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Despite fears, nuclear option should be on the table

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

The very word sparks fear into the hearts of many, and the likely price tag scares everyone else. Despite this, however, South Africa could really use the nuclear procurement package that cabinet sneakily gazetted just before Christmas last year.

Between people worried about safety, people suspicious of corruption, people worried about the economics, the government can find little support for its nuclear procurement programme. Perhaps that is why it quietly gazetted a brief notice approving the procurement of 9,600MW worth of nuclear energy plants on 21 December 2015, while everyone was distracted by the holidays.

It had been signed two years ago, on 11 November 2013, by the former minister of energy, Ben Martins, and the former chairperson of the National Energy Regulator of South Africa, Cecilia Khuzwayo. This notice gave the go-ahead for procuring 9,600MW worth of nuclear energy plants under the aegis of the Department of Energy (and not Eskom).

There are major concerns over this plan. Some of them, like fears about nuclear safety or not-in-my-backyardism, are not valid. Others, about the cost of megaprojects, the economics of nuclear power, and the state of South Africa’s finances, are rather more to the point. Corporate finance specialist DIrk de Vos made the financial case against nuclear in a recent opinion article for Daily Maverick.

Let’s put things in perspective, first. Peak electricity demand in 2004 was 34,195MW. Last year, despite the fact that household electrification is up to 85% from only 34% in 1994, peak demand was lower, at 33,345MW. Since 90% of South Africa’s electricity is generated from coal (with nuclear and hydro each producing 5%), this is good news if you’re worried about pollution or carbon emissions. If, however, you’re worried about the economic growth that is required to lift people out of poverty and create meaningful private-sector jobs, this is a calamity.

There is a reason South Africa’s economic growth has dropped from a sluggish five-odd percent to zero in the last decade, and the global economic recession isn’t the whole story. Emerging market growth has slowed from an average of 7% to 4% per year since 2010, but like global growth, at 3%, it remains strongly positive. Despite its abundance of natural resources and available labour, however, South Africa is among the worst economic performers of all.

Growth requires thriving manufacturing, mining and business sectors, and those require energy. Besides for the physical supply crunch, the National Energy Regulator of South Africa (NERSA) says electricity has seen annual price increases of 19% in the last few years. This depresses the entire economy.

A review of security of supply submitted to the presidency in 2006 states that Eskom needs a reserve margin between supply and demand of 15% to 25%. At the moment, there is not enough to conduct overdue maintenance, and large industrial users remain rationed. This, too, is a crisis.

In short, we certainly need electricity, and as much of it as we can get.

Koeberg, a second-generation pressurised water reactor which is the only commercial nuclear power station in the country (and indeed in Africa), produces 900MW from each of its two units. It was built by what is now Areva, a majority state-owned French energy company. Medupi and Kusile, the large coal-fired power stations under construction by Eskom, together produce 9,600MW. The 92 independent power producers (IPPs) licensed to date will deliver a nameplate capacity of 6,327MW, according to a recent government report on the state of renewable energy.

All of these nominal ratings need to be cut by a capacity factor, however. High capacity factors are associated with base-load power production, for generators that remain online and producing most of the time, while power stations that produce power only intermittently have low capacity factors. The latter can be useful to cater for daily peaks, provided that the power they produce can coincide with demand peaks, either directly or via some sort of storage scheme.

The US Energy Information Administration (EIA) provides data from around the world, which means we don’t have to cherry-pick best-case scenarios. Ignoring anomalous outliers in each case, its data shows that nuclear plants on average produce about 82% of their rated capacity. Fossil fuels average about 46%, hydro achieves 41%, and solar and wind produce about 22% of their nameplate capacity. (A more detailed comparison of capacity factors between different energy sources, but limited to the United States, shows that coal outperforms gas and wind outperforms solar.)

This means 9,600MW worth of nuclear plants will give us at least 7,824MW of actual capacity, whereas Medupi and Kusile will add 4,452MW combined, and the renewable IPPs will deliver a real supply of only 1,392MW. (Besides being fooled by nameplate ratings, don’t confuse capacity with the amount of power produced, which is measured in GWh per year. For example, Koeberg produced an average of 13,668GWh in each of the last three years. That sounds like a lot more than 1,800MW, but it measures a different thing.)

Gas-fired power stations could also contribute to the mix, but the prospect of an abundant domestic gas supply remains a distant prospect, no thanks to raucous but misleading environmental opposition to exploration. The price of natural gas varies widely around the world, and is only weakly related to the international oil price. However, the amount of investment that oil and gas companies make per year is strongly correlated to the oil price. “With crude prices at 11-year lows, the world’s biggest oil and gas producers are facing their longest period of investment cuts in decades,” reports Reuters. This is widely expected to influence whether or not South Africa’s potentially vast shale gas resources will be tapped any time soon.

Those who fear the environmental effects of shale gas drilling should be aware that the Karoo also is host to significant uranium deposits. Uranium mining could have significantly more impact on the environment than shale gas drilling can possibly have, and as the investment in nuclear energy makes a stuttering recovery from its decades-long slump, so the demand for uranium rises.

The government, under president Jacob Zuma and present energy minister Tina Joemat-Pettersson, has reportedly signed preliminary trade and cooperation agreements with several countries, including the United States, South Korea, Russia, China and France. Japan and Canada are reportedly also interested in bidding for the right to build reactors here. If the deal with the Russians is anything to go by, one shouldn’t be surprised. It sounds like a very sweet arrangement for the supplier, with virtually no risk accruing to them, and including extraordinary benefits beyond mere payment.

