NNWE Chairman, Tim Yeo’s speech to Nuclear Africa 2016
At Nuclear Africa 2016, Tim Yeo calls for South Africa to drive a hard bargain with potential vendors and to learn lessons from other countries that are constructing nuclear plants by highlighting that the risks of construction and cost overruns can be reduced by choosing tested and tried nuclear technologies, rather than first of its kind technology
It is a great pleasure for me to revisit South Africa even for only 5 days. A very beautiful country to which I first came exactly 30 years ago when, I need hardly say, it was a very different place from what it is today.
When Dr Kemm introduced today’s session and said this was the greatest assembly of nuclear brain power he filled me with trepidation because as you will soon discover I’m not a nuclear expert, but a former politician. Some of you, I fear, are already thinking to yourselves “when did ignorance of a subject stop a politician from talking about it?”
But I have been a consistent and long term advocate for nuclear because that is where the evidence which I studied as a policy maker for over 30 years led me.
I’m grateful to Dr Kemm for moving me up the batting order because even though there have only been 4 speakers before me they have, between them, already made most of the points which I wished to make.
I won’t repeat what has been said very eloquently about both safety and the importance of greater harmony in regulation except to say that I entirely agree with it.
Anyway I welcome this chance to address the issues which will determine SA’s forthcoming decisions about nuclear power.
My organisation NNWE exists to encourage and promote investment in new nuclear power. We do this because we passionately believe that nuclear meets 2 of today’s absolute energy imperatives.
First nuclear delivers the low carbon electricity that is now essential for countries which are serious about trying to cut their carbon emissions.
As someone who has long believed that addressing climate change is by far the biggest and most urgent challenge confronting policy makers in the first half of the 21st century.
I readily and gladly pay tribute to the distinguished role played by SA in helping to secure wider international acceptance of the need for more urgent and larger scale action to tackle climate change.
Delivering low carbon electricity is one area where nuclear has the edge over most other sources of low carbon electricity including particular certain renewable energy technologies such as solar and wind.
I recognise of course that renewables have an important role to play especially here in SA where the climate is so well suited to solar power. But until the world finds a cheap efficient way to store electricity the intermittent nature of both solar and wind means that neither can be relied on as the only source of low carbon electricity generation because there will be times when neither solar nor wind produces any power at all.
But make no mistake. Even though NNWE exists to promote investment in new nuclear we have never suggested that the choice is between nuclear and renewables. This isn’t an either or question. Both nuclear and renewables can and should be part of the energy mix in most countries and SA’s Integrated Resource Plan wisely recognises this is the way forward here.
But as well as these first two imperatives there’s a third one which is as important as the other two. Nuclear power must also be affordable. And at a time of low fossil fuel prices and big falls in the cost of some renewables – notably solar – making nuclear affordable is a challenge.
A challenge not just in SA but elsewhere too. In the UK for example where the Government has backed a FOAK nuclear technology the high price which this has imposed is causing concern.
But here in SA I believe you have some great advantages. The President has made clear that SA will only embark on a nuclear new build programme when you are comfortable with the timetable, the cost and the vendor.
That is a wise and prudent approach. The President has also said that there’s no need to rush into making this decision.
Given that the effects, the consequences of the decision on nuclear will still be felt in the second half of the century it’s certainly far more important to get the decision right than to take it quickly.
As it happens SA can exploit the fact that there is now healthy competition between several potential nuclear vendors gives the Government a strong hand to play in the forthcoming negotiations.
Looking round the world the very good news is that encouraging progress is being made in bringing down the cost of new nuclear.
Take UAE as an example. Here the first of four new NPPs is nearing completion only 6 years after the signing of the original contract for its construction. The Korean consortium whose project this is expects that the cost of the electricity generated will be competitive with that produced by a CCGT.
There’s another interesting aspect to this project. UAE is a rich and successful economy situated in the middle of the world’s largest and lowest cost oil and gas fields.
The fact that UAE is choosing to go down the nuclear route completely gives the lie to those people who claim that the first world has turned its back on nuclear power.
Far from it. It simply isn’t the case, as some opponents of nuclear try to allege, that nuclear is being foisted by companies in the first world on reluctant customers in emerging markets because they can’t sell their technology in rich countries.
Countries which can afford the luxury of choice are choosing new nuclear and my own country Britain is one such because we see it as a technology fit for the 21st century.
Take China – a country which is trying hard to cut its heavy dependence on coal consumption. It is doing that for both climate change and health reasons. As public concern in China mounts about the terrible air quality in many cities a clear decision has been made to go nap on nuclear.
