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Nuclear too costly and SA does not even need it

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Nuclear too costly and SA does not even need it

BY ANTON EBERHARD

SA has already ordered more power than we need by 2030, and there is no requirement to add nuclear to the mix, argues the writer. Picture: SUNDAY TIMES

We face a possible credit rating downgrade to junk, which will make us all poorer: it will cost a lot more to service our debt, there will be less money for social programmes, the rand will fall even further, and inflation will rise.

Yet some still promote a huge nuclear programme that is not needed, that is more expensive and risky than alternative energy sources, that is hard to finance, and that will create contingent liabilities for the Treasury when we can least afford them.

SA does not need to procure large chunks of new power now. Electricity demand is not growing: it’s falling, and is lower than it was a decade ago. Depressed economic activity is partly the reason, but it’s not the most important one.

Electricity and economic growth data no longer track each other. The size of SA’s economy has continued to increase, albeit slowly, but electricity consumption has headed in the opposite direction. Countries such as Australia have seen a similar decoupling of energy and economic growth.

Could electricity demand in SA rebound if economic growth revives? Do we need to cater for depressed electricity demand as a result of Eskom supply constraints? Possibly. But we also need to recognise that there are profound changes to the energy-intensity of our economy, as smelters and mines close. The structure of our economy is changing. A fourfold increase in electricity prices in the past decade has accelerated energy-efficiency investments and energy conservation.

Official electricity demand forecasts and plans are obsolete. If demand for electricity were to reignite, it would fire off a lower base, and the rate of growth would be lower. When we project demand forward to 2030 or beyond, it’s obvious that we need a lot less power than was forecast in the Integrated Resource Plan of 2010 (the basis for the 9600MW nuclear commitment).

But we also need to replace old coal power plants, and compensate for the decline in the performance of Eskom’s existing power stations. I’ve taken all these arguments into account, and calculate that we need about 17GW of new electricity generating capacity by 2030. Some may calculate a slightly different number, but the required capacity will be close to this.

We have already ordered more power than we need by 2030. The new Eskom Medupi and Kusile coal power stations will add 9.6GW; its Ingula pumped storage scheme, 1.3GW. Two peaking power stations — Desisa and Avon, ordered by the Department of Energy — will add 1GW.

Contracted industrial co-generation and the department’s coal independent power producers (IPPs) will each add 1GW, with plans for more. In addition, 92 projects, totalling 6,347MW, have been contracted in the first four rounds of the department’s renewable energy IPP programme. Granted, this is intermittent power and will need to be complemented by gas power plants that the department plans to procure this year. More than 3GW are in the pipeline.

In the meantime, SA has negotiated 2.5GW of hydro power from the Inga 3 development in the Democratic Republic of Congo, and is considering further hydro imports from the region.

Together, these power procurements exceed what we need in the next 15 years.

Nuclear energy is also more expensive than alternative power sources, and the risks of cost overruns are greater. Eskom argues that its Koeberg nuclear power plant is cheap, but this is old, generation II technology, and provisions for multibillion-rand decommissioning costs are not fully accounted for. New power plants will have to incorporate the much more expensive design features of safer generation III+ nuclear technology.

Our cheapest sources of power are now wind and solar energy. The Department of Energy has awarded long-term, fixed-price contracts for wind energy as low as 57c/kWh, far below Eskom’s average cost of supply. Renewable energy combined with gas power can offer reliable base load supply at less than R1/kWh. Imported hydro and coal IPPs will also beat this.

I challenge any nuclear power vendor to sign a long-term power contract at less than R1/kWh. Whenever I ask them what nuclear power will cost in the country, they say “it depends”, and “it will need to be negotiated”.

This is the point: nuclear vendors are loathe to submit to a competitive tendering process based on a long-term, fixed-priced contract in which they take the risks of construction time and cost overruns. But all the other energy technology providers are prepared to do so. This has been the basis of the success of the IPP programme that has delivered such spectacular investment outcomes and price certainty for consumers. So why would we opt for a nuclear procurement programme that aims only to select a strategic partner, with subsequent price negotiations that have uncertain outcomes?

Nuclear power plants are also hard to finance. A couple of years ago in Davos, President Jacob Zuma was asked how 9,600MW of nuclear power would be financed. His answer, remarkably, was: “I’ll speak to my finance minister.”

He would have had that conversation by now and it will be clear that there is no fiscal space to finance a programme that will cost more than a half-a-trillion rand, when we raise just more than a trillion rand annually in taxes to fund all SA’s needs. Debt financing is now the fastest-growing component of the national budget and interest payments are more than twice the spend on higher education.

Our traditional mechanisms for funding power investments are also constrained. Eskom’s balance sheet is stressed, and it is struggling to raise sufficient debt on private capital markets to complete Medupi and Kusile. It has no possibility of raising finance for even one nuclear power station.

The private sector will not finance a nuclear plant in SA. The only possibility is funding from nuclear vendor countries. France will struggle: its nuclear company, Areva, is technically bankrupt and its latest UK nuclear contract — at £92.50/MWh (R2/kWh) — would be unaffordable for us.

Russia will not be able to finance all of its nuclear ambitions. China is a possibility, but financing will need to be backed by a long-term contract with an agreed electricity tariff, and the government will have to provide a sovereign guarantee and insurance cover, which will add contingent liabilities to the Treasury that will hasten a credit rating downgrade.

Eskom’s management recently expressed interest in further investments in large coal and nuclear projects. Its big coal, big nuclear, and big networks strategy is Neanderthal. Why would SA want to go down this route? It’s irrational. SA’s economic situation is precarious. The government now needs to act in concert and remove uncertainty about this nuclear folly. We don’t need it, it is too expensive, and we cannot afford it.

Eberhard is a professor at the University of Cape Town’s Graduate School of Business
First published: http://www.bdlive.co.za/opinion/2016/03/29/nuclear-too-costly-and-sa-does-not-even-need-it
Picture: SUNDAY TIMES

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Necsa now embroiled in nuclear waste row

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BY CAROL PATON, 28 JANUARY 2016, Business Day

The Nuclear Energy Corporation of SA (Necsa) is in a protracted battle with the auditor-general over who is responsible for the cost of decommissioning and decontaminating used nuclear material.

Necsa is arguing that it cannot be expected to take on the full burden.

Calculating the cost of decommissioning and funding it is a critical issue in the management of nuclear energy and one over which there is much contention internationally between operators, regulators and governments.

It will be a major issue for SA’s forthcoming nuclear build programme.

