New Build

South Africa / Industry Association Sets Out Financing Options For New Build

By David Dalton
19 May 2020

Government appears to favour ‘Boot’ model alread used by Russia
Industry Association Sets Out Financing Options For New Build
Koeberg, near Cape Town, is the only commercial nuclear power station in South Africa.
The Nuclear Industry Association of South Africa (Niasa) has proposed six possible funding options for new nuclear, but government officials have suggested the most likely is a “build, own, operate and transfer” (Boot) model similar to that used by Russia for project including Akkuyu in Turkey.

Niasa told Engineering News that the very high proportion of the cost of energy that comes from the repayment of capital means interest rates will be fundamental to the viability of any new nuclear project in South Africa.

The association said real interest rates – which are adjusted for inflation – on state debt could be in the range of 2% to 3%, while real interest rates on high risk equity finance could vary from 10% to 15%. It said this explains why some new nuclear projects such as state-supported projects in China could be very competitive while others, such as the private equity funded Hinkley Point C in the UK, needed some kind of state guarantee such as long-term power purchase agreements.

Niasa identified six financing options that could be used to fund a new nuclear programme. The first was state funding for the entire project or state provided sovereign loan guarantees using reserves and cash flows from state-owned companies, as was the case with the United Arab Emirates’ Barakah project.

Other options included an intergovernmental loan, corporate financing and the provision of financing by the company selling the nuclear plant, a model used by state-owned vendors including China National Nuclear Corporation, China General Nuclear Power Group, Electricité de France and Russia’s Rosatom.

Niasa said the fifth option, project financing, had not yet been used to fund a nuclear plant but had been used for natural gas generation plants. A special project investment vehicle wwould be set up solely to fund the specific project. This would segregate the project from other investments.

Finally, there was the “build, own, operate and transfer” option used by Rosatom for the Akkuyu nucler station in Turkey. Rosatom will initially own 100% of the project, but will subsequently sell stakes to Turkish investors while always holding at least a 51% share.

Niasa had earlier welcomed energy minister Gwede Mantashe’s announcement of plans to produce a roadmap for new nuclear power plants in South Africa with a total capacity of 2,500 MW.

“This gives the requisite policy certainty which enables industry to respond accordingly,” Niasa said.

Officials had indicated in 2019 that the government was considering adding more nuclear capacity in the long term, after abandoning in 2018 an ambitious nuclear expansion project supported by former president Jacob Zuma.

Mr Mantashe said the government would “test the market” to hear what potential investors and consortia had to say about building a new nuclear facility.

Options being considered include giving a "right to develop a modular nuclear station on a build, own, operate and transfer basis," which means there may be no immediate call for state funding” he said.

“We are going to explore all options, when there is appetite for nuclear in the market we will go ahead with it,” Mr Mantashe added.

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