Kemm’s view lacks project costing analysis

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) 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). that