Decommissioning and decontamination costs are expected to be Necsa’s major expense in the future and should be reflected as a contingent liability on its balance sheet. These relate in large part to SA’s old weapons programme during apartheid days, but also to the current activities at Necsa.
The matter is one of several holding up the finalisation of Necsa’s annual financial statements for 2015, which are now four months overdue.

On Wednesday, the auditor-general’s office confirmed that it had received a letter from Necsa, saying it intended to dispute its audit opinion for the 2014-15 financial year. The office concluded its audit and issued a report to Necsa in November, but because the report had not yet been tabled in Parliament yet, it would not comment on its contents.
Necsa has two court cases against it — one to sanction CE Phumzile Tshelane and another to declare him and two remaining directors delinquent.
In court papers filed by former director Medi Mokuena, it is claimed that the auditor-general warned Necsa that it faced an adverse audit opinion for “limitation of scope” arising from the failure to provide necessary documents and information required for the audit.

The dispute over decommissioning and decontamination began several years ago.
The Department of Energy’s policy requires Necsa to have a decommissioning plan that is updated every five years, and on which a progress report is provided to the auditor-general every year.
In its report on the financial statements for 2013-14, the auditor-general cited Necsa’s failure accurately to estimate the liability of decommissioning and decontaminating of the apartheid-era nuclear programme as an emphasis of matter.
At the time, the auditor-general criticised the poor quality of Necsa’s report on the liability, saying it was noncompliant and incomplete. Several documents were missing and a critical step, that of involving an independent expert to verify the methodology, was not conducted.

A final report was not submitted to the board nor to the Cabinet as it should have been.
But Necsa head of corporate services Xolisa Mabongo said in an interview on Tuesday that the dispute with the auditor-general was not over the quality of reporting, but the sharing of responsibility for the liability.
He said engagements were continuing. “The issue here is simple. This is a liability that should be shared between Necsa and the government. We need to agree what is the responsibility of Necsa and what is the responsibility of the government. There is no agreement on that at the moment,” he said.

Determining the liability would be a huge undertaking, he said. “At the Pelindaba site, there are about 100 buildings. We are also talking of a period of about 50 years (in the past) and another 10 or 20 years into the future,” he said. Mr Mabongo also said that the auditor-general had previously agreed with the energy department that Necsa would have 36 months to determine a methodology around the liability, which would share responsibility. But last year, during engagements around the audit, “the AG (auditor-general) had suddenly changed its position”.

“We don’t know why the AG changed its position. In terms of Section 50 of the Nuclear Energy Act, the responsibility for the republic’s institutional nuclear obligations vests in the government. Necsa is only the implementing agent to discharge SA’s institutional nuclear obligations as delegated to the company,” he said.

While the current dispute related to previous activities by Necsa and the ongoing programmes at Pelindaba, it has a bearing on how this issue will be dealt with in the future. “This is not directly related to new activities, but certainly as part of the new build, we will need a perspective on that.”

International nuclear energy consultant and author of the World Nuclear Industry Status Report Mycle Schneider says that determining the size of the liability for decommissioning and decontamination is always contentious. “Calculating the potential costs of decommissioning differs from country to country.
“In France, for instance, the range of estimates has been very large. Regulators have tended to take the lower estimates,” he says.
A lower liability estimate protects the balance sheet of the operator while a higher one could place it in jeopardy with funders.

reblogged from:

http://www.bdlive.co.za/business/energy/2016/01/28/necsa-now-embroiled-in-nuclear-waste-row

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Nuclear price tag set Nene against Jacob Zuma

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re-blogged from http://amabhungane.co.za/article/2015-12-17-nuclear-price-tag-set-nene-against-jacob-zuma?platform=hootsuite

18 Dec 2015 – Stefaans Brümmer

2015Budget-0081b-jpg

The treasury’s reluctance to sanction the procurement of nuclear power stations was central to Nhlanhla Nene’s sacking as finance minister, sources say.

Just how wide a gulf opened between the treasury and the nuclear lobby in government is evident from their different calculations of what nuclear would cost.

AmaBhungane can reveal that the treasury’s estimate is a minimum of $4 900 per kilowatt of installed capacity – and realistically up to double that. If applied across the 9.6 gigawatt being considered, the procurement would total R700-billion to R1.4-trillion at current exchange rates.

This is way over the $4 200 per kilowatt, or about R600-billion total now, that the department of energy has punted.

Both sides’ estimates are “overnight”, meaning they exclude financing costs, which will be very substantial.

President Jacob Zuma is a key proponent of the nuclear build and regarded as particularly supportive of a Russian bid.


“We can’t spend money that we don’t have”


A variety of media has reported that friction over nuclear and South African Airways precipitated Nene’s downfall.

AmaBhungane sources with access to senior ANC and state officials confirm this, saying tension went back some months.

The magnitude of the vaunted procurement – the largest in South African history – explains what is at stake for the economy, which was already teetering as ratings agencies warned of a downgrade to “junk” if government did not reign in its borrowing. The attendant opportunity for patronage may help explain what is at stake politically.

Despite the treasury’s concerns, the Cabinet meeting preceeding Nene’s axing last week Wednesday approved the commencement of the nuclear procurement. While the post-cabinet statement was silent on it, Business Day this week quoted new Finance Minister Pravin Gordhan as confirming the decision.

But Gordhan cautioned: “We can’t spend money that we don’t have and we can’t make commitments when we know we are not going to get the money that is required to be spent …”

ANC deputy secretary-general Jesse Duarte reportedly echoed the sentiment, saying the party felt the procurement should go ahead only if affordable. “That’s the message we’re relating to the ANC government.”

Intra-government contestation is apparent from the slippage of the procurement schedule to date.


“Classified”


In mid-July – shortly after Zuma, Nene and Minister of Energy Tina Joemat-Pettersson returned from a Brics summit in Russia – the energy department announced that the procurement would start that same month and that the vendor would be selected by the end of the financial year in March 2016.

The slippage and indications that Cabinet made no financial commitment suggest the decision was partly a sop to Zuma, the nuclear lobby in government and potential vendor countries. A request for proposals may be issued, but actual contracting will not take place until money is found.

