The Economic Impact of the
Proposed Demonstration Plant
for the Pebble Bed Modular Reactor Design

                                                    by

Steve Thomas
Senior Research Fellow,
Public Service International Research Unit
University of Greenwich
UK

August 2005

Contents

1.      Executive Summary 3
1.1    The Issues 3
1.2    Conclusions 4

2.      Introduction 6

3.      The legal context 7
3.1    Economic sustainability 7
3.2    Provision of information 8

4.      The PBMR project 10
4.1    The technology 10
4.2    The commercial arrangements 11
4.3    The cost of development 12

5.      The economic aspects 14

6.      Demonstration Plant costs 16
6.1    The partners 16
6.2    Licensing efforts 18
6.3    Construction cost and cost of associated facilities 19
6.4    The cost of capital 22
6.5    Maximum electrical output 24
6.6    Operating performance 25
6.7    Operations & maintenance cost 26
6.8    Decommissioning cost 26
6.9    Operating life 28
6.10  Who will pay the extra cost of power from the Demonstration Plant? 29
6.11   Analysis of risk 30
6.12   The cost of a catastrophic accident 31
6.13   The cost of waste and spent fuel disposal 31

7.      The commercial programme 32
7.1    The economic competitiveness of the PBMR 32
7.2    The likely world market for the PBMR; 33
7.3    The South African market for PBMRs 35
7.4    Benefits to the South African economy 37
7.5    Risk analysis 38

8.      Conclusions 39
8.1    The Demonstration Plant 39
8.2    The commercial plants 40
8.3    Overall conclusions 40

         References 42

1. Executive Summary

1.1 The Issues

    This report examines the economic case put forward in the Final Environmental Impact Report submitted in respect of the application by Eskom to build a Demonstration Plant at the Koeberg site in the Western Cape, using the Pebble Bed Modular Reactor (PBMR) nuclear technology being developed in South Africa. The analysis of the economic impacts is required under the terms of the National Environmental Management Act. The report focuses especially on the life cycle costs of the Demonstration Plant and any commercial successor plants. In isolation, the Demonstration Plant will inevitably be a heavily loss-making project, but it is hoped by the promoters of the project that profits from an export-led programme of commercial units will more than pay for these losses. It is therefore necessary to analyse not only at the economics of the Demonstration Plant, but also the prospects for commercial sales to assess the economic case for the Demonstration Plant.
     Section 2(3) of the National Environmental Management Act stipulates that the state should ensure that development must be socially, environmentally and economically sustainable ; while section 2(4)(i) requires that “the social, economic and environmental impacts of activities, including disadvantages and benefits must be considered, assessed and evaluated and decisions must be appropriate in the light of such consideration and assessment”.

   The main publicly available sources of information on the PBMR programme are:

•  The Final Environment Impact Report (“FEIR”) (PBMR, 2002b) prepared by the PBMR EIA Consortium for the   Applicant, Eskom;
•  The Detailed Feasibility Report or DFR (PBMR, 2002a) prepared by PBMR (Pty) Ltd; and
•  The Register of Comments and Responses on Draft EIRs (Register of Comments, 2002) published in June     2002, which contains  responses by the consultants to public comments to the Applicant, Eskom, on the draft Economic Impact Assessment “DEIR”.

    The main factors that must be considered in the economic analysis of the Demonstration Plant are:

• The partners in the PBMR venture, especially foreign companies;
• Safety licensing;
• Construction cost and cost of other new facilities required;
• The cost of capital;
• The plant’s maximum electrical output;
• Operating performance especially reliability;
• Operations & maintenance cost, including fuel supply and spent fuel disposal;
• Decommissioning cost; and
• Operating life.

    Forecasts of the economic parameters are also required to assess the prospects for the commercial programme. In addition, a world market evaluation is required. The documentation provided in the FEIR provides almost none of the information required to assess the economic sustainability of the PBMR Demonstration Plant. To consider this, it is necessary to look at the life-cycle costs of the Demonstration Plant. However, given that by its nature, a demonstration plant will not be economically viable by itself, it is necessary to look at who will bear the uneconomic costs of the plant and also what the prospects of success for commercial PBMR units are.

