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Cape Town – Sums done to prove that the cost of building 9 600 MW of nuclear power stations in South Africa will cost around R250bn simply do not add up, says a Fin24 user.
READ: Fin24 readers speak out against nuclear energy
READ: Nuclear adviser responds to his critics
Fin24 user Arnoud Madlener did some additions to counter the assessment done by energy analyst Ted Blom, who said the programme should cost about R250bn.
He writes:
After reading all kinds of costs relating to the government’s nuclear procurement programme, I felt compelled to put the information below on paper regarding the capital cost (not the operational cost) of this ambitious nuclear power plan.
On December 27, Fin24 and City Press quoted Blom as saying that nuclear won’t cost R1trn, but can SA even afford R250bn?
I believe that even the high number of R1trn is too low and R250bn is impossible.
The objective of this contribution to the debate is simply to put the capital cost of nuclear in perspective. The issue of nuclear in the energy mix, affordability and local content is very complex and therefore requires a separate debate.
Nevertheless, the capital cost of nuclear is arguably the most important parameter to consider. I have based my assessment on information available in the public domain and from reliable sources. I have for the good order included their references.
In this regard, I would like point to a US company called Synapse, Energy Economics, which performed a study in July 2008 concerning the capital cost (overnight construction cost) for a 1 100 MW installed nuclear PWR (pressurised water reactor) power station, which was estimated to be $17.8bn. This figure is based on the following statement in the report:
“Florida Power & Light (FPL) announced a range of overnight costs (i.e., no escalation or financing costs) for its two proposed nuclear power plants (total of 2 200 MW) as being between $3,108/kW and $4,540/kW. FPL also estimated the total cost of the project (including escalation and financing costs) as being between $5,492/kW and $8,081/kW. These estimated costs translated into a projected total cost of $12.1bn to $17.8bn, for just two 1 100 MW plants.”
It makes sense to use the highest figure, which is still likely to be very optimistic if one considers the South African logistics, politics (Medupi is a good example) and the date of the report (escalation from 2008 to construction).
Assume an optimistic x-rate of R15=$1, (the x-rate will most likely be far worse when construction commences). Then, a simple calculation shows that the estimated capital cost for 9 600 MW nuclear new build will be:
(9 600 MW/ (2*1100MWe)) x $17.8bn x 15R/$ = R1 165bn or R1.2trn.
Therefore, the estimate of R1trn is in my opinion too low and R250bn is a fallacy.
In addition to the above, the decommissioning costs need to be considered, which is a major liability but can fortunately be capitalised over the life time of these stations. Exelon (US) estimated that the decommissioning cost of its PWR Zion 1 and 2 in 2007 was $900m to $1100m.
Roughly, the decommissioning cost can then be estimated on (9 600 MW / (2*1 100 MW)) x $1100m x 15R/$ = R72 000m or R0.7trn, which is about 60% of the station cost.
Therefore, the capital cost including decommissioning for 9 600 MW will rather be R 1.9trn (most likely to be higher) for the 9 600 MW nuclear installed capacity, although R0.7trn can be capitalised over the life of the station.
Degradation to junk status of the SA economy will escalate the x-rate and the government borrowing rate significantly and thereby increase the risk of SA’s bankruptcy.
I believe that this is one of the major risks to the success of government’s nuclear project.
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Disclaimer: All articles and letters published on Fin24 have been independently written by members of the Fin24 community. The views of users published on Fin24 are therefore their own and do not necessarily represent those of Fin24.
