S Africa slows N-plans as rating assessments loom

Bloomberg

South Africa delayed plans to build nuclear power plants as economic growth stalls, easing spending concerns as the country faces the risk of being cut to junk by credit-rating companies. The rand strengthened the most of major currencies against the dollar.
The new timeline sees the first additional nuclear power plant coming on stream in 2037, compared with an earlier proposal of 2023. A total of 20,385 megawatts of nuclear energy will be added to the national grid by 2050, according to the “base case” scenario outlined in a presentation on the Department of Energy’s updated Integrated Resources Plan released in Cape Town on Tuesday.
The government previously said it wanted to generate 9,600 megawatts of energy from as many as eight reactors that should begin operating from 2023 and be completed by 2029. Price estimates had ranged from $37 billion to $100 billion. While President Jacob Zuma has championed the nuclear program, Finance Minister Pravin Gordhan has cautioned that the country may be unable to afford new reactors at a time when the economy is barely growing and the budget deficit needs to be curbed to fend off a junk credit rating.
“This is something of a win for Pravin Gordhan as it pushes out any final decision on nuclear for a bit,” Dennis Dykes, the chief economist at Nedbank Group Ltd., said by phone from Johannesburg.

Rand Strengthens
The rand gained as much as 1.4 percent against the dollar and was 1.1 percent stronger at 14.0915 at 12:36 p.m. in Johannesburg.
“There have been a number of developments in the energy sector which necessitates that we review and update the plan,” including lower power demand than previously expected and changes in technology costs, Energy Minister Tina Joemat-Pettersson told reporters.
The decision to delay the start of the plan to build nuclear plants may ease some of the concerns of rating companies about significant cost increases at a time when the National Treasury is trying to control spending to bring down the fiscal deficit.
“The ratings agencies biggest concern with the nuclear plan would be the cost of it, and the amount of debt that the government has to carry for it,” Christie Viljoen, an economist at KPMG LLP in Cape Town, said by phone. “The ratings agencies view is over three to five years, so this makes a positive change to that outlook.”

Revised Assessments
Moody’s Investors Service and S&P Global Ratings, which are due to deliver revised assessments on South Africa in the next two weeks, have cited concerns over spending and rising debt as risks to the ratings. South Africa is ranked at the lowest investment grade level by S&P, while Moody’s rates its debt one level higher.
The energy plan also envisions an additional 37,400 megawatts of power being produced from wind, 17,600 megawatts from solar plants, 35,292 megawatts from gas
and 15,000 megawatts from coal by 2050.
The energy department, which has invited public comment on the proposals, also outlines two alternative scenarios that make different assumptions about costs, carbon emissions and the nation’s ability to generate additional renewable energy. One envisions 25,821 megawatts of nuclear power added to the grid between 2026 and 2049, while the other sees the production of 5,436 megawatts of new atomic power coming on line starting in 2037.
“What we are in is a quantitative process, where you basically have a model and you plug in the numbers,” Jacob Mbele, an acting deputy director-general in the energy department, said in an interview. “If you change your assumptions, your picture will change.”

Energy Plan
The energy plan will be refined in March next year and then submitted to the cabinet for final sign-off.
Eskom Holdings SOC Ltd., the state-owned utility, has said it could use the more than 150 billion rand ($10.7 billion) it will accumulate in reserves within 10 years to build new reactors. The utility operates Africa’s only nuclear power plant — the 1,800-megawatt Koeberg facility near Cape Town, which began operating in 1984.
Eskom will continue seeking requests for proposals to build new nuclear plants pending the finalization of the energy plan, because it could ultimately determine that additional reactors are needed as soon as 2025, said Matshela Koko, the utility’s group executive for generation.
“Currently the plan is 9,600 megawatts, but we’ve always said it’s going to be built in chunks that we can afford,” he told reporters. “We are not married to nuclear. It must make sense to the country, we must be able to afford it, it must be able to de-carbonize the country and check all the boxes.”
Rosatom Corp., Areva SA, EDF SA, Toshiba Corp.’s Westinghouse Electric unit, China Guangdong Nuclear Power Holding Corp. and Korea Electric Power Corp. previously expressed interest in building new reactors in South Africa.
South Africa experienced power cuts for about 100 days last year, as demand exceeded supply. Energy shortages eased as new generating capacity was bought on line, maintenance backlogs were addressed and a stagnating economy curbed power demand.