1.2 Conclusions

1.2.1 The Demonstration Plant

Conclusion 1: Regardless of its success or otherwise, the Demonstration Plant will leave a substantial liability that will fall on South African public funds caused by the need to decommission the plant and the associated facilities, and to pay for the disposal of the spent fuel. The FEIR and the DFR do not quantify these liabilities, providing no information on spent fuel disposal and no usable information on expected decommissioning cost. However, experience in other countries suggests that decommissioning costs could be of the same order of magnitude as construction costs.

Conclusion 2: Since details of the project were made public in 1998, costs of the Demonstration Plant have escalated by a factor of at least five. The project lead-time has slipped so that it is now apparently further away from commercial exploitation than it was in 1998 when commercial orders were forecast to take place from 2003. Now, seven years on, commercial orders are not forecast for about ten years. This shows that the developers failed to understand the scale and nature of their task. There is still considerable scope in the next phase for further cost escalation and delay due to changes to the design and construction problems. The developers’ poor record to date gives little confidence in their ability to control costs and time schedules in the next, more expensive phase.

Conclusion 3: Forecasts of other economic parameters, such as operating performance, operating cost and decommissioning cost have not been updated since 1998 and appear implausibly optimistic. It is understandable that developers of a project have an optimistic view of the project’s prospects – ‘appraisal optimism’. However, investment decisions should be taken on the basis of sober, unbiased judgements of the most likely outcomes, not the views of the project’s promoters.

Conclusion 4: PBMR (Pty) Ltd successfully diversified some of the risk away from the South African public for the feasibility phase with foreign partners, Exelon and BNFL Ltd, sharing the costs. However, the cost of this phase (about R2bn) was far more than forecast and the absolute amount paid for by the South African public was not reduced. PBMR (Pty) Ltd has spoken optimistically over the past three years about the prospects of recruiting new partners to replace Exelon and BNFL (if as seems likely it cannot participate), but nothing has come of these negotiations. Until there is solid evidence of new partners being bought in, it must be assumed that the cost of the demonstration phase will fall substantially on the South African public, through Eskom, IDC, or direct government subsidies.

1.2.2 The commercial programme

Conclusion 5. PBMR (Pty) Ltd’s analysis of the world market for PBMRs is simplistic, taking no account of any of the commercial or political factors that would apply in key export markets. A particular concern is finance for export orders. This is an important issue for developing countries, which are likely to account for a significant proportion of the forecast orders. Such countries frequently have difficulty financing large investments. The World Bank and most other International Financial Institutions do not provide finance for nuclear investments. The South African PBMR could face strong competition from other types of high temperature reactor, notably a very similar Chinese design and models offered by Areva and the US company, General Atomics. Until a rigorous market analysis has been carried out and subjected to independent scrutiny, and arrangements for helping finance export orders made explicit, PBMR (Pty) Ltd’s assumptions on the likely world market have no basis.

Conclusion 6. Pressure is mounting on Eskom to commit to buy large numbers (24) of commercial units even before the technology has been technically and economically proven. Eskom appears, rightly, to be holding to its position of only buying it if the PBMR is the cheapest option available, something that will not be known until the Demonstration plant is in service and has operated for some time. If Eskom is required to make such an advance commitment, it could be forced to purchase uneconomic plants, raising the price of power to consumers, and adversely affecting public welfare and the competitiveness of the South African economy.

Conclusion 7. The future of Eskom is uncertain. The South African government has been considering reforms to Eskom for a number of years, including its privatisation and its break-up into competing units. There can be no guarantee that in 2013 or later, when the first commercial orders for a PBMR might be placed that Eskom will exist in any recognisable form, much less one that can be obliged to order a particular type of power plant, especially if it does not represent the best commercial option.

1.2.3 Overall conclusions

Conclusion 8: The PBMR project is a highly risky venture. The feasibility phase has cost about R2bn, about two thirds of which has been paid by South African public money. Despite this expenditure, there is still ample scope for the project to fail. The next phase will require a much higher level of expenditure, at least R10bn, with more than half of this again coming from the South African public. If the project fails, there will be significant consequences for the South African public either through higher electricity prices (if Eskom is forced to bear much of the risk) or through taxation if the government has to write-off the costs.

Conclusion 9: The National Environmental Management Act (NEMA) requires developers to demonstrate that their projects are economically sustainable. The FEIR does not provide the data necessary to make such a judgement. This information strongly suggests there is a high risk that the project will not be economically sustainable. On the available evidence, the project does not meet the requirements of the NEMA and the applicants, Eskom, should not be given approval.