How hard that will be – and at what risk to the economy if funds are committed regardless – is apparent from financial modelling that the treasury has done at the hand of expert studies the energy department commissioned from consultants Deloitte, KPMG and Ingerop. The department has turned down requests for these reports, saying they were “classified”. But a treasury source outlined some of its findings. These include:

  • The minimum overnight cost for the first reactors would be about $4 900 per kilowatt. Although economies of scale might see later plants coming in more cheaply, factors such as site-specific complexity and localisation would militate against that.
  • The actual cost could be double the minimum, given the likelihood of cost overruns. New-generation reactors worldwide face average cost overruns of about 70%. South African coal plants Medupi and Kusile are approaching 100% overruns.
  • These costs – the total of as much as R1.4-trillion – exclude complementary elements of the nuclear programme such as establishing a local fuel supply, building waste facilities and decommissioning plants, all of which entail significant expense.
  • South Africans will pay for it through electricity tariffs and possibly tax subsidies. While vendors may provide financing, they won’t assume much risk for overruns, which will lead to consumers paying for these over the plants’ lifetimes.
  • The procurement is extremely large relative to the economy. R1.4-trillion is roughly equal to this year’s total budget and a third of gross domestic product. Few if any other countries are investing in nuclear to this extent. By comparison, the overnight cost of the arms deal announced in 1999 was only about 13% of that year’s budget.

By comparison, the overnight cost of the controversial arms deal announced in 1999 was only about 13% of that year’s budget.


“Political pressures were growing, calling into question the government’s continued ability to maintain spending restraint”


Low growth and government borrowing to finance capital and current expenditure have left the treasury between the rock of further spending demands and the hard place of credit ratings. All three major rating agencies drove the message home in the past two weeks by downgrading South Africa or changing their outlook to “negative”, leaving the country hovering above “junk” status. Downgrades raise the cost of servicing debt and a junk rating may spur an unmanageable debt spiral.

In response, the treasury has committed to an expenditure ceiling that should stabilise government debt at just under 50% of gross domestic product. But that is not the full picture. If the R470-billion that the treasury has extended in guarantees to state-owned companies such as SAA and Eskom is included, the gross liability pushes over 60% already.

If the nuclear procurement goes ahead, the figure is likely to go through the roof given the guarantees the treasury will have to extend even if vendors provide finance.

Ratings agency Moody’s justified changing its outlook for South Africa to negative this week by saying: “Even without considering the cost of expensive new programmes such as nuclear power or national health insurance, political pressures were growing, calling into question the government’s continued ability to maintain spending restraint.”

It is this political pressure, it seems, that claimed Nene’s scalp.

Nene said he was not talking to the media. – Additional reporting by Tabelo Timse

 

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Why South Africa does not need nuclear power

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by Keith Gottschalk.

pelindaba+nuclear+plant

Intelligent persons, such as liberals supporting the Helen Suzman Foundation, often hold a range of views on complex issues, especially where more than one criterion is involved, and where some criteria may not be easily quantified.

Newspaper editorials have criticized the Government’s abuse of secrecy – what democracy classifies its future electricity plans as secret? – as it proceeds with its programme to build six to nine extra atomic power reactors totalling 9600 MW of electricity. The reason for secrecy is defensive: these plans cannot stand up to scrutiny for economic rationality. This is one requirement for the constitutionality of state decisions and choices.

Joseph Schumpeter’s famous phrase about capitalism and entrepreneurship acting as“perennial gales of creative destruction” reminds us that the cost-effective blend of power generation varies during each decade. From the 1990s, imported hydro power would have been South Africa’s cheapest electricity source. From the 2000s, imported gas could vie with imported hydropower. During the 2010s, solar power, both photovoltaic and concentrated solar power with storage, could start to be added to the cost-optimal mix.

The tell-tale give-away of economic irrationality in the Government’s grim determination to rebuild PW Botha’s atomic industry is that it is utterly price inelastic: 9600 MW regardless of the supply-side revolution noted above.

Gaps and Silences

Public debate on security of electricity shows extraordinary gaps and silences.

First, the Government and President Zuma deserve praise for having signed a treaty in 2013 – ratified by Parliament – to import 2500 MW of hydropower, progressively rising by 2030 to 10 000 MW, from the Grand Inga project. This made no headlines in the newspapers.

Energy security will be enhanced by adding to the existing “eastern power corridor”, through which we already import 110 MW from the Democratic Republic of the Congo, a “western power corridor” running through Angola and Namibia to Cape Town and Gauteng. South Africa took the lead in founding the Southern African Power Pool in 1995 to facilitate greater international trading in electricity. Currently our biggest example is importing an average 1200 MW from Cahora Bassa in Mozambique, through different transmission cables.

There are also discussions about importing further hydropower from other Angola and Mozambique sites. The Energy Intensive Users’ Group of South Africa will have noted that electricity from the Grand Inga project is costed at one-quarter of the same quantity of electricity from atomic power stations. Doubtless, the real costs of any government mega-project must realistically be anticipated at double the promised costs, but atomic power shows the same escalation – or worse.

In short, the economically rational case is to import more hydro power. It is not rational for a country with South Africa’s options to build more nuclear power plants.

The second silence in the electricity debate – in this case a near silence – concerns the unpredicted finds of vast gas reserves in Mozambique, Tanzania, and Kenya. This is gas that costs far less to tap than shale gas.

The Eskom-Shanduka contract proved that gas-fired power stations are the fastest to build and plug into our national grid – eighteen months. If speed is the criterion, then the rational advocacy is for combined-cycle gas-fired turbines. Atomic power stations take longer to build than almost any other alternative.

Eskom accountants and quantity surveyors can advise between the options of bringing Mozambique gas into South Africa through building pipelines, or of building gas power stations on top of the gas fields, and erecting transmission cables into South Africa.

Third, another supply-side revolution is that over the past decade the cost of photovoltaic electricity has dropped to parity with current grid retail prices.

Simultaneously, the cost of Concentrated Solar Power with storage for the evening peak usage has dropped to below the cost of power from the diesel-guzzling Ankerlig and Gourikwa peaking stations.

The Energy Department proposed in 2010 that we generate 5000 MW from a solar park in the Northern Cape. There is no reason why this should not be upped to 9600 or 15 000 MW. Instead, the Energy Minister announced (Cape Times 6 October) that the solar park will be for 1 500 MW – slashed by more than two-thirds after five years in which the prices of solar electricity dropped more than from any other alternative source. Distributing the solar power stations between Springbok to Hotazhel and Mahikeng will ensure that rare desert rains in any one locality will not significantly lower the distributed power output as a whole.

The fourth silence is over demand-side management.

Even in democracies, not every policy can be popular – such as tax. Eskom bills municipalities with timeof- use charges, as mobile phone companies use. But municipalities charge their customers prices below cost during the sunset peak usage hours, and far above cost for the rest of time.

It is overdue to upgrade all retail meters to permit both time-of-use billing, and also reverse metering for those who install rooftop photovoltaics. This can be done within three years. Similarly, somewhere before WW2, municipalities fell into the bad habit of misusing electricity billing to cross-subsidize rates. They need to incrementally raise rates, with continuing exemptions for pensioners and other low-income households, to stand on their own.

Electricity, like water, is an essential, to be priced to cover only its own capital, current, and reticulation costs.

