Understanding Eskom’s nuclear ambitions – an interview with David Nicholls

January 18th, 2017, Published in Articles: EE Publishers, Articles: Energize


In an exclusive interview, Chris Yelland, investigative editor at EE Publishers, posed ten questions to David Nicholls, Eskom’s chief nuclear officer, to explore issues surrounding Eskom’s proposed new nuclear procurement programme for South Africa, and to try and understand Eskom’s thinking. These are his responses, published below in slightly edited form for compactness.

Please note that questions around financing of the proposed nuclear new-build in SA were specifically excluded from this interview, as this will form part of a subsequent article.

Chris Yelland interviewing David Nicholls.

Chris Yelland interviewing David Nicholls.

Q1: Please comment on suggestions that the nuclear procurement process followed to date by the Department of Energy (DoE) is secretive, illegal and flawed, and that transparency will worsen under Eskom?  

Over the last few years, the information discovery and analysis process has been handled by the DoE, in parallel with Eskom in a supporting role. Yes, some people do believe that the nuclear new-build is a done deal, that terms have been agreed to, and that we are now catching up with the paperwork to make it look legal. But Eskom is now handling the procurement, and we are not aware of any such agreement. Contrary to worsening transparency under Eskom, we will at all times do what we can to avoid being secretive, and publish information publicly. As for being illegal and flawed, I can’t really comment on the claimed illegality, but if no agreement has been made, I can’t see how such “agreement” can be illegal. As there are only four or five potential vendors competent to supply this kind of technology and likely to submit bids, and these vendors are known to Eskom, we could have opted for a closed bid process. However, Eskom will almost certainly go out to open tender, with the request for proposals (RFP) document published on the Eskom and National Treasury websites, just as we did with the request for information (RFI) issued in December 2016, to ensure that we are seen to be transparent.

Q2: The DoE and Eskom indicated it intended to issue a substantial request for proposals (RFP) for new nuclear by mid-2016 and then by end-2016, but at the last minute this was changed to a brief request for information (RFI) issued in December 2016. Why was this?

I can’t comment on earlier DoE announcements as to when the RFP would be issued, or on the reasons for their delays. What I can say is that on 14 December 2016 a Section 34 determination was gazetted, which designated Eskom as the procuring agent for the nuclear new-build, in place of the DoE. That was when our procurement process really started, although we had been thinking earlier about what we could do. We are well aware of National Treasury’s guidelines, and the Public Finance Management Act (PFMA) requirements, which require certain interactions with National Treasury. Although we had asked for meetings with National Treasury, these had not taken place before 14 December 2016. Eskom picked up the task as a clean sheet in the middle of December 2016, and took a view that we should issue an RFI to confirm some of the assumptions, insofar as we can. This was the reason the RFI was issued in December 2016. We are approaching National Treasury now to discuss various exemptions and waivers we require, as is conventional for any large project of this nature.

Q3: Could an RFP have been issued without knowing if, how much and when nuclear power was required in SA in terms of an updated IRP, and without specific authorisation by Treasury?

Whilst there is a pre-existing, gazetted Integrated Resource Plan for Electricity, IRP 2010-2030, and a gazetted Section 34 determination, Eskom still needed certain authorisations from National Treasury in order to commence with the commercial process through issuing an RFP. These include, for example, the criteria for bid selection. On the matter of cost and affordability, although we have a pretty good idea about what nuclear power stations cost based on our surveys of export deals and their scope in the last ten years or so, there is no nuclear power plant price list out there. The RFI may provide indicative prices based on previous projects, but will not provide estimates for new projects. So the only time you really know the price is when you have a formal bid in front of you, and the fine details have been negotiated. And if you can’t start the process before you know the outcome, you will never start.

Q4: What is the envisaged procurement time-line, and when will the RFP likely be issued, evaluated, project approvals obtained, and orders placed for a nuclear new-build in SA?

The RFI calls for information to be available at the end of April 2017. Our target is then to get the RFP out by mid-2017, with evaluation of the vendor proposals by the end of 2017. That would be an ideal situation, and I am not going to pretend that it couldn’t be later. We will then need to negotiate with the vendors, one at a time, to select a preferred vendor, and then move into the localisation discussions. But from the moment we’ve selected the preferred vendor, my belief is we will start contracting the long lead items at risk. We will then start doing things like submission of the licencing application for the chosen technology to the nuclear safety authority. And it will probably take about a year, or longer, from initial start to get the contract finalised. As for site work, this would start with putting in some roads to get access to the site, physically clearing the site, terracing, digging holes in the ground, and pouring of concrete. I estimate this would primarily be constrained by the Environmental Impact Assessment (EIA) process, and approval and issuing of the necessary permits. But this work could conceivably commence in 2018, or if we are lucky, maybe even in 2017 for early, off-site work, like roads.

