SAfrica drops planned nuclear plant

CAPE TOWN, South Africa - In a blow to South Africa's efforts to reduce reliance on cheap, polluting coal, the state electricity company said Friday it could not afford to build a planned new nuclear power plant.

Eskom said it had ended the bidding process between the EPR consortium led by Areva of France and the N-Powerment consortium led by Westinghouse of the United States because of the "magnitude of the investment."

It was estimated that the pressurized water reactor would cost more than 100 billion rands ($10 billion) — the largest single investment in Eskom's history. Construction was due to start in late 2010 to complement the sole existing nuclear power station at Koeberg near Cape Town.

South Africa relies on its big domestic reserves of coal for nearly 90 percent of its energy needs, but is increasingly concerned at the environmental impact of this, given that Africa is expected to bear the brunt of global warming.

Eskom and the government announced the nuclear expansion program last year at the height of crippling energy shortages that brought rolling blackouts to much of the country and temporarily closed the vital gold mining industry.

The government said it supported Eskom's decision and that the projected fall in energy demand associated with the global downturn should ease supply pressure. It said it was still committed to exploring the use of nuclear energy to cut reliance on coal but at a more reasonable cost.

"Particularly in the context of the global financial crisis, we must be vigilant to ensure that Eskom does not overextend its balance sheet and that our ability to provide the economy with competitively priced energy is not jeopardized," said a senior government official, Portia Molefe.

International ratings agencies recently downgraded Eskom's credit worthiness because of concern over the size of its planned borrowing to fund the nuclear plant and other infrastructure projects, expected to cost about 343 billion rands ($34 billion).

Eskom had hoped to meet some of the costs by electricity price increases of more than 50 percent, but the government said the price rises must be limited to below 30 percent.

Molefe said the costs quoted by French state-controlled Areva and Westinghouse, headquartered in Monroeville, Pennsylvania, did not reflect the economic slump.

"It's a different world from when this tender went out," she said. "At the time everyone, virtually every single serious player who has a big electricity system, was looking at introducing nuclear. ... It was definitely a suppliers' market. What we know for a fact going forward it is definitely going to be much more of a buyers' market."

"We anticipate that they're not going to like it," she said of the bidding groups, "but the world is the way that it is right now, and we have to be pragmatic and deal with it in what we felt was the most appropriate fashion," Molefe told journalists.

Political opposition parties hailed the news, saying it spared South Africa the burden of a huge foreign debt.

Even environmentalists were jubilant.

"This represents a watershed moment in South Africa's history, and is the start to sane economic planning in the energy sector," Earthlife Africa said, pointing out that the costs of nuclear power outweighed the benefits.

Environmentalists have long argued that South Africa should invest in wind and solar energy, given that its long coastline is regularly lashed by high winds and much of the country enjoys months of baking sun.

The country has just one wind farm near Cape Town, with four wind turbines — compared to 19,000 turbines in Germany. It lags far behind other countries in encouraging the use of solar power.

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