Conclusion 10: The current high fossil fuel prices and the measures to reduce greenhouse gas emissions seem to give a new impetus to generation technologies that do not use fossil fuels. However, it should be remembered that previous oil price spikes (1974 and 1980) were short-lived and resulted in little nuclear expansion apart from in France. Investors are unlikely to make multi-million dollar investments in new nuclear power plants on the basis of a short-term oil price spike which could have disappeared long before a nuclear plant could be brought on-line. On greenhouse gas emissions, nuclear power faces competition from renewable technologies and energy efficiency measures, options that generally do not encounter the public acceptability problems that nuclear power suffers from.
 

2. Introduction
    
    This report examines the economic case for building a Demonstration Plant at the Koeberg site in the Western Cape, using the Pebble Bed Modular Reactor (PBMR) nuclear technology being developed in South Africa. An analysis of economic impacts is required under the terms of the National Environmental Management Act. The report focuses especially on the life cycle costs of the Demonstration Plant and any commercial successor plants. In isolation, the Demonstration Plant will inevitably be a heavily loss-making project, but it is hoped by the promoters of the project that profits from an export-led programme of commercial units will more than pay for these losses. It is therefore necessary to analyse not only at the economics of the Demonstration Plant, but also the prospects for commercial sales to assess the economic case for the Demonstration Plant.
     This report covers most of the main costs involved in the operation of a nuclear power plant. This report does not cover the costs of radioactive waste disposal, disposal of spent nuclear fuel, nor does it consider the cost of a catastrophic accident, although these factors are clearly important.
    It also does not cover the cost of competing fossil fuel technologies. However, it should be noted that while the current high fossil fuel prices and the measures to reduce greenhouse gas emissions seem to give a new impetus to generation technologies that do not use fossil fuels, this may not lead to a revival in nuclear ordering. It should be remembered that previous oil price spikes (1974 and 1980) were short-lived and resulted in little nuclear expansion apart from in France. Investors are unlikely to make multi-million dollar investments in new nuclear power plants on the basis of a short-term oil price spike which could have disappeared long before a nuclear plant could be brought on-line. On greenhouse gas emissions, nuclear power faces competition from renewable technologies and energy efficiency measures, options that generally do not encounter the public acceptability problems that nuclear power suffers from.
 

3. The legal context
 
    The analysis of the economic impacts is required under the terms of the National Environmental Management Act. Section 2(3) of the Act stipulates that the state should ensure that development must be socially, environmentally and economically sustainable ; while section 2(4)(i) requires that “the social, economic and environmental impacts of activities, including disadvantages and benefits must be considered, assessed and evaluated and decisions must be appropriate in the light of such consideration and assessment”. Such decisions must moreover be taken in an open and transparent manner and access to information must be provided in accordance with the law . The assessment of environmental impacts in terms of NEMA must include the assessment of potential impact on the socio economic conditions and the assessment of the significance of that potential impact .
     Paragraph 7.4.4 of the Scoping Report for the proposed PBMR set out the issues and concerns to be studied for the purposes of the EIA under the heading ‘Economic aspects’ as follows:

• The economic potential of a local based nuclear industry for local applicatory (sic) and export, should the plant
prove its techno economic viability;
• Impact on eco-tourism in the region around Koeberg, i.e. 50km radius;
• Impact on supply side management based on the assumption that the plant is viable.

    The issue of life cycle costing was added by the DEAT after receipt of the plan of study for scoping.
The main documents backing the case for the Demonstration Plant are the Detailed Feasibility Report or DFR (PBMR, 2002a) and the Final Environment Impact Report or FEIR (PBMR, 2002b).