The sheer scale of the Chinese nuclear new build programme will drive costs down significantly and incidentally it was the enormous scale of the Chinese solar manufacturing industry which led directly to the huge reduction in the last decade in the cost of solar panels.
In addition to the examples of Korea and China Russia is also showing how the cost of nuclear power can come down. The consortium now building new NPPs in Finland, in which Rosatom has a stake and which is using Russian technology, expects to produce its electricity at a very competitive price.
I’ve not tried to give a comprehensive list of all the technology choices available to SA but these examples do illustrate that new nuclear is an option which looks increasingly attractive.
This week NNWE published this report entitled “South Africa: The economics of nuclear energy”. It was written by Trusted Sources, the leading independent provider of investment research on emerging markets.
This report has three key conclusions. First it shows that, using the methodology used by the International Energy Agency, the LCOE produced by new nuclear is competitive with that produced by coal. In fact the report suggests that over the lifetime of a new NPP the electricity generated will actually be cheaper than the IEA’s estimate of the price for coal.
Secondly it shows that SA’s planned nuclear energy development would reduce carbon emissions by 21% compared with business as usual. Again this is economically attractive. Even on modest assumptions about possible carbon tax rates, for example a at a tax rate of €20 per tonne – the rate widely forecast to be prevailing in Europe in the mid 2020s – the value to SA of the reduction in carbon emissions resulting directly from nuclear is no less than US$22 billion.
Third the report calculates the benefits to South Africa’s GDP which will flow from obtaining a share of the supply chain work which will be spawned by a decision to invest in new nuclear. The highest plausible localisation level of 45% will apply a real positive shock to S African industry and to the economy.
The multiplier effect of this industrial investment on GDP would be 3.4 times. The monetary value of the incremental value added in current US$ would be over $77 billion. This equates to almost 1/4 of SA’s current GDP.
Properly exploited, localising a decent chunk of the work involved in building and operating new NPPs could help SA grow an industry and skills base from which a global export business could develop.
Anyone who is sceptical about whether this can happen should look at the example of the car industry. If I can be permitted a brief personal digression I recall my own doubts when on my first visit to this country 30 years ago I was taken to see the BMW factory at Rosslyn not far from here. If I’d been asked then whether SA would build a huge car export business I would have expressed doubts. Doubts which I happily now admit would have been totally misplaced.
So don’t let the sceptics dismiss the possibility that a decision in the next couple of years to build new NPPs here in SA might lead on directly to the growth of world beating nuclear supply chain companies.
Looked at this way the report from Trusted Sources suggests that the question “can SA afford to go nuclear?” may be the wrong question to ask. Perhaps the question for policy makers now should be instead “can SA afford not to go nuclear?”
In the 21st century no country will enjoy the benefits of a successful economy unless it has a reliable up to date energy infrastructure base capable of meeting the demands of modern commercial and domestic life. Nuclear can ensure that SA has that base.
What this report shows is that a decision to invest in NPP will bring other substantial benefits too; cheaper electricity for consumers; faster reductions in carbon emissions; and a significant boost to GDP.
So to conclude how should SA make its decision? Let me emphasise that I’m not here to tell anyone what to do. But I do want to try to help define some of the factors which Government should take into account when weighing up the alternatives. And let me stress again that Ministers are right to take their time to do this.
First learn the lessons from others who have gone down the nuclear route. The risk of cost and timetable overruns can be minimised by avoiding FOAK technologies. Choosing tried and tested technologies creates a better chance that projects come in on time and on budget.
Second drive a really hard bargain on the share of the supply chain work which can be localised. This is an area from which huge benefits potentially flow but they will only be captured fully through good negotiation.
Third remember that the ultimate cost of electricity generated by nuclear depends significantly on the cost of borrowing the huge capital sums required up front for construction. These costs start to be incurred even before construction begins and that’s usually 6/8 years before a single cent of revenue is earned.
So negotiate toughly with vendors over the issue of finance too. If they can borrow more cheaply than SA can – and that may well be the case – then shift as much of the financing burden during the construction phase as possible on to their shoulders.
I very much hope that SA makes progress towards new nuclear during the rest of 2016. SA is the first country outside Europe in which NNWE has taken a close interest.
The historic decision which your country is now contemplating will have very far reaching and very long lasting consequences. I hope it will be taken with wisdom and with an eye to its long term impact.
Thank you for listening and good luck