“When an organ of state … contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.” – section 217 of the Constitution.

Many governments decide on actions and policies which do not make economic sense, but are undertaken for political or diplomatic goals. For example, no one expects economic benefits in return for the costs of a decade-long deployment of South African peacekeeping soldiers and police in the Darfur province of the Sudan. Our actions as part of the AU force are justified by their humanitarian benefits.

The Nuclear Option

But no political benefits are obvious in choosing the atomic alternative. Politicians talk of nuclear as a strategic asset in a way they do not perceive solar, gas, or hydropower, but can never explain why it should be considered any more strategic. South Africa has a historic over-investment in atomic technologies, from the bomb to the Pebble-Bed Modular Reactor, (PBMR) with the opportunity costs hurting other sciences and technologies.

Questions asked in parliament by DA MP Lance Greyling exposed that state investment has privileged atomic research & development with four hundred times the grants and funding given to all renewable electricity options combined.

The opportunity costs of the Government’s obsessions with extra nuclear power have been significant.

The R8-billion of wasteful and fruitless taxpayers’ funds poured into the PBMR left them with no Energy funds to back the West Power Corridor Company, Westkor, between 2003-2008, which led to the DRC Kabila Administration pulling out of the Inga scheme for a decade because it assumed that the South African Government was not serious in its commitment. By the time new treaties were signed in 2013 and ratified by Parliament in 2014, seven years had been wasted in which the construction of the hydro power station and transmission pylons could have almost been completed.

The physicist Schleffer presented a paper back in 1995 proving that the sunlight per square metre in our Kalahari districts equals the highest in the world. This makes the Northern Cape and North-West Provinces the most economically viable globally to erect PV and CSP plants. Two decades were wasted before substantial solar power plants were constructed there.

The Mozambique gas pipeline to SASOL at Secunda was opened in 2004. Had this been replicated at the time, to flow to new gas power stations, there would have been no power failures and rationing in the past few years, angering voters and hurting our economy.

The claims that the Government’s nuclear plans will not cost more than R400-billion neglect to consider several facts:

• First, the Government’s atomic ambitions extend far beyond extra power stations.

The Nuclear Policy White Paper in 2008 published its policy reversal: to rebuild PW Botha’s entire end-to-end atomic industry, with the sole exception of atomic bombs. The electricity-guzzling uranium enrichment factories, the zirconium cladding factories for fuel elements, are all again on the state priority list. There is currently talk of also building a nuclear fuels processing plant. The atomic wish-list also includes another research reactor for Pelindaba.

• Second, atomic industry supporters never explain that their quoted costs of R400-800 billion are merely one component of the costs, termed “overnight costs”. That is what the cost would be only if Eskom could pay upfront a lump sum of R400-billion. In the real world, Eskom will have to borrow this sum at compound interest – and these finance charges, adding between one-third to 40% onto the sum are excluded.

• Third, the global atomic industry advises its corporate members to avoid fixed costs

contracts, so that as inflation bites during the seven to ten years needed to build a new nuclear reactor, the contractor cheerfully adds this on the taxpayers’ bills, raising costs by at least another third.

• Fourth, the prices claimed by nuclear power station vendors have the charming habit of excluding what they call “owners’ costs”. Their quoted prices exclude the costs of building the breakwaters or pipelines that pump in and out the huge volumes of cooling sea water needed. Their prices exclude the seismic raft – the massive concrete foundation and steel coils built beneath a nuclear reactor to ensure it is safe against earthquakes. They apply the same exclusion to the cost of building the administration buildings and security perimeter. No architect would dare give a client a written quotation that excluded the cost of the foundations, the outside plumbing connections, and the garden walls for a new house, but that is the practice of nuclear vendors.

• Fifth, the decommissioning of the oldest atomic power stations built in the 1950s and 1960s has only started in recent years. It is becoming evident that the total costs of the dismantling of an atomic power station, including long-term storage of its radio-active parts, can cost up to one-quarter of the original price of building it.

• Sixth, HSF supporters – indeed all defenders of the Rule of Law – will be concerned at the authoritarian mindset of some supporters of atomic power. For example, the atomic engineer Kelvin Kemm writes in THE NEW AGE (21 October) “It is time that the South African Government started … jailing some of the Greenpeace activists – and banning Greenpeace … from receiving any foreign funds.”

Our Bill of Rights ensures that critics of nuclear power stations have the same rights as, for example, the atomic conglomerate Areva has, to donate foreign funds to host 24 months of events in South Africa as soft-sell for its bid.

Conclusion

The Government’s nuclear ambitions (power stations, enrichment plant, and others) will cost considerably more than the arms deal. This means that the corporate incentive to bribe will be considerably higher than it was for arms dealers. As will the corporate war chest be used. The current corporate terminology used to camouflage bribes includes: initiation fees, facilitation fees, consultancies, success fees, and, the most outrageous of all, signature bonus fees. That is, a bureaucrat or politician is paid millions for signing documents which is part of his or her job.

The Government’s static policy – determination to build 9 600 MW of atomic power stations regardless of varying cheaper options – proves that this policy is only political in motivation, and is not economically rational. Otherwise, the proposed quantity of power to be generated by atomic power stations would fluctuate, depending on the price of other options in the mix.

To succeed in compelling the government to reverse its determination to expand atomic power will require a multi-pronged campaign of the same magnitude as the one which forced the Government to reverse its policy of treating HIV-Aids with beetroot instead of medicines.

reblogged from Rand Daily Mail 8 Dec 2015

This article first appeared on the Helen Suzman Foundation’s website

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Eskom: From a crisis of capacity to a crisis of rising prices, declining demand and funding

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Reblogged from: http://www.dailymaverick.co.za

Amid the onset of regular load shedding in late 2014, a so-called “War Room” was established comprising representatives from various government departments and Eskom, and headed nominally by Deputy President Cyril Ramaphosa. This was not a creature of statute, but a temporary structure intended to focus on five core short-term issues that had been identified, and to complete its work in a timeframe of six months, or so.

While it may appear that the War Room interventions, and new leadership at Eskom, have stabilised the generation capacity crisis, we should take little comfort that load shedding has stopped, when electricity demand in 2015 is some 5% less than in 2014, and about 10% lower than it was in 2007.

Fig. 1: Week-on-week Eskom demand (MW): 2013, 2014 and 2015

The further 5% drop in demand in 2015 has, indeed, provided welcome space for Eskom to keep planned maintenance levels, at about 5000 MW, without the need for load shedding in recent months. However, recovery from the generation maintenance backlog is a long haul.