3.1 Economic sustainability

    The National Environmental Management Act provides no guidance on what constitutes ‘economic sustainability’. For a commercial project, that is, one that does not require (public) subsidies, economic sustainability would be relatively easy to define. It would require that the facility being built would have a high probability of being profitable. However, for a demonstration plant, the issue is more difficult to define. Clearly, the PBMR Demonstration Plant will not be an economic source of electricity on a full-cost basis, that is, including the cost of construction. It is therefore necessary to examine who will pay for the uneconomic cost of construction of the plant. 
     It may not be an economic source of power even on a marginal cost basis, that is, revenues from the sales of the electricity it produces may not even cover the running cost of the plant. It is therefore necessary to examine who will be liable for the additional uneconomic operating costs.
However, the Demonstration Plant can only be properly evaluated in the context of the commercial programme of reactor sales that it is hoped will follow from the Demonstration Plant. This is clearly acknowledged in the conclusions of the DFR (PBMR (Pty) Ltd, 2002a, p 62), which state:
     In all scenarios, the PBMR is predicted to have a non-negligible effect on the South African economy. The macro-economic impact of building the demonstration plant only is small. The key benefit to the economy will come from the commercialization and sale of the PBMR on the international market. In these more optimistic scenarios, this impact is extreme, adding thousands of jobs a year and billions of South African rands to the GDP. Moreover, a larger portion of this money is anticipated to flow to the lower income groups than the average for the manufacturing sector. The results of this study indicate that the PBMR programme can add sufficient value to South Africa to offset the risks associated with building this first-of-a-kind nuclear reactor on South African soil.
Despite this, in the Register of Comments and Responses on DEIRs, the Applicant’s consultants continually state (in 15 responses): ‘the present EIA is limited to a single demonstration module PBMR’ in response to questions about the overall programme.
     This report therefore examines both the economic impact of the full life-cycle costs of the Demonstration Plant and also the likelihood that the Demonstration Plant would lead to a successful programme of sales of commercial PBMR units.

   To evaluate the life-cycle costs of the Demonstration Plant, it is necessary to forecast:

    • Construction cost and cost of other new facilities required;
    • The cost of capital;
    • The plant’s maximum electrical output;
    • Operating performance especially reliability;
    • Operations & maintenance cost, including fuel supply and spent fuel disposal;
    • Decommissioning cost; and
    • Operating life.

    The FEIR and the DFR do not provide clear forecasts of any of these parameters.
For the commercial programme, it is necessary to evaluate the competitiveness of the PBMR against other electricity generation technologies. This would require forecasts of all the above parameters. A detailed and convincing market analysis is also required, especially for a controversial technology like nuclear power, where it may not be sufficient to provide an economically competitive product if it is not politically acceptable. Again, no serious analysis of potential markets is provided.

3.2 Provision of information

     The National Environmental Management Act states that ‘access to information must be provided in accordance with the law’. In its Demonstration Feasibility Report, PBMR (Pty) Ltd (PBMR (Pty) Ltd, 2002a, pp 48-49) pays lip service to this requirement. It states:
     Since nuclear has traditionally been associated with a cloud of secrecy, preconceived notions and inaccurate reporting, the overriding philosophy in PBMRCo’s Public Relations philosophy has been one of open and honest communication.

   This approach has been to:

• share as much non-proprietary information as possible with all stakeholders;
• provide proactive awareness using available media;
• within reasonable limits, react swiftly and professionally to enquiries from the media and other interested and  affected parties;
• follow a general approach of collaboration rather than confrontation;
• demonstrate a readiness to listen to, take note of and act upon the legitimate concerns of interested and affected parties;
• communicate the benefits of the project and deal constructively with any perceived negative issues; and
• confirm Eskom’s and PBMR’s commitment to a transparent EIA in which all interested and affected parties are encouraged to participate.

The programme is ongoing and will continue beyond the demonstration phase of the PBMR.

    The DFR, the FEIR and the more general flow of information on the programme to the South African public show the hollowness of this claim. Almost none of the economic information needed to evaluate the Demonstration Plant or the PBMR programme in general has been provided. The most recent set of data was written (for a British audience) five years ago (Nicholls, 2000). Most of the data used in this report has been gleaned from international sources, mainly Nucleonics Week, which is an authoritative trade journal, but which has a negligible circulation in South Africa. There is little evidence that PBMR (Pty) Ltd has provided: ‘proactive awareness using available media’, particularly for the South African public. This is especially reprehensible given that PBMR (Pty) Ltd and Eskom expect the South African public to be the major financial underwriter for the project