Q5: There have been suggestions of a hostile working relationship between Eskom and National Treasury since the public spat in 2016 surrounding coal contracts. Is this delaying the RFP?

From Eskom’s vantage point, since being designated the procurement agent, owner and operator of the nuclear new-build in SA on 14 December 2016, there have been no delays due to National Treasury. We have the RFP virtually ready to go, and there were clearly no delays by National Treasury in Eskom’s issuing the RFI. We are now approaching National Treasury to discuss the proposed RFP, and we don’t foresee any problems. But neither I nor the Eskom nuclear procurement team have any previous working relationship with National Treasury, and therefore we can’t comment further at this stage. We assume there won’t be any delays by National Treasury because this is a national project with cabinet blessing.

Q6: Please can you advise Eskom’s estimated pre-tax real levelised cost of electricity (LCOE) from an Eskom-driven nuclear new-build in SA, and the assumptions on which this is based?

This is a difficult question, because the assumptions themselves tend to be business driven activities, but Eskom has a very straightforward view.

We have issued ourselves an internal target that for this project to make sense, the LCOE from the nuclear new-build must be between R0,80 and R1,00/kWh for the first two reactor units. This is based upon the assumptions of Eskom’s standard discount rates, with export credit financing at rates Eskom is currently getting, and overnight costs for the plant that are inside the envelope we are seeing in the world market at the moment. So as key assumptions, we are looking at an overnight capital cost for the early machines in the range of US$4500/kW, a reactor construction time of six years, plant economic life of 60 years, and fixed and variable operating and maintenance costs of about R0,27/kWh including fuel costs, which is what we are currently achieving at Koeberg in today’s money. Regarding the weighted average cost of capital (WACC) assumed, I don’t know. I think it’s the Eskom standard one, but I am not able to give you an answer at this stage.

Q7: Can you expand on the requirements and rationale in the RFI for Eskom to own the global intellectual property (IP) rights for the technology deployed in the nuclear new-build in SA?

The RFI is asking for information on behalf of the South African industry to clarify and understand exactly what we would be getting. Government policy is to use the construction of a nuclear fleet to build and sustain a domestic industrial capacity. To do that there has to be a market for it. So, we’re asking in the RFI – at design, overall plant and component level – to maximise localisation, and that also links to the IP rights. We would like to secure the rights to build the plant ourselves, and ideally, in due course, to export locally manufactured nuclear components, or even the entire plant at some stage. This was the route taken by the French, the Chinese and the Koreans in technology transfers which they got from different countries to build their own nuclear power industry capability. Ownership of IP does not necessarily mean license-free ownership, and there might be a license agreement for a portion of the project. So we’re not just saying: “Give it to us”. We are asking potential vendors: “What are you prepared to consider?”

Q8: Can you share Eskom’s preferred business model for the construction, ownership and operation of the proposed nuclear new-build in SA? 

First of all, any business model is also dependent on what options are proposed to us by the bidders. But clearly, the Section 34 determination has designated Eskom, or an Eskom subsidiary, as the owner-operator of the nuclear plant. For ownership, we see a similar model to Koeberg. Eskom will own it, Eskom will operate it. At Koeberg, operation has been predominantly a South African run activity since it started up, but if we need operational help, we will contract it. Regarding construction, as with Medupi, Kusile and Ingula, Eskom will contract somebody else to build the power plants for us. Therefore, in a real sense, to begin with we expect a turn-key contract, as it was with Koeberg. This is the way most of the recent successful export deals in the world have been done. We want to benefit from the expertise and experience of the vendor. We want to buy a machine that the vendor is already building for somebody else, a generic machine that will not be unique to SA. To begin with, like Koeberg, the vendor would play a major construction role, and then hopefully, it will become more of a South African activity as time goes on.

Q9: Would the engineering, procurement and construction (EPC) main contractor for the nuclear new-build be required to be a South African company in which the nuclear vendor, Eskom, South African contractors, BEE partners, etc., are shareholders?

Inevitably there are several key contractors involved, such as the reactor plant vendor, turbine plant vendor, civil works contractor, and others. These are all integral parts of the turnkey offer. What we expect is for the successful bidder to form a company to be the EPC main contractor, with the key contractors as shareholders or joint venture (JV) partners. Classically, performance guarantees to the customer (Eskom in this case) are provided by the JV company, and also jointly and severely from the different principle parties. We would like the principle vendors to create a proper EPC contracting company, which is staffed and does the physical work in South Africa as the local contracting agent. And we’d like the ownership of the EPC company to be split between Eskom, and the vendors.