The reality is that Eskom’s generation plant availability has not yet improved to where it should be (at 80% or more), but has reduced further since 2013 and 2014, and has remained flat in 2015, at about 72%, despite statements to the contrary by Minister Lynne Brown, based on information fed to her by Eskom. But while plant availability in 2015 has further declined, the decline in electricity demand has been greater still, thus staving off load shedding, at least for the time being.

Fig. 2: Eskom plant availability: Week-on-week energy availability factor, EAF: 2015 vs. 2014

However, the recent application by Eskom to the National Energy Regulator of South Africa, to claw back variances in revenue and costs, for the first year (2013/14) of the multi-year price determination period from 1 April 2013 to 31 March 2018 (MYPD3), clearly illustrates the problem. The decline in energy sales volumes and the increase in operating costs from those projected for the 2013/14 financial year in MYPD3, has resulted in a claim by Eskom for an additional R22,8-billion to be recovered via the tariffs in 2016/17 from the paying customers of electricity. This is made up of a R11,7-billion claim from reduced sales volumes, and an R11,1-billion claim from increased operating costs dominated by higher than projected diesel costs of some R8-billion in 2013/14.

In August 2013, Eskom claimed a claw-back of R18,4-billion (and was granted R7,8-billion by NERSA) for the full three-year MYPD2 period (2010/11, 2011/12 and 2012/13). This has now risen to a claim of R22,8-billion for the single 2013/14 financial year, and is expected to rise still further for 2014/15 and 2015/16 based on known further reductions in electricity demand and rising costs in these years. Claw-backs via the tariffs will add significantly to the electricity price trajectory, over and above the 8% per annum granted by NERSA over the five-year MYPD3 period. A compounding problem arises from the elasticity of electricity demand in the face of steeply rising electricity prices significantly above the inflation rate, which further reduces electricity sales volumes and increases claw-back claims, in a vicious circle.

Feeding this cycle of reducing electricity demand and rising prices, is a complex global and local environment: slowing growth in China; global overcapacity in the production of steel, aluminium and other raw materials; weak international demand for South African commodities such as coal, iron ore, platinum, copper, ferrochrome, ferrosilicon and ferromanganese; and low commodity prices.

The state of the South African economy is indicated by low Gross Domestic Product growth, rising levels of unemployment and labour unrest, and is exacerbated by the negative global commodity cycle, with deep-level mining in South Africa reaching end-of-life, poor productivity and competitiveness, and cheap steel imports from China putting paid to the local steel industry. Clearly South Africa’s energy intensive minerals smelting and beneficiation operations which rely on cheap and abundant electricity, such as the steel, aluminium, zinc, platinum, copper, ferrochrome, ferrosilicon and ferromanganese industries, are under significant threat. The local and global environment, combined with rapidly rising electricity prices, thus provide the perfect storm for reduced industrial electricity demand, and rising electricity prices in South Africa. This is further evidenced by reducing energy intensity in South Africa, as the economy struggles to adjust structurally to steeply rising electricity prices sustained over several years.

In this toxic environment, the alternatives to traditional grid electricity begin to show themselves. Though relatively small individually, collectively the growing range of alternatives begin to add up, to make a significant further impact on reducing demand for Eskom’s conventional grid electricity.

These alternatives progressively change the way in which energy and electricity is generated, transmitted, distributed and used. It changes from a monopoly national generation utility, to a broad mix of Eskom, municipal and independent power producers. This mix includes a variety of primary energy sources, such as coal, diesel, gas, nuclear, hydro, solar, wind and biomass. It draws from industries, and businesses that relied exclusively on grid energy, to industries and businesses supplementing or displacing grid electricity, with alternative energy sources such as cogeneration, waste coal, gas, heat and biomass recovery, and solar PV. It also relies on industrial, commercial and domestic energy efficiency initiatives, to active industrial and commercial energy and demand management; from incessant marketing by Eskom to consumers to use less of its product, to switching to alternative domestic energy sources, such as solar water heating, solar PV and cooking with gas.

Massive further expenditure is needed in the years ahead to bring the Medupi, Kusile and Ingula projects to completion, to upgrade the transmission grid, to address the electricity distribution maintenance backlog, to upgrade an aging fleet of coal-fired power stations for environmental compliance, and to replace those stations reaching end of life. With constrained supply and declining sales volumes, rising electricity prices reaching the limits of affordability, and the tipping point to grid defection in sight, Eskom’s future ability to finance its own generation, transmission and distribution activities comes into question.

Speaking at the recent South African International Renewable Energy Conference (SAIREC) in Cape Town, Dr Tobias Bischoff-Niemz, chief engineer for energy research and development at the Council for Scientific and Industrial Research, said South Africa was uniquely at risk of grid defection. At the same conference,Barry MacColl, general manager of Eskom’s research, testing and consulting business, acknowledged that significant grid defection could seriously undermine Eskom’s business model, and “would be the end of the power company as we know it”.

After a year, the War Room has surely identified the various issues, options and costs involved, and what now remains is decisive leadership and hard political, economic and business decisions that will cost real money, but will reap significant benefits if the right decisions and choices are made in the national interest.

Piet_web

The Social Impact Assessment Report is fundamentally flawed

By | Bantamsklip?, Blog, Energy transition, In The Press, Knowledge, Nuclear energy, renewable energy | No Comments

By Dr Piet Human

Principle 1 of the 1992 Rio Declaration on Environment and Development states that: “Human beings are at the centre of concerns for sustainable development. They are entitled to a healthy and productive life in harmony with nature.[1]” One would therefore expect that due attention be given in an Environmental Impact Report (EIR) to the social impacts of the proposed nuclear-1 project. This is not the case.

“Often SIA was done as part of EIA, usually badly. Over time, however, the practice of SIA has diverged from EIA because of the growing realisation that social issues fundamentally differ from biophysical issues; that the primary task of SIA should be to improve the management of social issues (rather than to only influence go/ no go decisions)”[2]. The ‘social’ is also inherently complex and dynamic.

The ‘specialist’ asked to do the SIA as part of this EIR is probably the least qualified specialist used by GIBBS. Other specialists (Botanists, ecologists, entomologists, geo-hydrologists, etc) are all highly qualified people (PhD’s and at least MSc’s) who have published as specialist in peer reviewed journals and whose references are respected academics or professionals. The SIA ‘specialist’ has a B (Hons) degree in social work, did some other short courses, used mostly municipal managers as references and has published nothing. This is ironic; giving the most complex issue to the least qualified specialist.