4. The PBMR project

    The Pebble Bed Modular Reactor (PBMR) is a new design of nuclear power plant developed from a German model built only as a demonstration plant in Germany, THTR 300, which was in service from 1983-89.
The main publicly available sources of information on the PBMR programme are the Detailed Feasibility Report or DFR (PBMR, 2002a) and the Final Environment Impact Report or FEIR (PBMR, 2002b). Also important is the Register of Comments and Responses on Draft EIRs (Register of Comments, 2002) published in June 2002, which contains responses to public comments on the draft Economic Impact Assessment. Note that the FEIR was substantially drafted before the withdrawal of Exelon. It contains a short section on the withdrawal of one of the partners in the project, the US utility, Exelon, but its sales projections are still based on Exelon buying the first 10 commercial units from 2006 onwards (PBMR, 2002b, p 194) even though it was by then clear that Exelon’s commitment had lapsed with its withdrawal from the project. The most comprehensive independent review of the economic prospects for the PBMR programme was published by Auf der Heyde & Thomas (Auf der Heyde & Thomas, 2002). An earlier response by the Legal Resources Centre drew partly on this paper and some, mostly inadequate answers were provided by in a Register of Comments (Register of Comments, 2002).

4.1 The technology

    The South African PBMR differs markedly from the designs of nuclear power plant that are dominant worldwide, the Pressurised Water Reactor (PWR, the type operating at the Koeberg site in the Western Cape, where Eskom expects to build the Demonstration Plant) and the Boiling Water Reactor (BWR) in five important respects:

• Coolant. The energy from a PWR or BWR is transferred from the nuclear core to the turbine (the equipment
that transforms the heat energy into electricity) using water. The turbine, similar to that used in a conventional
coal plant, is driven by steam. In a PBMR, the coolant is helium gas, which drives a gas turbine (similar to a
jet aircraft engine); 
• Moderator. The moderator, the medium that ensures the energy of the nuclear reaction is efficiently exploited,
is water in PWRs and BWRs, whereas it is solid graphite (a form of carbon) in a PBMR;
• Fuelling. In a PWR or BWR, the nuclear fuel is enriched (the proportion of the ‘fissile’ uranium isotope) from
about 0.7 per cent in naturally occurring uranium to about 3.5 per cent. The fuel is in the form of uranium oxide fuel rods and the reactor must be shut down about once a year for about a third of the old fuel rods to be replaced with fresh fuel. In a PBMR, the fuel is expected to be enriched to about 8 per cent and is in the form of ‘pebbles’ the size of a snooker ball. These are continuously fed into the top of the reactor vessel and replace ‘spent’ pebbles, which are removed from the bottom of the reactor vessel;
• Size. A typical PWR or BWR produces an output of about 1000MW (1MW is equivalent to 1 million kilowatts), whereas an individual PBMR unit is expected to produce about 110-165MW;
• Modularity. The PBMR is conceived as modular and its economics are expected to be optimal if built in a group of 8-10 units, sharing some facilities such as the control room. PWRs and BWRs are generally built as individual self-sufficient units or in pairs.

     All the major nuclear design countries have pursued high temperature gas-cooled reactor (HTGR) designs (those that use graphite as moderator and helium as coolant although not necessarily the other distinctive features of the PBMR) usually dating back to the 1950s, but none has resulted in a design that was built on a commercial basis. HTGR programmes existed in UK, France and Germany, but were abandoned, while research in Japan and USA continues only at a low level.
     The PBMR is based on a German design of plant offered by a company called HTR. This company was based on an amalgamation of work carried out by two mainly German based companies, Siemens and ABB. ABB had built a demonstration plant, THTR 300, which achieved criticality (a sustained nuclear chain reaction) in 1983, but, after a very problematic history during which it operated for the equivalent of only about 30 full-power days, it was formally closed in 1989 because of a mixture of technical and economic issues. THTR 300 was somewhat larger than the PBMR (about 300MW) and also used a conventional steam turbine rather than a gas turbine (the coolant helium passed through a secondary circuit in which the energy was transferred to water) to generate the electricity. However, the ‘pebble’ fuel design was essentially the same as that expected to be used in the PBMR.
     The PBMR has been under development in South Africa since about 1993, although it was not until 1998 that these efforts were publicised. Eskom formally took a license with HTR for pebble bed technology in 1999. The terms of this technology license have not been made public and the technology license is not discussed in the FEIR or the DFS. However, typically, a technology license would give the licensor a fee based on units sold, some rights over the new technology, and over the markets in which it could be sold.
     It was expected in 1998 that work on construction of a demonstration plant would begin in 1999 and be complete before 2003 to allow commercial orders soon after (see D R Nicholls, 2000). Eskom projected that the market would be about 30 units per year, about 20 of which would be exported. In April 2000, the South African Cabinet approved Eskom’s continuation and completion of a Detailed Feasibility Study (DFS) on the proposed PBMR. Subsequently, Eskom formed a company, PBMR (Pty) Ltd to develop and market the technology. PBMR (Pty) Ltd foresaw four phases: research and development (already then completed), feasibility study (then underway), demonstration, and commercial application.
     Since then, the timetable has slipped so that the Demonstration Plant, to be built at Koeberg, is not now expected to be in service before 2010 at the earliest.

