In a blow to South Africa’s plans to reduce reliance on cheap, polluting coal, the state electricity company said on 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 US because of the “magnitude of the investment.”
It was estimated that the pressurized water reactor would cost more than 100 billion rand (US$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 which 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.
“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,” the government said.
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 rand.
Eskom had hoped to meet some of the costs by electricity price hikes of more than 50 percent, but the government said the price increases must be limited to below 30 percent.
Eskom said it had already notified state-controlled Areva and Westinghouse, headquartered in Monroeville, Pennsylvania.
Environmentalists have argued that South Africa should rather 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 with 19,000 turbines in Germany. It lags far behind other countries in encouraging the use of solar power.
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