Initially the vendors would hold the majority of the shares in the EPC company, say 74%, with Eskom (or another South African entity under government control) holding 26%. This is also key to the IP discussed earlier, which would be transferred to this company by the vendors at the beginning of the process. Thus, the EPC company would control the IP, and Eskom, as a minority shareholder, would have access to it. However, Eskom would want the right to take on more shares in the EPC company as more reactors are ordered, with the goal to move ownership and control of the IP progressively from the vendors to Eskom.

This is a view we have at Eskom as one way of doing things. It’s a possible way – we certainly do not think it’s the only way – and we ask the vendors to indicate if they are happy with this.

Q10: Is a nuclear new-build in SA a flexible, least-cost decision of least regret in an uncertain world, where electricity demand is unpredictable, and where disruptive technologies abound?

Eskom has the view that nuclear power is the only credible option for new baseload generation in SA. Eskom currently has some 34 000 MW (34 GW) of existing coal fleet, ranging from middle-aged to pretty old. In the next 20 to 30 years we need to expand our baseload capacity, and also replace a large portion of the aging plant. For despatchable baseload capacity, there are four options on the table in the world today: coal, gas, hydro and nuclear. Within SA we have no gas and no short-term gas prospects – any gas we import is going to be at a cost. While technically gas can certainly work, the economic issues and low job-creation prospects are too significant. There are no significant new hydro opportunities within SA, and while there are some pump storage schemes we can still build, essentially hydro power would be imported, with issues surrounding foreign exchange, security of supply and low job-creation. So that leaves coal and nuclear. Our view is that coal is going to be increasingly challenged by environmental requirements, while nuclear power has an exceptionally good track record locally and internationally on both safety and economics.

Send your comments to energize@ee.co.za


  • 小杜 (xiao du)

    Good interview but rather light handed, but I feel that the hard questions should have been delved into further.

    Eg build costs. Historically Eskom has run far over budget and time.
    If their guesstimates for new build Nuclear are 6 years / R.80-R1/kwhr, you can likely double that. $4500 / KW is quite likely fantasy.

    The smarter move would be to add more renewables now (using other peoples money, as we have done with REIPP phase 1-4), and retire some of our coal to secondary generation.

    We actually do have additional hydro capabilities, so he’s wrong about that or being disingenuous. Eg Polihali – 1.2GW

    Gas too – Richards Bay pipeline to Moz has been mooted a number of times.
    Richards Bay currently has 2GW of gas -> power generation being built, with another 1G at Coega. Both are IPP projects.

    Yet another issue is that Thyspunt has geological problems. Its not suitable for Nuclear, yet they want to go ahead there.

    Nuclear seems to be an all or nothing strategy. Nothing is still looking pretty good.

    • Ben Franklin

      Tripling the capital cost and construction time would be more nearly in line with what is happening with Flamanville and Olkiluoto. By Areva/EdF, the designated successors of Framatome which built Koeberg.

      • 小杜 (xiao du)

        I agree (but that should be pretty obvious!)

        New build Nuclear will cost double Eskom’s pricing – eg R1.3 – R1.5 at _best_, and given the extremely likely cost overrun’s will likely be double. That makes it far more expensive than Solar+Storage or even CSP, both of which have near zero environmental issues, and zero water requirements. R1.3-R1.5 calculations –
        www dailymaverick co za/article/2016-08-02-analysis-how-much-will-new-nuclear-electricity-cost-south-africa/

        Olkiluoto will likely be even more expensive than it already is. Its looking ever more likely that it will never operate as more and more issues come to light. The investigation into the Le Creusot manufacturing flaw coverup has found issues with equipment supplied to Olkiluoto.

        Some further details here –

        www worldnuclearreport org/Wall-Street-Journal-US-Coverup-at-French-Nuclear-Supplier-Sparks-Global-Review.html

        “A string of discoveries triggered the newly expanded review: First, French investigators said they found steel components made at Le Creusot and used in nuclear-power plants across France had excess carbon levels, making them more vulnerable to rupture. Then, the investigators discovered files suggesting Le Creusot employees for decades had concealed manufacturing problems involving hundreds of components sold to customers around the world.

        The disclosure of flaws covered up by Le Creusot led to two reactor shutdowns this summer in France, and in September authorities ordered Areva to check 6,000 manufacturing files by hand, covering every nuclear part made at Le Creusot since the 1960s.

        Areva executives have acknowledged the records falsifications and blamed them on a breakdown of manufacturing controls spanning many decades at Le Creusot. Areva has since tightened its controls and is cooperating with the regulators’ reviews, company officials said.

        Beyond France, regulators are trying to determine whether other nuclear facilities that relied on components from Le Creusot are safe. Finnish inspectors visiting the forge last week said they learned of potential flaws in a component slated for a reactor in the southwestern island of Olkiluoto. In the U.S., the NRC has identified at least nine nuclear plants that use large components from Le Creusot.”

