In a big setback for the world's renascent nuclear industry, South Africa's publicly owned utility, Eskom, on Friday cancelled plans to build a new multi-billion dollar plant.

Eskom said that at more than R120bn ($11.5bn) the size of the planned investment was simply too big, especially bearing in mind separate commitments to build over the next five years an additional R343bn in coal, gas and other conventional capacity.

South Africa's government said that it remained committed to develop nuclear power in order to reduce its dependence on coal and other fossil fuels but would now seek to develop the industry along different lines. "The core change is that instead of procuring just one power station, what we will be now looking for is a partner who will co-develop the nuclear industry," said Portia Molefe, a senior civil servant.

Even so, the decision does indicate that the nuclear industry faces tougher times ahead as the price of conventional energy sources fall and financing costs become more expensive.

Over the past few years several governments - including the UK, China and the US - have announced important nuclear projects, generating a string of attractive opportunities for nuclear engineering groups such as Areva of France and Westinghouse of the US, which, as part of consortia, were competing for the South African business.

Industry leaders had seen South Africa as one of the four most promising markets in the world. Concretely, the decision to pull the project - initially for two reactors and with the possibility of a further eight - means that there are no live tenders for new reactors being fought over. The next one is likely to be for a package of reactors in the United Arab Emirates next year, but this has not been confirmed. Analysts suggest the African deal - one of the biggest of the past two years - was "emblematic" for the industry.

"For the first time we have seen that countries may be prepared to make a U-turn," said Patrice Lambert de Diesbach, utilities analyst at CIC Securities.

Eskom conceded that the crisis in international financial markets had made it much harder to raise capital and created a "different dynamic. Because there is not the depth in the market you can only raise so much capital".

For its other investment programmes Eskom is relying on domestic bond markets, the government and multilateral lenders for a substantial part of its funding. Its ability to raise funds has also been affected by the decision in August of Moody's, the credit rating agency, to downgrade its bonds. Analysts suggest that the decline of the rand - which has lost more than a third of its value against the dollar - has also added to the company's costs.

In a possible sign of problems elsewhere, industry insiders suggested there could be longer than expected delays to new Areva projects in the US - the world's biggest nuclear power market - although Areva insisted its venture with Constellation Energy was proceeding as planned.