Dr Ilse Aucamp[3] reviewed the Social Impact Assessment. She used the DEAT Integrated Environmental Management Information Series: Review in EIA (Guideline 13). Her report highlights some of the short comings:

  • Seven out of the eleven criteria in the checklist to assess if the specialist complied with the terms of reference of the task was said to be problematic.
  • The technical, scientific and professional credibility of the report is questioned. The use of outdated data (2001 census) and the fact that the report is six years old. She makes the point that social communities change and that such an outdated report is not relevant in 2015.
  • The SIA omitted to refer to the ‘Guidelines for Integrating HIV and Gender Related Issues in Environmental Assessment in Eastern and Southern Africa. This is a new requirement for all large-scale EIA’s in South Africa’.
  • The report does not do a comparative analysis of the three sites nor use recent experiences with large projects such as Medupi to come to any conclusion.

Despite these and other flaws in the report, Dr Aucamp declares that ‘the report meets the requirements of professional practice and competence in the SAI field’. This is surprising.

It can be additionally said that the report is not a professional and competent social scientific analysis of the social impact of a proposed nuclear power station. The methodology used is basically desk research (trawling descriptive data from old data bases) and then doing a few interviews (36 in total; perhaps 12 per site). He attended a few public participation sessions (how many we don’t know) and also ‘talked to a number of other people’ (also not giving us any idea of how many or what types). From such a basis (as a sample), it is not possible to come to any reasonable conclusions regarding the social dynamics and the possible impacts of the proposed project. As it stands now, the SIA report measured by social scientific standards is fatally flawed as a whole.

The exclusion of indigenous groups from the study (at all three sites but especially at Thyspunt and Bantamsklip) is of concern. Free, Prior and Informed Consent (FPIC) is a procedural mechanism developed to assist in ensuring the right of Indigenous peoples to self-determination. It is a concept that gained status by its inclusion in the 2007 United Nations Declaration on the Rights of Indigenous. South Africa is a signatory of this convention.

In conclusion, the IAIA states that “A key difference between SIA and EIA is the increasing focus in SIA on enhancing the benefits of projects to impacted communities. Although the need to ensure that the negative impacts are identified and effectively mitigated remains, also of value is revising projects and ancillary activities to ensure greater benefits to communities”. The SIA report comes to the conclusion in its recommendations that the positive outcome of the project will be: “The most significant positive social impact that may be associated with the proposed nuclear power station development is the provision of electricity and its related linkages to the broader national economy”. In other words, no positive impact on the communities discussed or ensuring ‘greater benefits to the communities’. The report then elaborates on the negative impacts such as the lack of job opportunities for locals, the impacts (conflicts) of the influx of temporary workers and jobseekers, HIV and AIDS, risks associated by nuclear accidents, unwanted births and the potential increase in criminal and other illegal activities. The writer makes no final recommendation.

The Executive Summary of the Revised Draft Environmental Impact Report Version 2 does not reflect the contents of the SAI specialist report or that of the peer review. This is unethical.

It is clear that this report is fatally flawed and that it is of little value to inform decision-makers about the social impacts of the proposed project. I would strongly recommend that this report (as well as the economic and tourism reports) be redone properly. The tourism and economic reports suffer from similar weaknesses as this SIA report.

I have only had time to look at this one report and would request that a further 90 days be given to I&A parties to respond to these reports.

Dr Piet Human has a PhD in Sociology and was a professor at the Graduate School of Business, University of Cape Town until 1996.

[1] Vanclay, F. International Principles For Social Impact Assessment. Impact Assessment and Project Appraisal, volume 21, number 1, March 2003.

[2] See Guidance for the Assessing and Management of Social Impact (2015). International Association for Impact Assessment.

[3] Dr Aucamp should be well qualified and is one of the authors of the International Association for Impact Assessment: Guidance for the Assessing and Management of Social Impact (2015).

Why South Africa should not build eight new nuclear power stations

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Signs prohibit entry to South Africa's Koeberg nuclear power plant near Cape Town August 13, 2015. Fears are growing in South Africa that agreements to build nuclear power plants that could be the most expensive procurement in the country's history will be made behind closed doors, without the necessary public scrutiny. Construction on the first plant is due to start next year, breakneck speed compared with the years of regulatory and environmental checks for nuclear projects in countries such as Britain and the United States. Picture taken August 13, 2015. REUTERS/Mike Hutchings - RTX1O8PQ

Signs prohibit entry to South Africa’s Koeberg nuclear power plant near Cape Town August 13, 2015. Fears are growing in South Africa that agreements to build nuclear power plants that could be the most expensive procurement in the country’s history will be made behind closed doors, without the necessary public scrutiny. Construction on the first plant is due to start next year, breakneck speed compared with the years of regulatory and environmental checks for nuclear projects in countries such as Britain and the United States. Picture taken August 13, 2015. REUTERS/Mike Hutchings – RTX1O8PQ

It has been an eventful year in South Africa, characterised by power cuts,parliamentary confrontations about wasteful expenditure and student fee protests. There has, however, been a massive elephant in the room that has impacted all these issues but enjoyed surprisingly scarce attention. The idea, vigorously driven by government, is for the country to build nuclear plants with an expected price tag of one trillion rand.

This equates to 4000 times the controversial costs to upgrade President Jacob Zuma’s Nkandla residence and 400 times the shortfall the tertiary education sector will experience in 2016 because of the freeze in university fee increases.

The expansion of South Africa’s power generating capacity is a necessary condition for economic growth and housing development.

Delays in its implementation, as well as the collapse of ageing power utility Eskom’s infrastructure, have forced frequent scheduled power outages. The expansion program is guided by the Department of Energy’s Integrated Resource Plan for Electricity 2010-2030.

The plan proposed transforming the South African energy generation mix from the current completely coal dominated one to a more balanced setup in 2030. The aim was that by then 10.3% and 10.7% would be allocated to wind and solar renewable energy technologies; and 12.7%, or 9600 MW in generating capacity, to nuclear.

The on, off, on-again nuclear build

The Fukushima nuclear catastrophe resulted in a worldwide critical reevaluation of the safety and necessity of nuclear energy. Some new projects were cancelled. Germany went as far as adopting a road map that would lead to the eventual closure of all its nuclear power stations.

In South Africa too the need for the continued inclusion of nuclear power in the energy mix was being reexamined. In addition to the negative public sentiment towards nuclear, it was also noted that energy demand was increasing at less than the projected rate. This was partly due to a depression of the mining and heavy industry sectors.

This led to an update of the resources plan in 2013. Configurations without nuclear energy were shown to be optimal in several of the scenarios investigated in the document. It concluded:

The nuclear decision can possibly be delayed. The revised demand projections suggest that no new nuclear base-load capacity is required until after 2025 (and for lower demand not until at earliest 2035).

