The High Price of Power

The push for nuclear procurement in South Africa rides on in spite of the lack of economic and technological logic

December 2015, Cape Town. Inside the great halls of parliament, a diversity of political parties debate the efficacies of an energy program submitted by the Department of Energy. The program involves a plan to procure nuclear reactors that could potentially add 9.6 GW of nuclear power to the national grid, securing the energy capacity of the country for years to come. There is large controversy surrounding the proposal as experts, politicians, and casual observers indicate that there are flaws in the underlying logic of the proposal, that could leave generations of South Africans paying the price.

Fast forward one year to a post-election press conference held by the EFF to announce its outcomes from heated negotiations following the surprise results of the local elections. Center stage is Julius Malema, the EFF’s leader, now fully immersed in a tirade that has become synonymous with politics of the times. Say what you want about Julius, but doubt his ability to set the political agenda at your own peril.

Malema rambles on about the corruption and criminality endemic in the ruling party (ANC), and indicates that the party has decided to side with the DA on the matter of governing in Gauteng. As Malema rambled on about the reasons that had lead to this decision, one point that stuck out succinctly was his reference to the nuclear procurement program as an outright selling out of the South African people.

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Why, during a press conference that was primarily about the results of the 2016 local election, bring up criticism of energy policy? Malema is prone to the usual “random” outburst, that grabs headlines and quickly becomes popular discussion on social media. But why a topic that, although important in any regard, has the air of boring technical talk meant for small committee meetings in parliament. Simple, the nuclear procurement program might be the widest reaching economic event in modern South Africa.

A Brief Introduction

Before I discuss the politics at play here, it is good to establish the technical realities behind these developments. Firstly, the current energy environment in South Africa is a long way from being described as “healthy”. The state entity Eskom, being the majority contributor to South Africa’s energy needs (95% of all energy, be it generation, transmission or distribution is conducted by Eskom) has been struggling to meet the growing demand for energy in the country for some time.

Power outages (known as “Load-shedding”) at the end of the last decade, as well as in more recent years, has wrought havoc on the South African economy. On top of that, the national provider sits with heaps of debt and contract irregularities that has seen the treasury having to continuously pump funds into the state-owned entity (SOE) just to keep it afloat.

This development spells badly for the South African development ambitions, as the provision of energy is a mainstay determinant for growth. Add to that the fact that Eskom has seen both its public image and business confidence in the company plummet over recent years.

In this regard, it would be logical to doubt the capacity for Eskom to take on the additional burden of constructing and running new nuclear sites, where other energy initiatives by the entity have been plagued with delays, and run aimlessly over budget.

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Projects such as the Mudupi and Kusile coal power plants have run notoriously over budget and beyond scheduled completion dates

Furthermore, there is the choice of nuclear as a comparative technology. Nuclear energy’s public image is far from positive, and images of the Fukushima disaster in Japan are commonly brought up to indicate the potential for damage that nuclear plants can have if anything were to go wrong. În spite of this, South Africa has operated a nuclear site in Koeberg for many years to marginal success. So why the big issue over nuclear power?

Local and Regional Context

Opponents to nuclear have pointed to the changing dynamic of energy provision internationally. With the rise of renewable energy, policy strategies globally have become focused on embracing a mix of fossil fuel generators and new technologies. This trend has helped customise the supply of energy sources according to the unique demand and environmental circumstances in individual states. Simply put, there is a variety of choice available to most countries.

Renewable energies are quickly becoming practical alternatives in energy due to the drop in prices experienced in recent years, as well as the development of the technologies that have sharply improved performance. The two most popular of these technologies have been solar (PV) and wind power.

What must also be considered is that the type of power it takes to run a country such as South Africa is considerably more complex when compared to its developing colleagues. Take for example the dominance of South Africa in the African energy field.

The Southern African Power Pool (SAPP) is a regional organisation focused on coordinating the energy operations of the 16 member nations of the Southern African Development Community (SADC). The most intriguing insight into this organisation is that of the combined 46 000 MW of operational capacity for the entire region, South Africa is 35 000 MW (as of 2016).

This trend doesn’t seem to be changing anytime soon as the latest projections (as of 2016) indicate that of the 34 000 MW planned for installation by 2022, South Africa will host 11 000 MW.

These developments might be undercut by the growing market for private renewable energy solutions for citizens, but since private industry remains the largest customer for energy, the demand for energy will continue to depend on the energy output from states. South Africa also happens to hold energy trade agreements with many of its neighbours, often supplying energy to supplement local shortage of capacity.

This indicates that the future of South African energy policy has a substantial impact on the state of economic development not only locally but for the SADC region.

Furthermore, South Africa’s generation of energy has been dependent on aged coal powered stations that have become increasingly unreliable. Indicating that many of these plants are coming to the end of their shelf lives, and require replacement.

Old Power

Taking this into consideration, we find that whatever new power facility proposed to provide South Africa’s energy demand going forward has to be consistent and provide powerful generation capacity to bolster any form of economic growth. Although renewable energy sources such as wind and solar have been able to drastically lower their price margins over years, their generation capacity remains too unpredictable to implement as “base power”.

This means that renewable energy will continue to play a supporting role to fossil fuels in South Africa, at least in the immediate future. This is largely because of the power source’s dependency on weather and climate conditions (For example, we don’t want the energy system being destabilised by an especially cloudy couple of days) and has been affirmed by the development of newer coal stations to replace those being taken out of operation.

