South Africa analyzes new build bids as global markets bite

International vendors such as Russia's Rosatom are stressing the social and economic benefits of a new nuclear fleet in South Africa as the power-hungry country reviews state funding plans on a weaker economic outlook and turbulent currency markets.

South Africa needs new power generation capacity to boost economic growth. (Image credit: RapidEye)

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South Africa’s Cabinet approved last month a Request for Proposal (RFP) for some 9.6 GW of planned nuclear capacity, allowing the Department of Energy to receive formal new build proposals from the world’s major nuclear power companies.

South Africa will only decide whether to proceed with the nuclear build plan after it has reviewed the project proposals and subsequent state funding requirements.

Faced with stubbornly high unemployment, slower global growth prospects and concerns over its debt levels, South Africa’s government is expected to reveal new budget plans to Parliament in February and nuclear vendors such as Russia’s Rosatom have highlighted the social and economic benefits of a fleet of nuclear reactors.

According to Victor Kolesnikov, Counsellor to the President of Rosatom Overseas, a fleet of seven or eight reactors could provide $16 billion in revenue to South African companies and the full nuclear program would see as much as 60% of content and resources sourced locally.

“We think 30% will come practically naturally here in South Africa because the personnel is qualified, the industrial base is quite familiar with the nuclear requirements,” he said at Nuclear Energy Insider’s Supply Chain Conference South Africa, December 1.

Rosatom, Russia’s state-owned power company, wants to deliver its Generation III+ VVER pressurized water reactor to the South African market.

The company is among a group a nuclear vendors looking to spearhead new construction in South Africa as the country looks to alleviate electricity shortages which have held back the economy. This group of vendors includes the major nuclear companies of France, US, China, South Korea and Japan.

South Africa currently operates two 900 MW reactors at the Koeberg nuclear plant complex near Cape Town, commissioned in 1984-85. In June 2015, South Africa's Cabinet agreed in principle to proceed with developing a procurement program for what would be a nuclear renaissance.

New skills

Rosatom predicts a new fleet of eight reactors could directly employ 10,500 civil construction workers, 2,000 maintenance personnel, and 3,200 operating staff which would include equipment engineers, training personnel and safety staff.

Analysis presented by Kolesnikov showed that some 60% of supply chain development would occur in capabilities not yet present in the South African market.

   Supply chain development in South Africa

Source: Rosatom

Rosatom has been present in South Africa for a number of years, supplying enriched uranium supplies for the Koeberg Power Station in Cape Town since 1995.

The company signed in 2012 a cooperation agreement with Nuclear Energy Corporation of South Africa (NECSA), on isotope production, nuclear fuel fabrication and the manufacture of power equipment.

Along with other global nuclear vendors, Russia has signed cooperation agreements with South Africa over potential new plant build and in 2014 Rosatom re-established its South African office as the headquarters for activities in Central and Southern Africa.

“Our offer to South Africa is not only based on the construction of nuclear power plant units, based on cutting-edge technologies, but rather on the creation of an entire national nuclear industry – from uranium mining, NPP and research reactor construction, up to design and nuclear power equipment manufacturing,” Kolesnikov said.

On-going projects show that Rosatom is willing to offer a range of different new plant delivery models, to meet the specific requirements and challenges of the host country.

In Hungary, Rosatom is set to deliver two 1.2 GW reactors for the 2.4 GW Paks plant expansion, on an Engineering–Procurement–Construction (EPC) basis.

In Turkey, the firm plans to deliver four units at Akkuyu for a capacity of 4,800 MW under a Build Own Operate model. Rosatom has invited international investors to acquire a share of up to 49% in the Akkuyu project company.

Emerging pressures

South Africa’s need for new power generation comes amid challenging global markets for emerging economies and a sharp decline in the value of the Rand (ZAR).

In October, South Africa’s Treasury cut its economic growth forecast for 2015 to 1.5%, from 2% predicted in February 2015, citing energy constraints and the impact of a global slowdown.

In November, the OECD said the economic outlook in South Africa remains uncertain for 2016 and 2017 and economic activity will likely remain subdued.

“Expected increases in electricity supply from investments in generating capacity should raise supply only by 2017, easing constraints that have hindered production and increasing investor confidence. Also, strengthening growth in major trade partners, such as Europe and the United States, should reinforce export growth," it said.

S&P has said it expects South Africa’s GDP growth to remain around 1.6% in 2016, and only rise above 2% from 2017 when new coal-fired power plants come online.

In the last year, the South African Rand has plummeted against major currencies such as the dollar and euro. One dollar was worth around ZAR16.5 on January 25, compared with ZAR11.5 a year ago.

While the depreciation of the Rand has supported national exports, South Africa’s credit ratings have suffered and the government has pledged to stabilize and then improve its debt position.

The government's upcoming budget plans are expected to provide further clarity over its current position on nuclear power funding.

Competitive new plant bids are expected from many of the world’s leading nuclear vendors, and while currencies such as the dollar and euro have strengthened against the Rand, the Russian Rouble has fallen sharply against major currencies and this is expected to have improved the competiveness of a Rosatom bid.

                                    Russian Rouble against the dollar 

Source: XE Currency Charts

In his presentation, Kolesnikov said a new nuclear power fleet could provide the South African government with $3.4 billion in tax income and noted the nuclear new build program would help boost development in all economic areas, from job creation through to industrialization and skills.

“We at Rosatom are not new to the South African market, we understand the challenges faced by the country and have formulated our offer with these challenges in mind.”