There is no economic rationale for a nuclear plant

A few days ago, I was shocked by the announcement that the government was finalising the financing of a nuclear power plant worth Sh540 billion ($5 billion) on a site in Tana River County to be completed in the next seven years.

Even though nuclear power plants produce more electricity for less money and are a good alternative to fossil fuels, there is no economic rationale for Kenya to go for it.

As this was happening, the Geothermal Development Company announced that it had discharged the third exploration well at the Paka Prospect, Baringo-Silali whose estimated potential is 3,000MW. This should send the government back to the drawing board to rethink the nuclear power deal.

First, the government views nuclear power as a long-term solution to high fuel costs incurred during drought times when operating diesel generators.

On technical analysis, this is true because nuclear power plants generate electricity for almost 90 percent of the annual time therefore reduces the price volatility on energy generated from fuel.

But when this is subjected to Kenya's energy mix, this fact has no economic rationale because Kenya has existing diesel generators in its system which stood at around 20 percent to now 10 percent of the energy mix.

Intermittent energy of solar and wind has been filling that space at a cost-effective rate. Some will argue that we need dispatchable power for the baseload. Kenya already has geothermal at 45 percent and growing. In fact, geothermal is expected to contribute around 60 percent of installed capacity in the medium term.

Second, the government has used an over-ambitious peak demand forecast to justify this nuclear project. The government says that it expects peak demand at 22,000MW by 2031. This is quite optimistic. 

Peak demand is what the government uses to source for the installed capacity to balance the power system. For the government to say that peak demand will grow from the current 1,900MW to 22,000 in just 11 years looks to me like plucking numbers in thin air to justify the project and punish the taxpayer.   

Peak demand

Maybe this is the time, Kenya introduces a policy similar to Ghana where the current grid is not allowed more than 10 percent of the current grid capacity because this will go a long way into curbing tenderpreneurs and government technocrats selling idle capacity to electricity consumers.

Third, nuclear reactors are expensive to run when integrated into the national grid.

When there is a fall in peak demand and the system needs to be balanced by reducing supply, nuclear reactors take a lot of time to turn off and so that cost is always taken up by the electricity consumers even when not using it. This is the same structural problem with coal plants. Nuclear energy does not enjoy the same dispatchable advantages enjoyed by renewable energy that can easily be turned off and on when demand falls.

Due to this fact, governments always enter into long-term purchasing power agreements for nuclear reactors with investors to mitigate this risk and investors also negotiate lock-in book prices. This lock-in price will always turn out expensive since prices of energy tend to go down over time because of improved technology, a cost the electricity user has to carry.

Finally, building a nuclear plant is hugely capital intensive and takes time. Now, Kenya will be spending $5,400 per kW on the 1,000MW nuclear plant, a price that is fair compared to other plants in the world. When compared to geothermal which costs around $900 per kW, the nuclear plant is exorbitantly expensive bearing in mind that it will take seven years to build as compared to geothermal which takes about two to three years.

So, juxtaposing the nuclear plant and the geothermal plant, the latter is the most cost-effective source for the electricity consumer. When an energy generation is capital intensive, this means consumers will be charged high fixed capacity cost charges for a long period until the project breaks even.

If we are to put the fixed capacity charges of the Lamu coal plant and this Tana River nuclear plant on the consumers' electricity bills, the cost of electricity will be unaffordable to many Kenyans.

Mr Tony Watima in an economist.