Ongoing research and development of energy storage technologies should look to provide renewable energies as a more stable alternative in future, but there remains no renewable option currently available that is able to entirely replace the reliability of fossil fuel generation. At least for South Africa’s demand scenario.

But this does not mean that nuclear stands a better chance either. The major concern with nuclear is as a result of its financial, labour and environmental demands.

Nuke Money

Nuclear power is expensive, at least in the short term. Which should provoke caution in many South Africans, being that many of our problems are immediate. Often taking way longer to build than what had been estimated, a nuclear build project is dogged by inaccuracies and delays in even the most organised developed countries.

Meanwhile, as the project drags on longer, the cost and burden on the government to finance the build climbs higher. This can result in the draining of treasuries, forcing governments to find extra financing to continue the build.

This can be seen in the current state of the nuclear energy market internationally. Earlier I alluded to the Fukushima nuclear disaster in Japan in 2011. It was that disaster that sent ripples throughout the global economy that saw the already bad image of nuclear power lose more public approval. Recently stories circulating around the bankruptcy of Westinghouse, one of the world’s most prominent nuclear companies, has furthered the slump in nuclear energy.

This indicates to those involved in South African energy that the approach to nuclear should be cautious at most, as there already seems to be a heightening frequency of stories concerning out-of-control costs in the industry.

Furthermore, there is still the issue of the continued supply of minerals such as Uranium and maintenance of facilities. When looking at the numbers for these factors it’s not surprising to find final budgets going into billions of dollars.

The potential for environmental damage is also considerable, with the storage and dumping of radiated materials a concern for average citizens and environmentalists alike. This is not to be said that the problem with the current proposal is nuclear energy as a technology. If South Africa’s economic and political climate were in more stable positions then this proposal would be more feasible.

Ok…..But why is it bad for South Africa specifically?

Koebergnps

Needless to say, South Africa is under immense fiscal pressure, in what can be regarded as one of the young country’s most trying economic periods. As a result of a slowing global economy, low commodity prices and structural flaws in the economy that have worsened over time, the South African economy remains unstable. The improvement in the provision of energy would be a good first step in turning this around.

Unfortunately, South Africa also has no more room within government spending to invest in major energy projects of this size whilst still being financially prudent. A study by EE Publishers found that the total cost for a nuclear procurement project that would provide 9,6 GW of new energy to South Africa’s capacity would cost $50 billion (R668 billion as of 29 April 2017).

Add to that the recent credit downgrade by rating agencies, which will make it considerably harder for the South African government to access credit in global financial markets, and the burden that this project would place on the South African Fiscus is unprecedented. Furthermore, it is debatable whether the improved supply of energy in the nation would lead to higher and more inclusive growth, as well as keep the price and access to energy for many of South Africa’s poorer citizens stable.

That is why the proposed nuclear plan can be compared to having R10 left for the bus, and spending it on a litre of petrol. It just isn’t sustainable, no one can deny that the petrol is a great source of energy for transport, but without a car to drive in (a growing economy) it’s just another thing to worry about. But the deal is also excruciatingly dodgy.

Dodgy Business

The Mail and Guardian’s investigative journalism desk has produced a pretty helpful breakdown of why the nuclear deal continues to be dogged by suspicion. Firstly, the nuclear programme seems to be heavily skewed towards Russia as the provider of technology, including a contract that would see Russia benefit considerably more than South Africa. Secondly, there is the manner in which the process has been conducted.

Secondly, there is the manner in which the process has been conducted. For a project that has immense consequences on the future of South Africa, the nuclear program has been shrouded in complete secrecy. Government officials either give vague answers on the exact details of the deal, indicate their disinterest in pushing an unpopular deal through, or outright dodge questions.

Finally, there is the matter of the political leadership steering the process. Jacob Zuma’s presidency has been a saga of increasing drama and scandal, and even within his final two years as president, this remains true. Zuma’s connection to the Gupta family, a wealthy Indian family accused of unjustly influencing the South African executive (IE. Corruption and state capture) does not his support for the nuclear deal any better. This is especially clear in the context that the Gupta family owns a major Uranium mine that would benefit from the increased demand as a result of the nuclear build.

Conclusion

The reality of South Africa’s situation is that its economy requires deep restructuring in coming years. A strikingly high unemployment rate does not bode well for the young democracy, and a comprehensive energy policy can go a long way to solving this dilemma.

However, the proposed nuclear build still has several hurdles to overcome before it becomes a reality. On the 25th of April 2017, the Western Cape High Court ruled the nuclear deal process unlawful and unconstitutional has reset the procurement process for the government.

With a new finance minister in Malusi Gigaba and a more compliant treasury, Jacob Zuma might be able to push the deal through, even in sight of mass public disapproval. Gigaba has already claimed that the South African government are only willing to pursue nuclear if it is “affordable”, but what that might mean is purely up to the Minister and his fellow executive members.

With greater political division, and the prospect of the ANC losing power in the 2019 national elections, the nuclear deal has become a central point of conflict over the country’s future.

There is a need to develop the energy infrastructure to ensure that South Africa can build the modern economy it dreams of. However, the question that must be asked is whether the nation believes that in its current economic climate does it believe that the nuclear deal is the greatest solution? And does it trust its leaders to effectively implement it or find practical alternatives?

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