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    The fastest solution to nuclear in Nigeria will not be the right one


    March 22, 2023 - Business Day

     

      Nuclear energy is increasingly being promoted as a means to bridge Nigeria's energy infrastructure gap. However, careful attention must be paid to exactly how nuclear is deployed. Otherwise, nuclear will provide Nigeria with more energy but not energy independence.

      The need for nuclear

      Approximately 600 million people in sub-Saharan Africa lack grid-provided electricity, putting electricity access at the lowest in the world. Frequent blackouts disrupt economic activity, forcing reliance on expensive and polluting diesel generators. Even Africa's largest economies such as Nigeria and South Africa experience energy shortages. Nigeria is Africa's most populous country with over 200 million residents and the continent's biggest exporter of oil and gas. Yet, as of 2017, only a little over half of its population had electricity access.

      A reliable supply of energy is an important determinant of socioeconomic growth and industrial development. So, it is no surprise that 11 African countries are now looking to nuclear for constant and clean electricity. Countries are and should deploy renewable technologies as well for a green and localized energy supply.

      Still, nuclear offers unique benefits for obtaining energy security given its reliability rate of over 90% and ability to provide heat to power-up and decarbonize the industrial sector.

      The question of financing

      No one wants to fund a project that is going to fail and infrastructure investments don't have a solid record in Africa. Eighty percent of infrastructure investments on the continent have failed while still in the 'feasibility stage.' Large infrastructure projects are normally commissioned by governments or municipalities, but tight fiscal budgets constrain infrastructure planning, growth and improvement. Indeed, the Nigerian government has overseen over 11,886 failed infrastructure projects in the past 40 years, and Nigeria's federal revenue is so low that future infra-investments do not stand to fare much better. To make matters worse, regional instability and insufficient human capital and transmission infrastructure have created an environment that pushes investors out rather than drawing them in.

      This problem is only magnified for nuclear. Infrastructure projects regularly run overtime and over-budget. Global IT projects go, on average, 7 percent overtime and 45 percent over-budget. However, nuclear beats other infrastructure projects, having been known to extend out decades and run well above 100% or $16 billion over-budget.

      One suggested solution lies in Build-Own-Operate (BOO) financing models, a framework commonly used by both Russian and Chinese investors in Africa. Under a BOO model, a foreign, private partner finances and builds the nuclear plant and then owns and operates it indefinitely. The government partner does not make any large upfront investment. Instead, it pays the private partner only for the product- the electricity. Sounds simple, right?

      Nigeria seems to agree and has already entered into a partnership with the Russian state nuclear developer, Rosatom, to construct 4.8 GW of nuclear power under the BOO model.

      Looking beyond the deceptively perfect BOO solution

      On the surface, large reactors fully financed and operated by a foreign company appear a quick and efficient solution to Nigeria's infrastructure financing problem. But, deals of this nature will prevent Nigeria from realizing the full host of benefits a domestic nuclear industry has to offer.

      Nuclear is a long-term commitment and a BOO deal stands to lock Nigeria, and any other country that signs one, into an all-in partnership with a Russian or Chinese counterpart. The problem is- developing a sound nuclear regime is complex and will require input from other international actors. Global experts, such as those from the United States or the International Atomic Energy Agency, are vital contributors to establishing sound legal frameworks and technical capabilities for nuclear. These important collaborators will be marginalized by Russia or China's desires to maintain a tight, decades-long relationship.

      Nuclear industries help build human capital by providing access to skills development and high paying jobs. Under a BOO framework, however, this growth is limited. Admittedly, pathways such as potential access to nuclear degrees at Russian universities provide some opportunity for human capital development but the knowledge and skill required to operate nuclear will remain almost entirely the abilities of the foreign counterpart. Nigeria ranked 150 out of 157 countries in the World Bank's 2020 Human Capital Index.

      Clearly, there are massive development challenges that need to be dealt with and existing pathways are not enough. A foreign partner should not only fill the existing knowledge gap in nuclear operation and development but also ensure a greater transfer of skills and capacity building. Otherwise, under foreign nuclear ownership, Nigeria would get its electricity, but not all the social benefits a nuclear industry can offer.

      The companies pushing these BOO models are also offering up large nuclear reactors that are not well-suited to the state of the Nigerian grid. Nigeria's national grid loses electricity during transmission at rates 5-6 times higher than the international standard and while Nigeria has ~16 GW in generation capacity, it is generally only able to deliver around 4 GW on a good day. Large plants provide so much energy that small or under-maintained grids will require significant upgrades to safely handle the power.

      And if recent events are any indication, being at the whim of a Russian supplier for the majority of Nigeria's energy does not sound like a safe bet- especially if Nigeria hopes to secure future energy independence. Large reactors are obsolete. Instead, the continent should opt for small modular nuclear reactors which offer serious benefits in terms of smaller size, lower upfront costs, scalability, enhanced safety features, and relative design simplicity.

      A better financing fix?

      A large nuclear plant owned and operated by a foreign company is not the best solution for African countries seeking energy independence. But, with limited domestic resources, it is difficult to mobilize money, and many are already, or soon to be, debt distressed. Indeed, large-scale borrowing by Nigeria has raised concerns over the state's ability to pay down debt. Since investors are hesitant to enter the market, foreign ownership seems to be the only option available. Shouldn't Nigeria just take this offer while it has it?

      Actually, other infrastructure financing models are theoretically available that would be more conducive to promoting human capital growth and energy security. A Build-Lease-Transfer (BLT) framework, for example, would allow a foreign partner to build the nuclear plant but then lease it to the government during a period in which the partner could help train Nigerian workers. After the lease is up, complete ownership could then be transferred to the government. A Build-Own-Operate-Transfer (BOOT) model is another possibility.

      Here, the foreign partner begins with operation, working to fill the skills gap, but after a specified term, would transfer over full ownership and operation. These are just two of the possible financing options that could be considered! The problem is, Rosatom is already offering some of the most favorable financing terms in the world. Would they really be willing to give any more?

      It's time for the U.S. to step up and help secure better financing terms and a brighter nuclear future for Africa. The US private sector should lobby multilateral development institutions, such as the International Finance Corporation, to start supporting nuclear development.

      The U.S. should now push for multilateral institution leadership with climate and infrastructure backgrounds, specifically, people with favorable views on the contribution nuclear energy may play in addressing energy poverty.

      The U.S. government could also do more to establish collaboration between African countries, like Nigeria, in working with U.S. National Labs, engaging in nuclear education, and sharing project management tools.

      A positive step in this direction would be to publicly commend Nigeria and others decisions to start a civil nuclear sector. This approach is essential not only for the benefit of African nations, but also in the U.S. strategic interest to ensure neither China nor Russia dominate the global nuclear industry and that international nuclear safety standards are upheld.

      Saville is an independent researcher and energy sector professional based in Washington, D.C. Her areas of expertise include studying the intersection of science, technology, and international affairs

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