NuScale gets Letter of Intent for 2500MW Project in South Africa from US Development Finance Agency

The United States International Development Finance Corp. (DFC) has signed a letter of intent to support NuScale Power LLC, a U.S. nuclear energy technology firm, to develop 2,500 megawatts of power in South Africa based on its 60MW SMR.

africa-nuclearThe action is the second blockbuster funding event this week following a commitment by the U.S. Department of Energy for $1.355 billion to UAMPS which is NuScale’s first US customer for its 60 MW SMR. The 12 SMR plant will be built at a site in Idaho.

The DFC, which ended its prohibition on supporting nuclear power in July, signed a letter of intent this week to support NuScale’s bid for South Africa’s independent power producer (IPP) program, the development bank said in an statement emailed to the Bloomberg wire service on Friday 10/16.

The letter of intent is not a funding commitment. A lot of work lies ahead for NuScale, for South Africa, and the bank which has said that it has an upper limit of $1 billion for new nuclear projects. The bank has a separate fund for technology development, but it isn’t clear how much funding is available for a single applicant or whether NuScale would quality for it. The intent of both funds is to spur development in non-OECD countries.

Diane Hughes, Vice President, Marketing & Communications, said in an emailed statement;

“NuScale is excited to work with the U.S. International Development Finance Corporation (DFC) to explore the applications of our groundbreaking technology to provide clean, cost-effective energy to South Africa. The signed Letter of Intent by the DFC marks an important step in the process to bring the first and only, approved, U.S. small modular reactor to the African continent and support the growing energy demands and resilience needs of South Africa. We are committed to working with the DFC to support its comprehensive process as we collaborate with entities in South Africa interested in NuScale’s energy solutions.”

The 2500 MW figure is the same power rating as cited by the South African government in a draft energy plan released last May. At 60MW each, it would take 42 of NuScale’s SMRs, or 3+ of its 12 SMR plants, to hit that number in terms of generating capacity.

At $4,000/Kw, which is a plausible competitive benchmark that NuScale could hit with factory production of multiple units, the cost of the entire program would be $8-10 billion including grid upgrades.

With South Africa’s history of demands for localization of the supply chain for new nuclear projects, it is likely that NuScale would have to build a factory in that country to assemble the reactors and work with the government to capitalize a supply chain to feed it.

According to Bloomberg, South Africa’s government recently drafted an economic recovery plan in conjunction with business and labor groups in a bargaining forum known as the National Economic Development and Labour Council. The action was in response to the coronavirus pandemic.

A version of the strategy that was discussed by the cabinet and reportedly was seen by Bloomberg this week, includes recommendations to secure reliable energy supply through the construction of new nuclear plants.

Great Ideas Need Lots of Funding – Where is it?

The draft strategy calls for $1.4 billion to be spent on private investment in infrastructure. However, as is typical of grand plans put forth by the South African government, no one is quite sure where the money is coming from.

Eskom, the state-owned nuclear utility, has been broke for years due to the refusal by the government to raise rates to cover infrastructure improvements including new generation capacity.

Coal is the Key Competitor

Another issue is that South Africa has a new coal fired power plant, the Medupi power station, situated north of Johannesburg, which produces 4,800MW of electricity. It is the 8th largest coal fired plant in the world.

With a 60 year life cycle, it’s likely that coal interests in South Africa have engaged in significant efforts to influence the government to not bring competing power sources, such as nuclear energy, into the mix. The five biggest coal mining companies are responsible for approximately 85% of all the coal production. These companies are; Anglo American PLC, Sasol Mining, Glencore Xstrata, Exxaro and South32’s South Africa Energy Coal.

South Africa has proven reserves equivalent to 173.3 times its annual consumption. In other words, South Africa has more than a century and a half of coal supplies for the Medupi plant or its successors. South Africa holds 35,053 million tons (MMst) of proven coal reserves as of 2016, ranking 8th in the world and accounting for about 3% of the world’s total coal reserves.

History of Prior Efforts for Nuclear Energy in South Africa

In May 2020 South Africa’s Director of Mineral Resources and Energy Gwede Mantashe told the nation’s legislative body that his agency is developing a road map for 2,500MW of nuclear-powered generating capacity with the procurement process completed by 2024.

The South African plan is to allow vendors to self-finance 100% of the cost which means the national government will not provide any funding. This policy opens the door to all types of technologies and reactors sizes from big iron at 1,000MW or more to small modular reactors (SMRs) that range from 50-300MW.

The agency said it will issue a request for information to assess the market with a focus on SMRs. However, Mr. Mantashe said that all options are being explored and if the market indicates one design is more affordable and can e built more efficiently; he wants to go with it. However, at the time he did not say when his agency would expect a vendor to break ground nor did he specify LWR v. advanced reactor designs as preferences.

He told the Reuters wire service, “We may give a company a right to develop a nuclear station (modular or other) on a build, operate, and transfer basis. It means there is no  funding from the state.”

The announcement immediately ran into significant challenges. Opposition leader Kevin Mileham questioned whether the 100% vendor financed approach would work and discounted the feasibility of the short time line to issue and evaluate a tender for the reactors.

Additionally, he pointed to the national government’s Integrated Resource Plan (IRP) for 2019 which he said makes no mention of nuclear energy at least the next decade.

The Mining Weekly, a trade publication, checked the IRP found that there is a brief mention of “preparations for nuclear energy,” but no mention of a specific level of generating capacity nor a timeline for a procurement nor starting work on a new power station.

Past Efforts to Launch a Nuclear Energy Program Have Not Been Successful

In 2018 South Africa halted an ambitious plan put forward by then President Jacob Zuma that would have inked a deal with Russia’s Rosatom for eight 1,200 MW VVER nuclear reactors at a projected cost of between $30-to-$50 billion dollars. Rosatom’s terms were that it would provide 50% of the financing.

The plan died for three reasons.

  • The first is that is South Africa couldn’t afford it, even with generous financial terms from any vendor, given the condition of its economy.
  • The second is that Zuma’s administration was rife with allegations of corruption and nepotism.
  • The third was the lack of transparency related to how the procurement process for the deal was done. It came about as a result of a “secret” meeting between Zuma and Russian President Vladimir Putin in a side meeting at a development conference in Brazil. No tender had been released for the project prior to that meeting.

Eskom Out of Position to Lead Financially

Separately, the nation’s economy has been hobbled by a series of electricity brown outs due to a lack of electrical power and an aging grid infrastructure. Eskom, the state owned utility, has been thwarted in its requests to raise rates as the government uses cheap electricity as a way to address the appalling levels of poverty in the country. The government has also declined to subsidize Eskom directly.

A proposed turnaround plan for Eskom has been put on hold due to the Coronia virus pandemic. Eskom’s turnaround plan includes proposed debt transfer to the government, cost containment, operational reforms and the company’s unbundling into three separate entities (generation, transmission and distribution). In April 2020 the Fitch rating service downgraded ESKOM’s massive unsecured debt as a result.

Conditions for financing a new nuclear program remain difficult as the country’s economy, like many others, has taken a deep dive into a major recession adding to the country’s budget deficit.

South Africa has one nuclear power station which is the Koeberg plant that was connected to the grid in 1984. It is composed of two 970 MW PWR type units.

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