But in late 2014 the government took an about-turn in its approach to the nuclear build, displaying a sudden urgency to seal a large deal with Russia. The speedy and secretive manner in which government initiated a process with massive and long-term cost implications, and the inexplicable decision to declare Russia as a preferred partner ahead of other potential options, immediately led to intense suspicion of corruption.

With reference to a previous scandal-enveloped acquisition mega-project, the nuclear build became labelled as a new arms deal “on steroids”.

Government soon denied the Russians were the designated preferential suppliers. It quickly arranged a series of “nuclear vendor parade workshops”, where other countries could showcase their products. Nonetheless, the perception remains that the Russian nuclear developer Rosatom has already been assured of its frontrunner status.

The opaqueness of the process is further illustrated by the vagueness of the construction plans, including the plant locations and specifications. The proposed nuclear plant locations have not been fully disclosed. An initial study in 2007 compared five coastal sites: Duynefontein (near the existing Koeberg plant in Cape Town), Bantamsklip (between Gansbaai and Cape Agulhas), Thyspunt (close to Jeffrey’s Bay) and two localities on the Namaqualand shoreline.

At a press briefing in July 2015, Department of Energy and Nuclear Energy Corporation of South Africa representatives disclosed that there may eventually be as many as eight nuclear plants, with unnamed sites in the province of KwaZulu-Natal now also under consideration. Most recently, a draft Environmental Impact Assessment presents Thyspunt as the preferred site for a 4000 MW nuclear plant dubbed “Nuclear 1”.

Cost and completion time

The ongoing construction of two mega coal power stations at Medupi and Kusile amply illustrates what could happen with the nuclear build. Work on Medupi commenced in 2007, and was initially projected to be completed in 2011. Its new completion date is given as 2019, meaning the construction period is likely to be at least three times that initially declared.

The costs have also spiralled to over R150 billion, double the initial estimate. If similar circumstances prevail in the nuclear build, that would result in a construction process of 20 years or more and a price tag of one or two trillion rand (at current South African rand value, given the current 500 to 1000 billion rand cost estimate). Some funding models only require later payment, but these will then saddle the future generation with a huge debt burden.

The nuclear build is a very risky exercise with numerous potential pitfalls. And there are alternatives. The shortfall in the projected nuclear capacity can be covered by a 50% larger than planned renewable energy investment. Wind and solar energy plants have been operationalised on schedule, and solar panel prices continue falling. The intermittence of renewable energy availability is considered manageable. Finally, energy saving strategies have yet to be fully explored.
reblogged from: https://theconversation.com/why-south-africa-should-not-build-eight-new-nuclear-power-stations-49967

HOW CAN YOU HELP RAISE AWARENESS AND ACT TO STOP THE NUCLEAR BUILD PROGRAMME?

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What You Can Do

HOW CAN YOU HELP RAISE AWARENESS AND ACT TO STOP THE NUCLEAR BUILD PROGRAMME?

You are not alone.  Many civic organisations including the unions, social, faith and environmental groups are taking action to oppose new nukes – but so far the government does not appear to be listening.  We all need to grow the circle of awareness and action.

  1. Join a SAFCEI anti-nuclear vigil or start your own.  The vigils are held every Wednesday morning from 7:30 – 9:00 outside Parliament in Cape Town and from 7-8am outside the Department of Energy offices in Pretoria. For more information visit  http://earthkeeper.org.za/events/nuclear-energy-nuke-vigil-2/or contact Liz McDaid, SAFCEI energy and climate change programme coordinator on  liziwe@mweb.co.za   or  Sarah sarah@safcei.org.za
  2. Digital #NukeVigil If you can’t make it to the vigils, write a supporting message on a piece of paper and send us a photo of yourself with your message to add to our Digital #NukeVigil. Post it on Facebook or Twitter using #NukeVigil 
  3. Add your voice on Twitter or Facebook – Voice your concerns on your social media using #NukeVigil or #NuclearFreeSA

4.     Donate money to SAFCEI & EarthLife Africa JHB to help cover legal costs.SAFCEI and Earthlife Africa Johannesburg, have briefed our legal team and are asking for everyone’s help. We need to raise 1.5 million to prepare and run this court case. We are looking for donors, both international and local, and because government is rushing to sign procurement deals, we need to raise the money now! We ask for your contributions – the smallest donations are welcome. Every rand counts! 

  1. Organise a fundraiser – Host a fun movie night, talk, party, tombola or games night with your community to help raise funds and raise awareness about this cause. Create your own fundraising page on GivenGain or deposit funds directly into SAFCEI’s account. 

Address your concerns or those of your organisation to the people in power below and copy your letter to the media:

  • Write to President Zuma at president@presidency.gov.za  and Ms T Joemat-Pettersson, Minister of Energyvia her secretary Maczali@energy.gov.za .  Ask for their mandates both from the South African public and in terms of our Constitution, the IRP and both the National Energy and Energy Regulation Act to make deals for nuclear procurement.  Appeal to both President Zuma and Ms T Joemat-Pettersson to stop the nuclear deals and to choose a renewable energy route which has immediate and broad based energy benefits.
  • Write to Mr Nhlanhla Nene, Minister of Financevia his PA at Marumo@treasury.gov.za .  Appeal to Mr Nene to use his influence to stop the nuclear deals until an independent affordability assessment has been completed – and to request that all the costs are made public.
  • Write to Mr Thembani Bukula, National Energy Regulatorat Bukula@nersa.org.za. Appeal to Mr Bukula to use his influence to stop the nuclear deals until an independent assessment of the implications for electricity tariffs has been completed – and to request that all the costs are made public.
  • Write to Adv Thuli Madonsela, Public Prosecutorat customerservice@pprotect.org calling for her to investigate whether the nuclear build decision-making process is consistent with the constitutional values of transparency, fairness, efficiency and does not compromise the health of people or the environment.
  • Support SAFCEI’s SONA press statement.“In recent lawyers’ letters to the Ministers of Energy, Public Enterprise and Finance, SAFCEI highlights that any nuclear procurement process based on the outdated electricity plan would be fatally flawed and irrational. SAFCEI’s lawyers argue that our legislative framework is incomplete and unsatisfactory.” Read more at: http://safcei.org/support-safceis-sona-press-statement/
  • Support SAFCEI’s letter  to South Africa’s finance minister the Hon. Nhlanhla Nenefrom our founding patron, Bishop Geoff Davies on 28th January 2015  “From an energy as well as financial perspective, we believe nuclear energy is going in the wrong direction. We encourage you to tell President Zuma – and Parliament – that our scarce financial resources should be prioritised for the empowerment of our people rather than nuclear energy.” Read more at: http://safcei.org/dear-minister-nene/

