Could new nuclear provide economic stimulus in South Africa?

Out-Law Analysis | 17 Jun 2020 | 9:08 am | 3 min. read

The South African government has taken positive steps to advance its long-awaited nuclear build programme, issuing a request for information (RFI) to the market calling on developers to show their interest in bidding for 2,500MW of new build nuclear capacity.

The Department of Mineral Resources and Energy (DRME) is seeking responses to the RFI by 30 June 2020.

The structure to be adopted for expanding South Africa's nuclear generating capacity is likely to follow the structure adopted in its Renewable Energy Independent Power Producer Procurement (REIPPP) programme. The REIPPP programme has been hailed as one of the country's biggest success stories and it is reassuring that the government is using its learning from establishing a renewable energy sector to expand the country's nuclear generating capacity.

The South African government will need to consider how the REIPPP programme approach should be adjusted to render it suitable for nuclear new build. The current REIPPP programme is designed for much smaller, lower risk, renewables projects whose regulatory regimes, implementation timeframes and outturn cost are more predictable. This predictability renders renewables projects more suited to the risks that developers must absorb and manage under the REIPPP programme. Current new build nuclear programmes in other parts of the world suggest that the sheer size, cost, logistical complexity and regulatory context of a new build nuclear programme in South Africa would mean that some of the assumptions made in the REIPPP approach will not be replicable for new build nuclear.

Jurg van Dyk

Jurg van Dyk

Partner

The REIPPP programme has been hailed as one of the country's biggest success stories and it is reassuring that the government is using its learning from establishing a renewable energy sector to expand the country's nuclear generating capacity.

There are other solutions which can be drawn from nuclear projects in development elsewhere in the world. As such, the government should include these considerations as part of its consultation. No doubt respondents to the RFI will highlight some or all of these approaches in their responses.

Regardless, the scale of infrastructure development, energy security and economic boost that investment in new build nuclear facilities could stimulate should be very welcome in the context of the current South African energy market.

Structure of the projects

The 2019 Integrated Resource Plan (IRP) set out a framework for the government to expand South Africa's nuclear generating capabilities by up to 2,500MW of new capacity, at a pace and scale that the country could afford. The RFI implements this framework, and seeks to measure appetite in the market to bid for this new capacity on an independent power producer (IPP) basis.

By deciding to develop nuclear generating capacity on an IPP basis, the government is clearly drawing from experience gained through the REIPPP programme. The RFI is set against the backdrop of a number of Eskom's coal-fired power plants nearing the end of their operational lives and opens up a market in the South African energy space that has not seen any activity in the recent past.

It is stated that the expansion of South Africa's nuclear generating capacity "must be implemented at an affordable pace and modular scale (as opposed to a fleet approach) and taking into account technological developments in the nuclear space".

A full developer role is envisaged for each project. This will include options relating to the development, design, engineering, financing, ownership, leasing, construction, commissioning, operation and maintenance of the facility.

The development of each project will be undertaken by a special purpose vehicle (SPV), ring fenced for the purpose of that development. Bidders are allowed to respond to the RFI either as a single entity or as a consortium for a current or future SPV.

It appears that the minister of mineral resources and energy will designate an entity, most likely Eskom, the public electricity utility, to enter into a power purchase agreement (PPA) with successful bidders. The PPA will likely be secured by an implementation agreement between the developer and the government.

As part of their response, bidders should provide details of possible contracting models such as Engineering Procurement Construction (EPC), Engineering Procurement Contract Management (EPCM), Build Own and Operate (BOO), Build Own and Transfer (BOT) or Build Own Operate and Transfer (BOOT).

The two sites on which Eskom is licensed to develop further nuclear generating capacity are referred to as options. These are the Thyspunt site in Port Elizabeth, and the Duynefontein site outside Cape Town. Bidders are directed to publicly available information in regard to these sites. The Thyspunt site is a greenfield site, while the Duynefontein site currently houses the Koeberg nuclear facility. Bidders are asked to propose cost savings for the Duynefontein site resulting from shared infrastructure with Koeberg.

The RFI is not clear on whether alternative sites may be proposed.

Technology

The RFI envisages a blend of 'base load' nuclear power combining both conventional pressurised water reactors and small modular reactors, delivering a total of 2,500MW, and calls for proposals based on these technologies.Technology based on pressurised water reactors should be currently commercially available. Proposed technology based on small modular reactors should be under development, to at least prototype/experimental design stage, and should be ready for commercialisation by 2030.

Designs can be combined with a sea water desalination plant.

In other parts of the world, the nuclear industry is accustomed to designing nuclear power to be 'load following', which means they can stabilise the varying needs and inputs of the electricity grid. This will be important as the government implements its programme for 20,000MW of renewables infrastructure, which provides power on an intermittent basis. We can expect to see technology of this nature emerge in responses to the RFI rather than provision of 'base load', which has become characterised as inflexible.