Egat's N-power plans: a credit train wreck on horizon
On 5 December 2008 South Africa's national electricity utility, Eskom terminated the process of selecting a bidder for the construction of a planned nuclear plant because the project was "too financially risky for the utility." The decision is one that the Thai government and EGAT should consider closely as Thailand ponders nuclear power.Compared to Thailand's EGAT, South Africa's Eskom was well positioned to take on the project. Eskom already operates a nuclear power plant with two reactors near Cape Town, quite similar in size and design to the ones envisaged by EGAT. The country has an experienced workforce of nuclear engineers, it has a nuclear-fuel production plant near Pretoria and also mines its own uranium. Thailand has none of these.
Eskom's decision not to proceed with new nuclear power plants was due, in particular, to the high risk that nuclear new build would lead to substantial erosion of its credit rating. Poor credit makes investment capital expensive, and this makes all aspects of running the utility more costly and more risky.
Credit concerns regarding new nuclear plants are endemic. In January 2006, Standard & Poor's analysis of nuclear power development found "nuclear generation generally to have the highest overall business risk compared with other types of generation." And it has only gotten worse. In June 2009, Moody's Investors Service, a leading independent credit rating firm, issued a report that it is "considering taking a more negative view for those issuers seeking to build new nuclear power plants. Rationale is premised on a material increase in business and operating risk." The report notes that "historical rating actions have been unfavorable for issuers seeking to build new nuclear generation. Of 48 issuers that Moody evaluated during the last nuclear building cycle two received rating upgrades, six went unchanged, and 40 had downgrades. Moreover, the average downgraded issuer fell four notches."
This should be the concern of all Thai citizens and businesses operating in Thailand because EGAT is wholly owned by the Thai government. Hence, an EGAT nuclear financial fiasco is a Thailand economic fiasco shouldered by all ratepayers and taxpayers.
Demand dementia and crazy cost calculations
EGAT's nuclear power plant plans are predicated on assumptions of soaring demand for electricity. But mismatches between official demand projections and reality have reached such high levels that an independent senate committee on anti-corruption is now investigating the load forecasting process, and is suggesting much lower figures that are in-line with the reality that nuclear power plants are not at all necessary to keep the lights on in the country for at least the next 15 years. The infamously wrong Thai electricity load forecast assumes that Thai demand for electricity will be growing at an average of over 2000 MW per year through the year 2021, and growing exponentially. But in the past 15 years load growth has averaged only 770 MW per year. For the past 10 years, it has averaged only 715 MW per year. And the past five years averaged only 544 MW of new load per year. The numbers speak for themselves: load growth is slowing. Notably, load growth is slowing despite the lack of a comprehensive energy savings efforts by government and utilities. With a little bit of effort, a whole lot more energy waste could be avoided at little or zero cost.
At the same time, EGAT's cost estimates for nuclear power are leagues away from actual costs paid for new nuclear plants and from current estimates by the world’s leading investor services. In EGAT's dream world, 2000 MW of nuclear generation would cost a "mere" 103 billion baht (US$1546 per kW) to build and would produce electricity at 2.08 baht per kWh. In 2008, Moody's Investor Services (a leading US-based credit rating agency that rates EGAT investment bonds), put the cost of nuclear generation at $7000 per kW for overnight new builds (ignoring financing costs). This means 467 billion baht for 2000 MW, 4.5 fold higher than EGAT's figures. In the same year, Fitch Ratings put likely high-end estimates at $9,000 per kW. Because capital costs dominate nuclear power costs, electricity generated from new nuclear reactors is also likely to be at least 4-fold higher than EGAT's estimates, and thus higher than the price of any renewable energy source now selling to the grid except for solar electricity. EGAT's low-ball figures are the result of at least two factors. First, costs of large infrastructure like nuclear power plants have escalated considerably in the past several years, and EGAT is using data that is over four years old. Second, the nuclear industry has terrible record of promising low costs but actually delivering extreme cost overruns; EGAT may well have been mislead by international nuclear construction firms willing to make heroic assumptions in their eager efforts to win new contracts.
If you put this all together it is easy to see a train-wreck ahead: nuclear power plants that cost much more than competitive alternatives, built to service expectations of massive demand increases that fail to materialize. The result is debt, financial deterioration, and credit downgrades with the damage absorbed by the Thai government and Thai people.
Thailand will be much wiser to pursue a balanced portfolio of smaller, safer clean energy investments. Serious, systematic energy efficiency throughout all sectors, all competent energy practitioners know, is the least-cost option and the essential base for wise energy planning. Energy efficiency measures have dual advantages of being inexpensive (new nuclear is typically 10-fold more costly than typically observed energy efficiency costs) and quick (dozens of times faster than nuclear). Fortunately EGAT's Demand Side Management (DSM) office is moving ahead with plans for a new energy efficient lighting program. But it just barely scratches the surface.
Comprehensive energy efficiency should be coupled with efficient, clean generation (cogeneration, tri-generation, renewable energy) built at a scale that allows for rapid deployment and lowers risk through short lead times and competitive costs.
There is no sense raising the tired argument that nuclear power is necessary for climate protection. It is common sense that the climate crisis will be better addressed by investing in cheaper, faster options instead of throwing money at costlier and slower solutions like new nuclear power.
Some of the policy machinery is already in place: ambitious government targets for energy efficiency and renewable energy, and successful programs like EGAT's Demand Side Management (DSM) office, and the Small Power Producer (SPP) and the Very Small Power Producer (VSPP) programs for motivating efficient and rapid industry investments in decentralized clean energy. What is needed is for EGAT to realign its vision away from nuclear power - a risky, slow, expensive, chunky and clunky technology that has been moribund for at least 20 years - and towards the intelligent, decentralized, highly efficient and therefore very competitive energy future that is emerging worldwide.