South Africa's electric dreams

Areva and Westinghouse bid new nukes for South Africa

Bloomberg reports Eskom, which supplies about 95% of the country's power and most of it from coal, forced its biggest customers to cut consumption by 10 percent this month to stabilize the grid and avoid a national blackout. The shortage of electricity comes on the heels of years of policy disputes, poor planning for new power plants, and failure to recover real costs from the rate base.

South Africa's economy has been hobbled by power shortages in recent years as demand outpaced supply, with the problem hitting crisis proportions. The power shortage will probably cut growth in Africa's biggest economy to 3.7 percent this year, the lowest in five years, JPMorgan Chase & Co. told the wire service.

In response French nuclear giant Areva said it was ready to build up to 12 nuclear power plants in South Africa, where massive electricity shortages and brownouts shut down the key mining industry this month and slowed down the economy overall. Toshiba's Westinghouse matched Areva's proposal for an entire fleet of nuclear power plants.

Areva bids a dozen EPRs to solve South Africa's power crisis

Areva said that it would offer 12 its third generation systems through to 2025 for a total of 19,200 MWe of nuclear electric generation capacity. These plants would be built in partnership with construction conglomerate Bouygues and electricity giant EDF of France, alongside South African engineering firm Aveng. Areva said it was offering South Africa "a total partnership, covering the construction of EPR reactors and joint development of the South African nuclear industry."

French President Nicolas Sarkozy is due to visit South Africa on February 26-27 and will be accompanied by Anne Lauvergeon, Areva's CEO. There he hopes to once again ink a major nuclear deal following his success in China last November.

Westinghouse weighs in with AP1000s

Westinghouse Electric Company also announced that it submitted its response to provide three AP1000 nuclear power plants to South Africa beginning in 2016. The company then submitted a second response to match Areva's bid by providing up to 20,000 MWe of nuclear power generation (20 AP1000s) in South Africa by 2025.

The Westinghouse responses were submitted in cooperation with the Shaw Group and Murray & Roberts Ltd of South Africa, a major construction company. Westinghouse, Shaw and Murray & Roberts will team together to implement the project and operate a technology transfer program for South Africa.

No government officials from either the U.S. or Japan are slated to match Sarkozy's high profile visit to South Africa. Undoubtedly, there will be back channel diplomatic communications, but who knows?

No one considered submitting bids proposing to build Pebble Bed reactors. In 2007 South Africa announced an ambitious program to deploy the new reactor technology and sought outside investors for the project. The high cost of a planned demonstration plant was noted by several analysts. There have been calls in the South African parliament to scrap the program due to budget constraints. That's unlikely as the PBMR is positioned as a future flagship export product in the next decade.

Money honey, but it is not enough

At $2,500/Kw the new nuclear capacity for PWR technologies included in either bid for approximately 20,000 MWe would cost $80 billion. According to press reports Eskom has plans to spend $39 billion over the next five years. Assuming Eskom plans to completely build out either bid, it will need to raise an additional $41 billion over the next 15-20 years either through government funding or outside investment most likely both.

The government's plan to give Eskom limited funding, which will be announced in the annual budget on Feb. 20, is a reversal from October last year. Wire services report that at that time, Finance Minister Trevor Manuel and National Treasury Director General Lesetja Kganyago said Eskom would have to finance its own expansion plan by selling bonds and taking out loans. They changed their minds when Eskom started turning out the lights.

Eskom still expects power cuts to continue until at least 2012, when the first of its new built power plants start operating. Bloomberg also reports the government's plan to give Eskom a capital injection "takes uncertainty out of the Eskom credit story,'' said Leon Myburgh, Africa strategist in Johannesburg at Citigroup Inc. "They still have to borrow quite a bit'' from capital markets," he said.