Kemm’s view lacks project costing analysis
IT WAS INTERESTING to read Kelvin Kemm’s article (Thursday, September 8) on the position of nuclear energy versus independent power producers (IPPs), as well as the subsequent responses with informed contrary opinions (Monday, September 12).
One issue not addressed so far is Kemm’s statement: “Currently nuclear power is Eskom’s cheapest electricity. Read that last sentence again, if you did not fully absorb it.”
This surely means he has left out the factor of cost engineering and economic modelling using the discounted cash flow (DCF) method of analysis and the concept of the time value of money.
While the cost of Koeberg electricity may be currently cheap (operating cost only) because capital recovery has been completed, new projects require capital recovery and the current operating cost of nuclear does not reflect the intrinsic cost of a new nuclear investment. By comparison (on the same basis), if one uses solar (or wind for that matter), the operating cost is close to zero – probably only a small maintenance and labour component.
Certainly, in project costing, of prime relevance is the efficiency with which capital is used. The DCF method of evaluation is well tried and tested for establishing this efficiency and in this form of economic modelling “near” money is far more important than “distant” money, because of the discounting mechanism. This has particular implications for projects that overrun their planned commissioning date, let alone capital cost overruns as well, such as the infamous Medupi. (It might therefore be instructive to get the figures for Medupi’s initial sanction return versus the currently achieved figures to see if taxpayers are getting a positive return on the investment).
In the DCF method, one does not usually enter the debate on what happens when the capital has been paid off – as did Kemm on the nuclear spend.
For example, if a project has a reasonable DCF return of, say 10 percent in real terms, then what happens after 10 years will not affect the DCF return – the criterion used for investment. If one uses a 15year time scale, for example, the numerical return due to the discounting mechanism is essentially the same.
This DCF return should be judged against the efficiency with which other uses of this capital can generate returns – that is, nuclear or renewable resources (IPPs). It is this that matters most in making competitive investment decisions and with comparing apples with apples.
In short, the DCF rate of return should determine investment decisions – and what happens 10 years down the line for reasonable rates of real return is quite irrelevant.
One should also use this method to make an objective judgment on whether solar (or more generally IPP) use capital more efficiently than nuclear. For example, if one wants to compare base load systems (for example, nuclear) versus intermittent systems (for example, solar), then some might say that this does not compare apples with apples.
However, if one adds the cost of storage to the intermittent system then one should get a more realistic comparison.
It should be noted, for example, that California is focusing on its storage capability, which currently stands at 3 000 to 4 000megawatts (compare Medupi’s capacity of about 4 800MW).
Having said that, it is worth noting Matshela Koko’s (Eskom group executive) comment (Business Report, August 29, 2016) that the figure for buying IPP power for Eskom for the 2016/17 financial year is 214 cents a kilowatt-hour (kW/h), whereas Eskom’s average selling price is 83c a kWh (including transmission and distribution).
One question worth asking then is: why did South Africa not get the pebble bed modular reactor off the ground? Currently, there is a lot of effort in the US to go modular for nuclear and to build small plants with a capacity of a few hundred megawatts.
The Tennessee Valley Authority has recently requested a site permit for installation of such modules. This avoids the need for huge slugs of capital and long gestation periods in commissioning. South Africa has some previous credibility in bringing on new technology (Sasol for example), but our pebble bed project was sunk.
I recall that as a member of the press, I wrote a column on the initial concept of pebble bed for Business Report in 1998, but when I tried to access the financial numbers for independent analysis after the too-costly project was justifiably canned by Barbara Hogan (approximately in 2009), there was resistance by Eskom to provide the relevant financial and project information – even though it was basically taxpayers money (about R8 billion) that was spent.
We still do not really know why the project was canned. Was it just badly managed? Kemm did not discuss the modular concept in his nuclear analysis. DR COLIN WOOD PHYSICAL CHEMIST AND COST ENGINEER (FORMER BR COLUMNIST, UPSTREAM/ DOWNSTREAM 1997-2000).
There will always be drawbacks
Being an electrical engineer and consequently little more than a layman on matters nuclear, I was therefore most interested in Kelvin Kemm’s excellent article in Business Report of September 8 (Nuclear power is the only sensible way to go). It was lucid, and despite my innate wish of wanting a completely pollution-free method of generating electricity, which was economically viable at the present state of our evolution, I could not think of any suitable alternative.
Having read many reports on solar, hydro and wind energy to provide for mankind’s electrical needs, there seemed always to be drawbacks to whatever method was considered as alternative or supplementary to coal-fired power stations.
We are thus left with the problem of how best to dispose of our nuclear waste safely after its job has been done, in as pollution-free a way as possible.
An obvious solution would no doubt be to bury it at the bottom of the deepest disused mine shaft. However, it strikes me that there may yet be a way of taking advantage of what radiation there is left in the nuclear waste material.
Word has it that the best means of doing this is to dig a deep hole at an isolated uninhabited spot near the Namibian border, lay on an accessible store of water next to the waste material and voila! a source of “heavy water”.
Science fiction perhaps? I stand to be corrected on this, but to me an interesting thought nevertheless. The law of conservation of energy would still apply.