4.2 The commercial arrangements

    The PBMR was developed within Eskom until June 2000. Then British Nuclear Fuels Limited (BNFL), a UK government owned company active in all major aspects of nuclear power from reactor sales and servicing, fuel manufacture, wasted disposal etc became the first foreign investor in the project taking a 22.5 per cent stake in the venture. They were quickly followed by the US electric utility based in Philadelphia, PECO, taking 12.5 per cent of the venture. Subsequently PECO merged with another utility, Commonwealth Edison, to become Exelon. The South African government-owned Industrial Development Corporation (IDC) took 25 per cent of the venture leaving 40 per cent with Eskom of which 10 per cent was reserved for an Economic Empowerment Entity, but this has not been taken up. The agreement left all the shares in PBMR (Pty) Ltd in the hands of Eskom Enterprises, a subsidiary of Eskom, but committed the partners to provide funding in proportion to their stakes in the business to the end of the feasibility phase. Then, the company would be reconstituted in preparation for the demonstration phase with the partners entitled to take a stake in the new company equal to their percentage contribution to the feasibility phase. The costs of development would be recovered as royalties from reactor sales. It is not clear whether partners that did not take up their shareholding in the reconstituted company would be able to recover their share of the development costs, for example, by selling their rights to a third party.
     David Nicholls, formerly PBMR project manger in Eskom, was the first Chief Executive Officer of PBMR (Pty) Ltd. He was succeeded in this post by Nic Terblanche, also previously with Eskom, when Nicholls moved back to Eskom in August 2003. In August 2004, Jaco Kriek from IDC replaced Terblanche and Alastair Ruiters of the South African Department of Trade & Industry became the Chairman.

4.3 The cost of development

     The DFR (PBMR (Pty) Ltd, 2002a, p 19) reported that costs of development to end April 2001 were R437m. with a further R80m approved in May 2001. It stated that further funding had been approved in December 2001, but the sum was not specified. In the FEIR, PBMR (Pty) Ltd (PBMR (Pty) Ltd, 2002b, p 200) said that the total amount that had been spent on the PBMR to July 2002 was R684.2m and forecast that the total amount to take the project to the end of the feasibility stage (then expected at end 2002) would be R1013m of which R461m would be provided by Eskom.
     However, in August 2003, Terblanche  stated that PBMR development had cost R1.5bn of which R550m had come from Eskom, a total of R240m from IDC and BNFL with the balance coming from Exelon. BNFL and IDC appear to have spent much less than they were required to, Exelon spent significantly more and Eskom a little less. The additional money had been spent on further design work and letting a number of design and supply contracts. Since then, expenditure has continued on a short-term basis but it is not clear who has funded it, nor what the total development costs to date are.
     Terblanche  indicated that monthly costs were ‘a lot more than’ R50m even at the reduced level of activity that had prevailed since the completion of the feasibility phase. Assuming costs were just R50m per month this would mean the development costs to the end of October 2004 were in excess of R2bn. In October 2004, the government announced support of up to R500m for the PBMR venture to pay for running costs for the company and design development costs (turbine development and construction of a helium test facility were mentioned as particular requirements).  However, while this announcement was interpreted as government backing for the demonstration phase, these costs are most appropriately categorised as part of the feasibility phase. It is not clear whether this government money was a loan or a grant or whether it represented an increase in the government’s stake in the PBMR project. It remains uncertain who will fund the demonstration phase.
     Overall, substantial sums have been spent on developing the PBMR, about two thirds of which was South African public money. However, the next phase of demonstration will take the level of spending to a far higher level, requiring at least five times as much money as has been spent so far.

