No economic case for SA nuclear plan – research

There is no economic case to be made for a firm commitment to commissioning a full fleet of 9.6GW of nuclear power by 2030.

This is the key finding in a research paper probing the potential risks and uncertainties of the commitment to SA’s proposed nuclear build plan. It reveals that South Africa should aim to have a flexible planning approach to adapt to changing electricity demand.

The paper, by the University of Cape Town’s Energy Research Centre, compares this commitment to a more flexible planning approach that aims to minimise costs.

The Energy Research Centre’s Tara Caetano explains her findings in the paper titled, South Africa’s proposed nuclear build plan: An analysis of the potential socioeconomic risks…

The study is a technical analysis of the potential risks and uncertainties of South Africa’s proposed commitment to 9.6 GW of nuclear power. The objective of the study is to review this commitment in comparison to a more flexible planning approach that aims to minimise costs.

It includes three main tiers of analysis: the first builds two alternative futures, so that we can understand the implications of different investment strategies in uncertain future worlds; the second models the socioeconomic impacts of the commitment to nuclear power versus a flexible planning approach in each of these futures (i.e. committed nuclear versus least-cost investment plans in different futures); the third estimates the risks of an increase in the electricity price to the South African economy and consumers.

If economic growth is high and the costs of nuclear are low, then the negative impact of building nuclear versus other capacity is negligible. In this future, higher demand requires higher installed capacity, and if we are optimistic about nuclear and pessimistic about alternatives, then committing to nuclear power will not impact on the electricity price or investment required compared to a flexible approach (since the capacity will be required and the forced nuclear is relatively cheap).

High vs low economic growth

In addition, if this future were to transpire, an overinvestment in electricity capacity before 2030 could lead to favourable outcomes for the economy and facilitate higher growth in later years.

When there is higher growth there are marginal positive benefits from the commitment to nuclear power, although these effects are driven directly by the supply of affordable electricity and not by the decision to invest in nuclear power explicitly. In this case, job creation and incomes are driven by higher GDP growth and not directly by the investment in nuclear power.

If South Africa follows a path of lower economic growth, and nuclear costs are high while cheaper alternatives exist, a commitment to a fleet of nuclear power plants will have negative socioeconomic implications. Electricity prices will be higher over the period 2030-2040 and could be 20% higher in 2040 when compared to a flexible planning approach; similarly, there will be negative effects on key sectors as well as on GDP.

Potentially serious ramifications on welfare for all

The investment required for electricity generation infrastructure will be significant, crowding out investment in other sectors and increasing the electricity price. This could lead to a significant number of jobs at risk as the economy contracts in response to higher electricity prices.

Given high levels of unemployment amongst unskilled workers and the potential negative impacts on relatively employment intensive industries, unskilled workers are most likely to face the worst impacts of growing unemployment.In turn, household consumption will drop for all consumer groups, with potentially serious ramifications on welfare for all.

The results discussed above are for two illustrative futures, when in reality an infinite number of futures could unfold. The Monte Carlo analysis was used to analyse 1000 of these futures combining different assumptions for the uncertain parameters, drawing from probability distributions for each one of them.

94% chance electricity prices will be higher with nuclear

This probabilistic approach was used to gain an understanding of the risks associated with committing to 9.6 GW of nuclear by 2030, by comparing in each of the 1000 scenarios the electricity price trajectory when a more flexible approach is taken.

The results show that in 2030 there is a 94% chance that electricity prices will be higher if South Africa commits to a full fleet of nuclear instead of adopting a flexible planning approach. They also show that the risks of sustained higher electricity prices are very high.

A commitment to 9.6 GW before 2030, when demand is low and more affordable alternatives exist would therefore not be prudent. The investment could have significant socioeconomic implications and the lock-in associated with the investment will result in South Africa foregoing investment in other small scale and more cost effective electricity generation technology options.

Don’t discard nuclear completely

However, this does not mean that nuclear power should be completely discarded as an option for South Africa in the longer term, as it may indeed play a role in the SA power system under certain circumstances, some which may not have been considered by the analysis. Given uncertainty, it is preferable to keep all options open, but there is no rush in terms of making this decision, and there is no justification for making a commitment of this scale at this time.

There is a balance that must be found between investing in electricity generation capacity and investing in other key areas of the economy. This study clearly shows the trade offs of investment and the potential crowding out effects that could transpire with an overinvestment in the electricity sector, especially in instances of lower growth.

What SA should do

South Africa’s electricity build plan must reflect and balance the expected electricity demand, consider least-cost alternatives and ensure the provision of affordable electricity to consumers.

Therefore, given the risks inherent in long-term electricity planning, government must, if it chooses to procure nuclear power, do so in a way that minimises the likely risks and negative effects on the economy and consumers in South Africa.

Our results show that there is no economic case to be made for a firm commitment to commissioning a full fleet of 9.6GW of nuclear power by 2030.

The findings of this study show that in all futures a flexible planning approach is preferred.

 

By Tara Caetano
Published on Fin 24 on May 05 2016 07:50

* Download the research paper from the ERC’s site.