        Nuclear is dead in the water pretty much everywhere, and cheaper and faster renewables builds are proving that inflexible generation is not the future.

  • Judith Taylor

    What is of huge concern to me is the ongoing impact of the mining waste areas on the population from Welkom to Nigel. This area is highly radioactive and is causing huge health problems for the affected communities. This includes deformed babies, cancers, lung problems and other health problems. I, myself, have radiation damaged feet from doing work out there.

    Nothing proactive is being done there. The communities have been hung out to die. This area is the result not only off mining but also of the deliberate dumping of 6000 tonnes of processed uranium after sanctions stopped export to the USA and France in 1982.

    Fukushima and Chernobyl still leak and deformities and deaths continue. The nuclear industry cannot contain or repair the problems. They also neglect to provide solutions to remediate the impacts of uranium mining worldwide. They have not been able to provide safe storage of nuclear waste.

    Chris – I challenge you to interview me and learn the impact of the nuclear industry on the world

    • Judith, I would love to talk to you – or mainly hear more from you – about this. I’ll try to get in touch via Facebook fairly soon.

      • Judith Taylor

        My pleasure – this has been my area of study for many years now

  • Ben Franklin

    The 80c to R1 per kWh cost for nuclear power quoted above is BELOW HALF the guaranteed MINIMUM cost of the new UK plant at Hinkley Point C.

    There, a MINIMUM of 92.5 GBP per MWh has been guaranteed in 2012 GBP, or roughly 125 GBP (pound sterling) per MWh in 2017 terms. This is about R2.09 per kWh when expressed in 19 Jan 2017 rands (R16.74/GBP).

    • 小杜 (xiao du)

      92.5GBP at *indexed* rates for 35 years.
      92.5GBP was already insanely expensive. Indexed rates make it even more so. 92.5GBP doesn’t exist as a price anymore, despite it being thrown around by the press.

      Current electricity rates in UK are closer to $50/MWhr

      Nuclear was supposed to be cheap, no? Its already double anything else in the UK.

      And the kicker is that as its indexed rates, it guarantees a projected income over 35 years of about £72 billion. Build costs are guesstimated at about 18Billion. No real suprise that China wanted to invest, given that the return on investment is guaranteed, even if it goes 300% over budget.

  • Geoff Davies

    Admittedly David Nicholls has a vested interest in nuclear energy from his position with Eskom, but his response in question 10 that the only options available to Eskom are gas, hydro, coal or nuclear is mind-boggling and grossly irresponsible to country and planet.

    With so much investment and so many advances and so many employment opportunities in renewable energy (China’s investment is reported to be creating 13 million jobs!) it is difficult to believe Eskom is not prioritising renewable energy, particularly when we are blessed with the best of wind and solar resources.

    The only conclusion is vested interest and political pressure to drive the nuclear route.

  • Alan M

    Dear Editor

    Eskom, much to Malusi Gigaba’s chagrin, has been blowing the whistle on the problem of wind and solar since Brian Molefe spotted it last year.

    Why would any sane operator of an electricity distribution system want to add generators that have their input energy delivered uncontrollably, and for less than averages of 40% (wind) and 25% (solar) of the time ?

    Anyone who has had to depend on wind and/or solar electricity will tell you that solar is more consistent than wind, as the latter often disappears for days. Those who live in mostly cloudy climates would not enjoy the choice, as solar is dismal there too. But all of them gladly sign up as soon as the possibility of mains electricity is mentioned. Why they do, is because the mains is the most consistently available electricity they can buy.

    Allowing wind and solar free access to input electricity whenever it is produced, to any distribution system will degrade the availability and technical quality of the electricity the system delivers. Which is why grid systems that have such free access, have always suffered increased costs. They are adding expenditure that is not only fruitless, but downright damaging to energy production and thus to the economy of the distribution region itself.

    Have a look at the CSIR’s decarbonisation scenario in 2050 for an object lesson in how to destroy a grid. They advocate 84GW of Solar PV, 13GW of CSP, 83GW of wind farms, 16GW of Biomass, 29GW of peaking, 14GW of gas, and 9GW of Hydro and pumped storage. All 248GW to supply 522TWh that our present 43GW or so only needs to be doubled to 86GW to produce easily. So Dave Nicholls needs to find something that can equal the two times 40 = 80GW of coal can produce, thanks to our government’s gung ho attitude to promises made to the world’s CO2 phobes. And where does the CSIR expect to store overproduction by the irresistible renewables as they battle to maintain their really low average outputs? In the fuel tanks and batteries of consumers who need to feed back what their chargers have accumulated. How keen will said consumers be?

    Alan M (Please respect nom-de-plume if you elect to publish, or I will be fined at Probus Club.)

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