5. The economic aspects

    For commercial facilities, those able to survive on the commercial income received, the issue of economic impact is relatively easily bounded. But, for the Demonstration Plant, which by its nature will not be profitable in isolation, the issues are broader and the data subject to a much greater level of uncertainty because of the technological immaturity of the plant design. To evaluate the economic impact of the PBMR Demonstration Plant it is useful to divide the analysis into the costs, risks and benefits of the Demonstration Plant and those involved with the commercial programme.
    
    The main factors that must be considered in the economic analysis of the Demonstration Plant are:

    • The partners, especially foreign companies;
    • Safety licensing;
    • Construction cost and cost of other new facilities required;
    • The cost of capital;
    • The plant’s maximum electrical output;
    • Operating performance especially reliability;
    • Operations & maintenance cost, including fuel supply and spent fuel disposal;
    • Decommissioning cost; and
    • Operating life.

    Since the Demonstration Plant will not be an economic source of power, it is necessary to estimate who will bear the losses that the Demonstration Plant will incur: taxpayers, electricity consumers or private investors? As well as estimating the value of the economic parameters it is essential to try to estimate the risks that economic performance will be worse than forecast and again, who will be liable for the costs of worse than expected performance. Of course, it is theoretically possible that performance will be better than forecast, but the history of nuclear power contains very few examples of plants that were built ahead of schedule, or with lower than forecast costs, or better than expected reliability.

The analysis for the commercial programme must be much wider ranging and include:

    • The economic competitiveness of the PBMR compared to other electricity generation technologies in different
      markets;
    • The likely world market for the PBMR;
    • The South African market for PBMRs

None of these factors can be estimated with any precision at this stage and the analysis of risk and who will bear the cost of poorer than expected performance is particularly important.
    Despite the legal requirement to demonstrate the ‘economic sustainability’ of the project, the PBMR’s FEIR (PBMR (Pty) Ltd, 2002b, pp 144-202) contains only about 60 pages out of a total of nearly 500 pages on the economic aspects. Of these 60 pages, most of them are devoted to impacts on spatial planning, tourism and supply side management, with only about 10 pages explicitly covering the PBMR. Little of the information needed to assess the costs of the Demonstration Plant and the prospects of success of the subsequent programme is provided and it is necessary to look at other sources to try to glean the necessary information.
    It is particularly regrettable that a report by an international Panel of Experts commissioned by the Department of Minerals & Energy (DME) to review the overall project has not been made public in any form. The report was expected to inform a Cabinet decision on the PBMR project. This Panel of fifteen international experts reviewed the overall case for the PBMR as presented in the Detailed Feasibility Study in 2001/02. They were given full access to all information they required and submitted a report to the DME in early 2002. The author of this paper was one of two experts assigned the task of reviewing the economic case.
    However, the Panel members were required to promise not to disclose any information they learnt through their meetings and their report has not been made public. All the information presented here is available in publicly accessible sources. Panel members were assured by the DME that Eskom and PBMR (Pty) Ltd would not have access to their report, so it would appear that the only people that have seen the report are DME officials and Cabinet Members. PBMR (Pty) Ltd and Eskom cannot therefore claim that any of their evidence in the FEIR was endorsed by the DME review panel. Note that the DEAT also established a Review Panel to review the Draft Scoping Report for the EIR. The DEAT Panel was entirely separate from the DME’s Panel, but like the DME’s Panel, its report does not appear to have been made public.
    It is difficult to know how the South African public can participate meaningfully in a decision on the PBMR if they do not have access to the most authoritative independent report on the project, that of the DME’s International Panel. This need for information is strong because South African taxpayers and electricity consumers have funded most of the development work so far, and it seems likely they will bear an even higher proportion of the much greater costs and risks of building the Demonstration Plant. If the project proves a failure in the long-term, it will be the South African public that will end up bearing much of the cost.
    There may, in some instances, be a case to withhold information contained in the Panel report or required to demonstrate the economic sustainability of the PBMR project from the public on grounds of commercial confidentiality. However, since the public is providing much of the funds the presumption should be that all information should be released and the onus should be on PBMR (Pty) Ltd to argue the case specifically where it does believe information should be withheld.