South Africa inks 9.6 Gwe $50B reactor deal with Russia

It mirrors the tender the country released in 2007 and then cancelled, but this time Eskom, the state-owned electric utility, isn’t in the picture.

Eskom infrastructureIn a move that caught many in the global nuclear industry by surprise, South Africa signed a $50 billion deal with Russia to build 9.6 Gwe of nuclear powered electric generation capacity. The first unit is planned to be operational by 2023.

South African energy minister Tina Joemat-Petterssonm told the Reuters wire service on Sept 22 that the agreement will arrange for Russia to provide “technologies, funding, infrastructure, and future extensive collaboration.”

According to the AFP wire service, Director general Sergey Kirienko estimated the value of the deal at between $40 to $50 billion, given that one reactor costs around $5 billion, according to the Itar-Tass news agency.

Reuters also reported that Rosatom director general Sergey Kirienko said the deal will include up to eight nuclear reactors and will create thousands of “local enterprise jobs” worth up to $10 billion in South Africa.  Nuclear engineers to build and run the reactors would be trained at Russian universities.

Russia would also provide the nuclear fuel and take back spent fuel from the reactors. This is the model Rosatom uses with its other export projects. This model suggests that South Africa would not have a reason to re-start uranium enrichment activities at Pelindaba.

The deal mirrors the requirements in a tender the South African government released in 2007, but which it never awarded due to the perilous finances of Eskom, the state-owned electric utility.  Areva and Westinghouse competed fiercely for the deal which included a requirement for a high percentage of jobs and sourcing of materials in South Africa. Unemployment in the country runs, according to data published by the Economist, at a rate north of 25% of the workforce.

Eskom withdrew the tender because it could not convince the South African government to authorize a rate hike to pay for the new reactors, and related infrastructure including power lines, nor could it secure external investment for them either from development banks or from equity markets.

The difference this time is that Russia may be providing the financing for the reactors in an arrangement which may be similar to the one that is in place in Turkey. In that financial model, Russia pays for the the construction of the reactors, and operates them selling electricity at a negotiated but guaranteed rate for 15 years. At that point, the reactors, having proven their financial and operational dependability, are sold to equity investors.

South African government energy planning documents indicate a desire for a price ceiling of $6,500/Kw to build the reactors, but that number may not be as significant as the price per KwH that Russia offers for delivery of electricity from the reactors. South Africa has kept electricity rates low due to extensive poverty in the country.

The Russian numbers indicate a total cost for eight reactors and everything else at $50 billion. Rosatom will supply eight 1200 MW VVER light water reactors, balance of plant equipment, and some of the needed upgrades to power line and substation distribution infrastructure.

These numbers suggest Rosatom believes that either  it can build them for far less than the South African government or that it is providing them at bargain rates to demonstrate their capabilities to other African governments. This is the first Russian nuclear deal on the African continent.

Eskom would be positioned to purchase power from the Russian reactors. It won’t be an equity partner in financing the units. Eskom’s acting director-general Wolsey Barnard told a South African wire service on September 15 that “the financial position of Eskom has deteriorated since 2008,” and that the utility’s participation in such a project “would not be sustainable.”

South Africa invested heavily in R&D for the pebble bed high temperature gas cooled reactor (HTGR)  technology, but abandoned it after it was determined the technology was not efficient for electricity generation on the scale needed by Eskom.  Several efforts in other countries continued to develop HTGR technologies for process heat applications to replace use of fossil fuels at petro-chemical and other heavy industries.

South Africa desperately needs more electricity having suffered from shut downs of key heavy industries due to brownouts and blackouts.  The Russian deal may also replace a plan by Eskom to develop 9.5 Gwe of coal-fired power.

South Africa has two commercial nuclear reactors at Koeberg which provide about five percent of the country’s electricity.

Russia provided the IAEA with a briefing in June 2012 on the overall design and passive safety features of the 1200 MW reactor.

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