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SA slows nuclear plans as rating reviews loom

Nov 22 2016 11:25
Paul Vecchiatto and Mike Cohen

Cape Town - South Africa delayed plans to build nuclear power plants as economic growth stalls, easing spending concerns as the country faces the risk of being cut to junk by credit-rating companies. The rand strengthened against the dollar.

Under a new timeline, the first nuclear power is expected to come on stream in 2037, with a total 20 385 megawatts of nuclear energy added to the national grid by 2050, according to the “base case” scenario outlined in a presentation on the Department of Energy’s updated Integrated Resources Plan.

The proposal, released in Cape Town on Tuesday, also estimates as additional 37 400 megawatts of power from wind, 17 600 megawatts from solar plants, 35 292 megawatts from gas and 15 000 megawatts from coal by 2050.

The government previously said it wanted to generate 9 600 megawatts of energy from as many as eight reactors that should begin operating from 2023 and be completed by 2029. Price estimates had ranged from $37bn to $100bn.

While President Jacob Zuma has championed the nuclear programme, the Treasury has cautioned that the country may be unable to afford new reactors at a time when the economy is barely growing and the budget deficit needs to be curbed to fend off a junk credit rating.

“Gas and renewables forms the biggest chunk of installed capacity by 2050,” the Department of Energy said in the presentation. “There is significant reduction in installed capacity from coal.”

Ratings risk

The rand gained as much as 1% against the dollar, and was 0.8% stronger at 14.1366 at 10:19.

The decision to push out the start of the plan to build nuclear plants may ease some of the concerns of rating companies about significant cost increases at a time when the National Treasury is trying to control spending to bring down the fiscal deficit.

“The ratings agencies biggest concern with the nuclear plan would be the cost of it, and the amount of debt that the government has to carry for it,” Christie Viljoen, an economist at KPMG in Cape Town, said by phone. “The ratings agencies view is over three to five years, so this makes a positive change to that outlook.”

The energy department, which has invited public comment on the proposals, also outlines two alternative scenarios that make different assumptions about costs, carbon emissions and the nation’s ability to generate additional renewable energy.

One envisions 25 821 megawatts of nuclear power added to the grid between 2026 and 2049, while the other sees the production of 5 436 megawatts of new atomic power coming on line starting in 2037.

The energy plan will be refined in March next year and then submitted to the cabinet for final sign-off.

Power cuts

Moody’s Investors Service and S&P Global Ratings, which are due to deliver revised assessments on the debt in the next two weeks, have cited concerns over spending and rising debt as risks for their assessments. South Africa is ranked at the lowest investment grade level by S&P, while Moody’s rates its debt one level higher.

Eskom, the state-owned utility, has said it could use the more than R150bn it will accumulate in reserves within 10 years to build new reactors. The utility operates Africa’s only nuclear power plant - the 1 800-megawatt Koeberg facility near Cape Town, which began operating in 1984.

Rosatom, Areva, EDF SA, Toshiba’s Westinghouse Electric unit, China Guangdong Nuclear Power and Korea Electric Power previously expressed interest in building new reactors in South Africa.

South Africa experienced power cuts for about 100 days last year, as demand exceeded supply. Energy shortages eased as new generating capacity was bought on line, maintenance backlogs were addressed and a stagnating economy curbed power demand.

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department of energy  |  nuclear power  |  economy  |  energy


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