Writing in, Alec Hogg notes that since the National Development Plan warned about the expense and financing of nuclear power in 2012, the exchange rate has almost doubled the anticipated cost of procurement. This is alarming, of course, but ironically, South Africa’s lack of energy is a major cause of the weak rand. Besides, it is equally true for any other energy projects which require imported materials or skills.

The same argument goes for waste and corruption. These are risks in renewable projects, coal-fired power stations, shale gas extraction, presidential residences and arms deals alike.

As De Vos wrote, mega-projects are almost always over budget and over deadline. But that is not unique to nuclear power either, as evidenced by a study that De Vos himself cited in a previous article.

Alec Hogg put it very well in a short editorial for Construction projects, both private and public, routinely suffer budget and cost overruns. Sometimes by orders of magnitude. “The only defence against cost overruns is not to sign the contract in the first place,” he wrote. “But if you must, then insist on total transparency.”

This is true for any project in which the government is involved.

The safety and environmental fears around nuclear power are massively overblown. The common fear is that “you only get one shot, one chance to blow things up”, but history shows that this intuitive risk-assessment is incorrect and irrational. Public opinion after the accident at Three Mile Island in 1979, which killed or injured nobody, and the disaster at Chernobyl in 1986, were responsible for a virtual halt to nuclear power investments around the world. The meltdowns at Fukushima Daiichi in 2011, following the massive earthquake and tsunami in the region, put a crimp in what was up to then a promising nuclear renaissance. It remains the case, however, that nuclear is by far the safest source of energy on the planet, bar none.

A comparison performed in 2011, on the basis of how many people die per unit of power produced, shows that coal is by far the most dangerous source of energy of all. With 100 deaths per TWh produced (recall that Koeberg generates over 13TWh per year), coal leads oil (36 deaths/TWh), biofuels, peat and biomass (12), and natural gas (4). Solar, wind and hydro are an order of magnitude safer, accounting for 0.44, 0.15 and 0.10 deaths per TWh respectively. And beating all of the above, even counting Chernobyl, nuclear power is responsible for only 0.04 deaths per TWh produced.

The Fukushima meltdown is not evidence of how dangerous nuclear reactors are. It was a 40-year-old reactor, badly operated by a monopoly that cut regulatory corners, and was struck by two concurrent natural disasters, an earthquake and a tsunami, both of which exceeded its design tolerance. That it caused no deaths and very limited environmental radiation exposure is a testament to the safety even of old, second-generation reactor designs. Modern third-generation reactors would be even safer.

A recent roadmap for nuclear energy published by the International Energy Agency points out that besides being safer, modern reactors are also faster to build, despite being more complex than their previous generation. Certainly, there are teething problems with new designs, but that is true for any new technology.

Renewable energy projects are also not without their problems, including massive anticipated costs. Besides the direct cost of building generation capacity, there will have to be major research and investments in safe, efficient and large-scale energy storage capacity, as well as creating a “smart grid” that can effectively shunt power generated in a decentralised fashion to the end-users who need it. Although US-focused, this list of 11 problems plaguing solar and wind power is enlightening. Surely, renewables offer neither an easier nor a faster route to abundant low-cost energy than natural gas or nuclear power.

Nuclear waste is also not a major problem. The volume produced is not great, its danger is low compared to some other industrial pollutants, the technology exists to reprocess much of it, and long-term sequestration of waste where it poses no conceivable risk to people or the environment is trivial.

A fair point by De Vos is the warning about South Africa’s financial position. A debt-to-GDP ratio of between 40% and 50% is fairly good by comparison with other countries. Notably, the rich world has far more debt, while South Africa compares favourably with countries like Brazil and India. That said, the country’s declining credit rating makes raising finance both more difficult and more perilous.

However, as before, this objection holds for any government project. If the government is going to raise capital to spend, it would serve the country well to invest it in infrastructure that has the potential to grow the economy. As Hogg noted, the key is transparency and proper management, both of which are required in any major project.

De Vos claims that, “Those part of the world that procure electricity using democratic, transparent and market-based methods do not build new reactors.”

This is at best an over-generalisation. According to the World Nuclear Organisation, nuclear capacity will grow by 60% by 2040, with negative growth of 10% expected only in the European Union, largely due to Germany’s turn away from nuclear power. Although the bulk of new nuclear power will be built in emerging markets like China, South Korea, Russia and India, the UK has approved eight sites for nuclear builds. The US alone accounts for 16% of anticipated new build, having approved five new reactors in addition to the five currently under construction. Spain, Sweden, Switzerland, Finland and the US are all expanding their nuclear capacity by upgrading existing plants.

Uranium prices, still recovering from the blow of Japan’s nuclear shutdown after the Fukushima incident, also indicate a rosy future for nuclear power, especially after the strong pro-nuclear signal sent at the recent COP21 climate conference in Paris.

De Vos ends his article with the phrase, “Caveat vendor”. He’s right, of course. Nuclear vendors should be wary of dealing with any country that is under economic pressure, as South Africa undoubtedly is.

However, vendors are well aware of the risks they’re taking. The nuclear renaissance is fragile, and meets with a lot of public fear and NIMBYism. Much new nuclear construction is centred on the developing world and based upon new-generation technologies, so set-backs can be expected. But these are known risks. If nuclear vendors, or any other financing entity, are prepared to take these risks, South Africa would have no reason to reject a nuclear deal.

Like renewable energy and, with luck, natural gas, nuclear ought to form part of a diversified, reliable, abundant and efficient power supply network. In fact, if we’re even going to think about moving away from coal, nuclear would probably form the backbone of a new-generation electricity supply, with gas and renewables as complementary energy sources.

The safety risks of nuclear are negligible, the environmental risks minimal, and the financial risks can’t possibly exceed the economic danger of ignoring the cleanest, safest, most efficient source of energy in the world. DM


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