%
Rand - Pound
23.98
-0.3%
Rand - Euro
20.55
-0.4%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.7%
Platinum
894.10
-0.3%
Palladium
996.00
-0.6%
Gold
2,193.32
-0.1%
Silver
24.41
-1.0%
Brent Crude
86.09
-0.2%
Top 40
67,889
+0.3%
All Share
74,074
+0.2%
Resource 10
56,132
+0.9%
Industrial 25
103,554
+0.3%
Financial 15
16,492
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders