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Delays in nuclear projects drive costs - expert

Feb 22 2017 07:01
Lameez Omarjee

Johannesburg – Nuclear power plants operate cheaply and efficiently. However, it is the construction of the plant which has the greatest bearing on the high costs, said an expert.

The building of a nuclear plant is riddled with risks and that’s what drives cost, said Mark Tetley, managing director of marine, energy & natural resources international at insurance firm Price Forbes. He was speaking during a panel discussion on financing nuclear power programmes, at the Africa Energy Indaba on Tuesday.

Much of the risk is associated with delays to the projects and the scale, he explained. “The scale of the plant(s) is enormous, and it takes long to build. It costs a lot of money relative to other power types,” he said.

The scale and duration of projects is long because there is a lot of regulation and design “overkill” associated with nuclear, he added. “Nuclear power stations are over regulated and over designed. This generates huge costs.”

Tetley added that insurers had been covering risks for power sites since the 1950s, from a construction and operational basis so there is no difficulty for the market to cover nuclear projects.

The role of the insurer is to identify the risks faced by different stakeholders and try to mitigate them. However, some problems fall outside of an insurer’s mandate, said Tetley. “Some delays are not insurable, but some are.”

For operators and lenders, it is key to protect revenue and to ensure that in cases where the project is delayed, revenue is protected for the duration of the loss in time.

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Tetley also said that insurers work to support industry through design, by easing issues and protect revenue loss associated with that.

Decommissioning of nuclear power plants also carry risks, he added.  “As a plant operates it builds a bank of decommissioning cost.”

Tetley added that there is a misunderstanding of the real risk nuclear poses to society. This in itself is a risk to be mitigated.

“A lot of what people understand about nuclear is driven by fear of manmade radiation,” he said. As a result, regulation of the system is designed for these perceptions.

Knox Msebenzi, managing director at Nuclear Industry Association of South Africa (Niasa) explained that it was important to manage perceptions about nuclear. “Different perceptions of the same thing must be managed … This thing is about perceptions, how we perceive things and how we accept risks” he said.

Msebenzi added that the perceived risk around nuclear is very high, which is driving costs in the industry.

He said that these perceptions also contribute to project delays. “The project is  delayed because of litigation, especially in a country with a vast democracy and so much freedom of speech.”

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If the issue reached the Constitutional Court it would result in an expensive programme, he said.

He added that the project was plagued with political baggage. “People have issues with the government but do not come out and say they do not trust Zuma’s government to do it,” he said. Instead, they opt to look for a rational argument about money and affordability.

Msebenzi said that there was a lot of “noise” in the system about where the cost to carry nuclear would come from and that it would cost R1tr. “People say it will bankrupt the fiscus. Who says funding would come from Treasury?” he added.

Msebenzi said perceptions about the industry need to be managed, otherwise South Africa can “kiss the nuclear programme goodbye”.

Read Fin24's top stories trending on Twitter:

eskom  |  matshela koko  |  nuclear  |  finance  |  power generation  |  banks  |  energy
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