For more information go to: Stop Nukes: Prevent democracy meltdown. “The prosperity of all South Africans is based on a democratic system true to the principles of listening to and meeting the real needs of the citizens and a national treasury that is accountable and funds these needs. Yet, right now, a nuclear programme valued in excess of R1 trillion is being promoted by President Zuma and negotiated by government officials and foreign business interests without a proper mandate from the National Development Plan or the Integrated Energy Plan (Draft).” Read more at:http://safcei.org/stop-nukes-prevent-democracy-meltdown/

Appeal to minister over DoE’s refusal to reveal nuclear secrets. “SAFCEI has briefed the Open Democracy Advice Centre (ODAC) to assist with their request for access to information. SAFCEI had also asked for a copy of the authorisation given to the Minister to allow her to enter into a nuclear agreement.”  Read more at: http://safcei.org/appeal-minister-refusal-reveal-nuclear-secrets/

Energy Giant ENEL to become First Green Energy Giant

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New CEO, Francesco Starace, is taking the Italian firm in a new direction, investing in solar and wind to become the first ‘truly green energy giant’

Francesco Starace

Just a year ago the Italian energy giant Enel was in a bitter court battle with Greenpeace, which accused the utility’s coal plant pollution of killing people. Today, the two groups are firm friends and Greenpeace says Enel is on track to be the “first truly green energy giant”.

What changed was the observation by new Enel CEO, Francesco Starace, that the tide was flowing in only one direction for utilities – towards low-carbon energy – thanks to fast-dropping renewable energy costs, smarter and more-efficient grids and increasing government action on climate change.

“There is a huge tide flowing and you can decide in which direction you want to swim,” he told the Guardian in an interview. “The tide is not in our control – it is the evolution of technology. I think it is crazy if there is someone thinking that he can actually influence this.”

Enel, the biggest utility in the world by customer numbers, has taken the plunge and pledged never to build another coal plant and to be carbon neutral by 2050.

A few other major utilities, such as E.ON and Vattenfall are taking a few strokes in the same direction, but Starace thinks a flood of companies making similar waves is imminent. “You will have big surprises,” he says. “In the next 12 months you will see most of the companies more or less go the same way.”

It is clear that the prevailing wind is blowing towards renewable energy and smart grids, Starace says. “I don’t think you will see someone stand up and say this is totally wrong, because it is quite obvious. I don’t think we were geniuses. We knew this was right and I think everyone knows it, more or less.”

Coal currently generates 29% of the electricity Enel supplies to 61m homes and businesses in 40 countries. But Starace says: “These plants are basically technologically obsolete and there is very little you can do about it.”

He says the coal-fired power station opened in Chile this year will be Enel’s last: “Why would you put €1bn into something that takes 10 years to be built and by the time you finish, you find out there is no point in having it anymore. It is too slow to be fitting this world anymore.”

“Nuclear is the same story, but even worse: a longer time cycle,” Starace says. “Today’s nuclear technology – though not nuclear technology in general – is a dead end. The proof of it is that fact that these huge new plants are typically nightmares of engineering and construction.”

He says the reactors planned by French company EDF for the UK are the “best in class” of current technology but are the same dead end: “I admire that they have the guts to carry on but these plants are over-engineered and incredibly complex and very, very difficult to complete.”

Gas plants – about half as polluting as coal and faster to build – may make sense to build up to about 2025, Starace says, but not beyond. He is deeply sceptical about the cost of carbon capture and storage technology – trapping CO2 emissions and burying them – that some argue could make fossil fuel plants clean: “We don’t think it works. Technically, for sure it can work, but the economics simply don’t work.”

A meeting between Greenpeace director, Kumi Naidoo, and Enel CEO, Francesco Starace
A meeting between Greenpeace director, Kumi Naidoo, and Enel CEO, Francesco Starace, March 2015. Photograph: Greenpeace

Instead of fossil fuel projects, half of Enel’s £18bn growth investment over the next five years is going into solar and wind energy, which currently provide 7% of its electricity. A third of the investment will be spent on grid infrastructure, with the rest used to complete existing conventional plants, including hydro schemes.

Starace’s new-found friend, Giuseppe Onufrio, executive director of Greenpeace Italy, says: “Enel’s shift is a welcome move. They’re reshaping their business model in the right direction. With onshore wind now the cheapest energy source in countries like Germany and the UK, it’s becoming increasingly obvious that flexible and smart clean technologies make both environmental and business sense. By completing a full transition to clean energy Enel could become the first truly green energy giant.”

Europe’s utilities are all looking for new business models, having lost at least €500bn (£365) in value with the existing one. Competing with Enel to find the winning formula will be German giant E.on. It is splitting off its old coal, gas and nuclear plants into a separate company in order to focus on renewables and grids, though Starace disagrees with that strategy: “I don’t think it makes sense, scale is important in our business.”

Enel SpA’s combined cycle thermodynamic solar power plant in Priolo Gargallo, Italy
Enel SpA’s combined cycle thermodynamic solar power plant in Priolo Gargallo, Italy. Photograph: Alessandra Benedetti/Bloomberg/Getty Images

Another major European utility, Vattenfall, is selling its large German coal mines and power plants, again to focus on renewables. Greenpeace is looking to make friends with them too, suggesting they will raise the money to buy – then close – the coal assets.

And the former boss of another big German utility RWE npower, Volker Beckers, said last year that the fossil-fuel powered energy system had “reached its natural end”: he now chairs a renewable energy fund and a smart grid company and is a trustee of Forum for the Future, the sustainability advisory outfit founded by environmentalist Jonathon Porritt.

Even in the US, where Enel operate, but which Starace says is “behind the curve” on the shift to low-carbon energy, utilities are embracing limits on carbon emissions, not fighting them like coal companies and at least 16 states. Economics are dictating the move towards a low-carbon energy system, say utility bosses like Dominion chief executive, Tom Farrell. “Everybody is moving in this direction anyway,” he told the Wall Street Journal recently.

In a few weeks, the world’s nations will meet in Paris at a crunch UN climate change summit, aiming to agree a deal to halt global warming. The most important outcome for Starace is making clear that the low-carbon economy is an inevitability. “What industry needs is a direction clearly indicated by an agreement by the big countries,” he says. “Once the direction is set, that’s it and we are OK.”

The transition to clean energy “can happen much faster and in a less complex way with some good regulatory frameworks”, Starace says. “Or it can take a long time and waste a lot of money the other way around.”

Article reblogged from The Guardian, 22 Oct 2015
http://www.theguardian.com/environment/2015/oct/22/former-foes-greenpeace-and-energy-giant-enel-stand-together-in-low-carbon-push