What SA’s 2 500MW nuclear deal may look like

National energy regulator Nersa has intervened early to prevent government’s new nuclear building programme from turning into a disaster, like the building of the Medupi and Kusile power stations.

Construction of the two massive coal-fired power stations overshot their completion dates by years and budgets by billions of rands. To add insult to injury, the units that have been handed over to Eskom were fraught with design faults.

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Construction started in 2007 and 2008 respectively, with budgets totalling R79 and R81 billion. Medupi was only completed in 2021, and so far only four of the six units at Kusile have been completed.

The budgets grew to R145 billion and R161 billion respectively and especially at Kusile widespread corruption has been exposed with several cases currently before court.

Minister of Electricity Kgosientsho Ramokgopa announced in December that government will in March issue a request for proposals for the delivery of 2 500MW of nuclear generation capacity.

It is expected to consist of two units of conventional nuclear totalling about 2 400MW as well as a 100MW small modular reactor.

To prevent a repeat of the problems at Medupi and Kusile, Nersa approved the programme on condition that the contract, unlike those projects, will be for engineering, procurement and construction (EPC) of the power station.

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According to Dave Nicholls, former chief nuclear officer at Eskom and current chair of the South African Nuclear Energy Corporation (Necsa), it will be “like buying a car or house”.

At Medupi and Kusile, Eskom tried to manage the project themselves, without having the necessary experience of mega projects. It was years since Eskom had embarked on such a big project.

It is not yet clear which organ of state will be the buyer, but Nicholls says the EPC contract that Nersa requires shifts a lot of the risk to the successful bidder.

The EPC contractor is appointed to deliver a nuclear power station similar to a specific reference model elsewhere in the world, which is named in the contract, with specified modifications if necessary. And it appoints sub-contractors for the delivery of material and services – unlike at Medupi and Kusile, where many of the contracts were entered into directly with Eskom.

The contract will provide for penalties for late delivery and lower-than-specified performance.

It will also include training of South African staff to run the plant after completion, a set of critical parts, a guarantee period and, as with a new car, a service plan.

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The contract amount will be linked to several indexes, including the inflation rate in South Africa and other countries where major components will be built.

With Nuclear 1, the ambitious nuclear built programme government abandoned in 2008, there were 30 different indexes, says Nicholls.

The government buyer will get the nuclear licence and other regulatory approvals, such as environmental authorisation.

A transaction like this always comes with a finance package, says Nicholls.

Contenders

The five probable contenders – Westinghouse in the US, Areva in France, Rosatom in Russia, Kepco in South Korea, and CNNC in China – will use their countries’ export credit agencies to get loans from banks on the basis of government guarantees.

Thanks to these guarantees, the interest rates are usually very low. The buyer starts repaying the capital and interest a year after the power station starts operating and earning income, and payments are usually over a period of 18 years.

The finance package is crucial in determining the cost, says Nicholls.

He confirms that there are two possible sites for the new nuclear power station.

These are Thyspunt, which lies about 12km from Cape St Francis in the Eastern Cape, and Koeberg outside Cape Town, where the continent’s only nuclear power station is situated.

The Zuma administration earlier decided on Koeberg for an additional 9 600MW of nuclear generation capacity, but those plans were shelved due to litigation by environmental groups.

Election influence

In the run-up to the general election this year, it may be politically beneficial for the ANC government to give preference to Thyspunt, as it will provide a huge injection for the Eastern Cape economy, which may bolster support for the party.

Nicholls says if the request for proposals is issued in March, the contract could be signed by January 2026. The licensing and other approval processes will follow, as will site preparation. This could take another two years, he says.

At Thyspunt, for example, access roads must be built, and site preparation includes major groundworks and the construction of offices and other non-nuclear structures.

This means the first nuclear concrete could be poured early in 2028, with the first power to be generated in 2033.

Small modular reactors

Necsa is lobbying for the construction of a 100MW small modular reactor as part of government’s new nuclear build programme, says Nicholls.

He points out that it is within Necsa’s mandate of research and development to pioneer new technology.

These reactors have the potential to replace Eskom’s old coal-fired power station on the same sites, using existing infrastructure and sustaining the local economies that revolve around the power stations.

Nicholls favours a joint venture with one of the owners of a proven design. It will be the first reactor of its kind in Africa, where they are seen as the ideal solution for a lack of power supply to isolated places in the absence of an extensive power grid.

The power generated at these plants will be sold to the national grid at a premium for the establishment of a new industry, as was the case in the first three bid rounds of government’s renewable energy procurement programme.

The only small modular nuclear reactors currently in operation and proven are in China and Russia.